Co-ops vs. Condos: An Overview
Condos and co-ops share similarities but also have unique characteristics that offer a variety of options for residents. In many ways, the New York City real estate market is unlike any other in the United States. One of the biggest differences is that apartments for sale in NYC are either condos or co-ops.
In most places, condos are the rule, but not in the Big Apple. Although co-ops outnumber condos in NYC—by about 75% per most estimates—more condos are on the active market at any given moment.
Let’s start with a brief examination of the difference between a co-op and a condo. When you buy a condominium, your apartment, as well as a percentage of the common areas, belong to you. When you buy a co-op, you don’t actually buy your apartment; instead, you are buying shares in a corporation that is your building. The size of your share depends on the size of your apartment; buying the shares allows you to occupy a unit in the co-op building. At the closing for a condo, you’ll be given a deed; at the closing for a co-op, you’ll get a proprietary lease.
For the most part, both condos and co-ops have a doorman and a superintendent on staff; some will add a concierge who will do everything the other two don’t. The amenities can be low-key (maybe just a storage room in the basement) or all-encompassing, such as a landscaped terrace, a billiards room, a piano room, a screening room, a children’s playroom, and a gym.
- When you buy a condominium, your apartment, as well as a percentage of the common areas, belong to you.
- When you buy a coop, you don't actually buy your apartment; instead, you are buying shares in a corporation that is your building.
- Condo prices are higher than co-ops, but co-ops require a larger downpayment, higher monthly fees, and a lengthy approval process.
- Condos generally allow subletting of the apartment, while only some co-ops allow subletting, and the rules are complex.
The newer neighborhoods, once considered outliers but now considered hip, are where you’ll find the condos. According to Gary Malin, president of Citi Habitats, a New York real estate brokerage, "If living in a glass house in the sky is more your style, you will likely be looking at a lot of condos. Condo buildings didn’t become common in New York City until the 1970s, so they are often more modern than co-ops."
“Since available land for new condo buildings is limited in Manhattan,” Malin adds, “the newest condominiums are likely to be found in up-and-coming and fringe neighborhoods on the far East and West Sides. In Queens and Brooklyn, we have seen a lot of new-construction condos being built in former industrial areas along the waterfront in Long Island City and Williamsburg, as well as in Downtown Brooklyn.”
Down Payment and Price
The cost can often drive the decision process for purchasing real estate, and condos offer attractive down payments, whereby, usually, only 10% of the purchase price is required. However, condos tend to have higher prices than co-ops.
Closing costs on a condo are higher than for a co-op. For details, we asked New York real estate attorney Adam Stone to compare the two. Here’s what he came up with. For a $1 million condo with an $800,000 mortgage, closing costs would be:
- Title insurance for the purchaser, $4,500
- Title insurance for the lender, $1,000
- Title searches, $700
- Recording fees, $700
- New York State mansion tax, $10,000
- New York State mortgage recording tax, $15,370
- Grand total: $32,270 (without lender’s fees, which vary by lender)
For anyone wondering what the mansion tax is, Stone explains: “New York State has a transfer tax of 0.4% of the sales price, which is charged to the seller of any residential property. It also has a 1% purchaser’s transfer tax, also referred to as the 'mansion tax' because it only applies to residential properties priced at $1 million or more.”
Condo owners have a monthly bill called "common charges," which are used for the upkeep of the building—common areas, landscaping, payment of the staff, and often some of the utilities.
Condo owners write two checks each month (one for building upkeep, and one for property taxes) but often the condo owner’s combined total is lower than the co-op owner’s maintenance bill.
Condo boards tend to be less demanding than co-op boards. Co-ops have a more lengthy approval process, including an interview. The board of directors decides if a prospective buyer can purchase the co-op.
According to Warner M. Lewis of The Harkov Lewis Team at Halstead Property, “With a condo, a building can request a package on the buyer,” says Lewis, “but there is no interview, and the building only has the right of first refusal (i.e., either they have to approve it, or the condo has to buy it themselves), which means when you have a signed contract unless something happens to the buyer (or the financing) the deal is as good as done.”
Condos tend to have fewer rules, including restrictions on the use of foreign funds for the purchase. Condos allow international investors to buy and rent out their spaces; usually with some caveats, but none that are onerous. Condos also allow the apartment to be sublet or leased out to another party relatively easily, compared to the subletting process for co-ops. However, some condo associations may impose more rules than others. As a result, it's important that prospective buyers do their research to determine what is and what isn't allowed.
The Buyer's Preference
According to Gary Malin, president of Citi Habitats, “If you would rather march to the beat of your own drummer—and you value flexibility—then a condo may be the wise choice for you. However, understand that this freedom comes at a price. Condos are nearly always more expensive than equivalent co-ops. In addition, if seeing new faces in the elevator on a regular basis is an issue for you—look elsewhere. Renters can be common in condo buildings. Owners do often take advantage of a condo’s more liberal policies.”
Generally speaking, the older, established residential areas have a preponderance of co-ops. As Gary Malin explains: “If you like historic properties, you are likely to end up in a co-op, as nearly all prewar buildings are organized in this way. Also, because co-op buildings tend to be older than condo developments, they are often located in more central locations. For example, nearly all the residential buildings that line Park Avenue on the Upper East Side (a prime location by any measure) are co-ops.”
Down Payment and Price
As with a condo, the decision might come down to how much you can spend and have saved for a down payment. Although it's possible to put down just 10% of the purchase price of a condo, a co-op may require a much higher down payment—in the neighborhood of 20% to 50% of the purchase price. The good news is that the purchase price of a co-op tends to be smaller than condos. Although, prices can vary depending on the neighborhood involved.
According to New York real estate attorney Adam Stone, a co-op has lower closing costs. In the example cited above for a condo, which had over $32,000 in costs, a co-op just has the $10,000 mansion tax. The substantial difference is due to the fact that the condo is real property, while the co-op shares are personal property.
“It may just be semantics to some, but not when calculating closing costs," Stone adds.
Co-op owners write one check a month called "maintenance" charges. Similar to condos, the monthly fee goes to basic upkeep of the property and staff needed to keep the building running properly. Co-op fees tend to be higher than condo fees since the fee often includes at least part of the mortgage for the building. Although monthly fees can vary depending on the size of the building.
However, it's important to note that maintenance and common charges are not set in stone. Any major expense—a new roof, a new lobby, more staff members—may trigger an assessment, which is something that board members decide on, and something that can rarely be reversed.
As stated earlier, most co-op boards have a rigorous and often lengthy application process that can require the buyer to hand over financial information, submit to employment verification, and possibly a personal background check.
Warner M. Lewis of The Harkov Lewis Team at Halstead Property sums it up: “In a co-op, not only do you have to have the money to buy the apartment (or financing to do so), you also have to be approved by the board after submitting an application, which is usually very detailed and time-consuming. Then, with little to no reason, a buyer can be rejected after their interview, or even before, just because of something in their package. I have had deals and seen deals where there is zero rhyme or reason for rejections.”
Co-op boards tend to have more rules than condos and may mandate when you can practice your trombone, whether you can put holiday decorations on your door, and whether your pet can move in with you. Most rules are meant to promote harmony, calm, and the civility of co-operative living.
But the rules that discourage some domestic buyers, and just about all international buyers, are co-op restrictions on subletting. Policies vary by building, but generally, when co-ops allow shareholders to sublet their apartments, it is on a limited basis, such as for one or two years out of every five. Owners typically must have resided in the property for a certain period of time before subletting—in some cases as many as three years. Owners typically pay a fee to be allowed to sublet, and potentially subletters must fill out an application and may be subject to a background check. Board approval is a must.
Another rule of co-ops that makes purchases by international individuals impossible is that they are unlikely to accept anyone whose funds are outside the U.S.
According to Lewis, “Co-ops are all about establishing a stable, in-for-the-long-run group of residents. Condos don’t seem quite as concerned about that."
The Buyer's Preference
When it comes to choosing your preference, Gary Malin puts it the following way:
Co-ops are a smart choice for those who value stability and want to plant roots in a building. Simply ask yourself, "Am in it for the long haul?" Co-ops are much less transient than condos, so they're a great place to live if you want to get to know your neighbors. Just be prepared to be analyzed, poked, and prodded, but understand that this process is what keeps a co-op a stable and remarkably secure investment.