Living in New York City: Co-ops vs. Condos

In many ways, the New York City real estate market is unlike any other in the United States. One of the biggest differences between NYC and Any-Other-Town, USA, 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 – most estimates say about 75% are co-ops – more condos are on the active market at any given moment. (At the end of August, there were 526 2-bedroom co-op apartments on the market in Manhattan and 764 condos.) 

Let’s start out with a quick definition of the difference between a co-op and a condo: When you buy a condominium, your apartment and 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. 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 a more detailed comparison, see Basics and Differences of Co-ops, Condos & Condops.)

Some prospective buyers, such as one couple we spoke to, set out to buy a condo but change their minds once their search is underway. Originally this couple thought they’d like to avoid the whole co-op board review and the restrictions on renovating and subletting a two-bedroom apartment, but in the end, finances won out: “It came down to the apartment and the price. So far the board has been fine, and the building has been great – so no complaints.” 

According to a New York Times article, condos and co-ops are still different commodities but “in subtle yet tangible ways, each is taking on characteristics of the other as they compete for well-heeled buyers in an ever-more-challenging marketplace.”

Here’s a comparison of the features of condos and co-ops to help you with your buying decision.

What Type of Building and Where?

Generally speaking, the older established residential areas have a preponderance of co-ops. The newer neighborhoods, once considered outliers but now considered “hip,” are where you’ll find the condos.

As Gary Malin, president of New York real estate brokerage Citi Habitats, 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.” 

If living in a glass house in the sky is more your style, you will likely be looking at a lot of condos, according to Malin. 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,” he says, “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.”  

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 that the other two don’t. The amenities can be low-key (maybe just a storage room in the basement) or as extreme as these in one condo on the waterfront in Brooklyn: a daycare center and spa for pets (called The Wag Club) where staff watch, train and groom your dog; for two-legged residents there’s a landscaped terrace, a billiards room, a piano room, a screening room, a children’s playroom, a gym, a golf simulator and outdoor putting green.  

How Much Can You Spend?

One of the most relied-upon indicators of the co-op and condo market in NYC is The Quarterly Elliman Report. According to the second quarter 2015 report on co-op and condo sales, prices for both types of properties were moving upward. Two-bedroom co-ops showed a median price of $1.575 million; condos, just under $2 million. For 3 bedrooms the differential was even more substantial – just under $3 million for a co-op, $4.65 million for a condo. 

According to Warner M. Lewis of The Harkov Lewis Team at Halstead Property, “All new developments are condos, and their pricing is eclipsing what anyone could have imagined years ago....Foreign and domestic buyers want a safe place to put their money. New York real estate has gotten a huge boon as ‘capital preservation’ has been the key for some investors – they’ve planted money in investment apartments, which condos allow and co-ops (for the most part) do not.”  

Down payments on the two types of properties differ substantially as well. It is possible to put down just 10% of the purchase price of a condo; for a co-op you will need to put down 20% to 50%.

What About Closing Costs?

Closing costs on a condo are higher than on 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 purchaser, $4,500; title insurance for lender, $1,000; title searches, $700, recording fees, $700, New York State “mansion tax,” $10,000, NYS mortgage recording tax, $15,370. The grand total: $32,270 (without lender’s fees, which vary by lender). For a co-op, it’s just 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. ”

And 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.” 

What Will Your Monthly Charges Be?

In condos, the monthly bill is called “common charges”; in co-ops it’s “maintenance.” Both charges pay for the upkeep of the building – common areas and landscaping, payment of the staff and often some of the utilities. Co-op owners write one check a month, condo owners write two (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.  

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 can rarely be reversed.

How Much Are You Willing to Tell the Board?

Most co-op boards have a rigorous and often lengthy application process; condo boards are generally less demanding. Lewis 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.” 

Think he’s exaggerating? Take a look at these columns in BrickUnderground, a New York real-estate news site, on top reasons New Yorkers get turned down by a co-op board and curveball co-op board interview questions.

“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.” 

What Are the Rules?

Co-op boards make lots of rules. They 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 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 – it is rare for co-ops to allow shareholders to rent their apartments out for any extended period of time, if at all. Another rule of co-ops that makes purchases by internationals impossible is that they are unlikely to accept anyone whose funds are outside the U.S.

Condos do allow international investors to buy and to rent out their spaces, usually with some caveats, but none that are onerous.

“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 although many, according to the New York Times, are “imposing heftier and more numerous fees, tightening house rules and discouraging the short-term rentals that can give a building the hectic ambience of a hotel.” 

The Bottom Line

Malin sums it up best: “Generally speaking, 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 co-ops, so it’s 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 this process is what keeps a co-op a stable and remarkably secure investment.” 

Alternatively, he says, “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 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.” 

For related reading, see Manhattan Luxury Condos As Investments and Have The Right Condo Insurance?