Planning to buy an apartment? Before embarking on your quest to find the perfect unit, it’s important to know the different kinds of properties available. Arguably the most common are “co-ops” and “condos”—words often used interchangeably, but which are, in reality, far from synonymous.
So what exactly is the difference between the two? “A condominium, more popularly known as a condo, is a unit that is a part of a larger complex that is full of individual units,” says Serhant broker Ariel Mahgerefteh, who goes on to explain that even though condos are all individually owned, all the other management responsibilities fall on the condo management board.
On the other hand, a co-op, or cooperative housing, gives “all people who own shares of a property access to that community,” he continues. “It is a primary residence—but instead of the homeowners owning the rights to the property, each person that is a part of the community is a shareholder in the co-op. It is very similar to owning stock in a company.”
Not sure which one is right for you? Read on to determine which property type better suits your needs.
Co-ops are overall more affordable than condos
According to the National Association of Housing Operatives, co-ops are often priced lower than the average condo—plus, you typically get more square footage per dollar.
Condo buyers own real estate—co-op investors don’t
“When you buy a condominium, your apartment—as well as a percentage of the common areas—belong to you,” Mahgerefteh says. “But when you buy a co-op,” he clarifies, “you don't actually buy your apartment—instead, you are buying shares in a corporation that is your building.”
Co-ops usually require a higher down payment
“One of the benefits to purchasing a condo is that you do not need as much cash on hand when looking for a condo,” Mahgerefteh notes. “You pay a month-to-month fee that stays the same for the duration of your stay.” On the other hand, “I have seen coops that start at 15% down and others that want 50% down,” says Sotheby’s International Realty associate broker Celeste Pandhi, who contends that the down payment price for a condo really depends on the lender—though “most co-op communities require a minimum 20% down payment,” Mahgerefteh asserts.
Condos are easier to buy
Once you make an offer on a co-op, you’ll have to go through an interview (unless it is a sponsor unit—i.e., on the market for the first time). “Condos do not require an interview,” Pandhi says. Co-op buyers also need to pass a more rigorous financial background check. “Co-ops look more closely at your debt-to-income ratio and post-closing liquidity,” she reveals. Because of that, the time it takes to purchase a co-op is usually much longer. In addition, the tougher vetting process makes it more difficult for foreigners to buy into co-ops.
Co-ops are harder to rent out or sell
“There are stricter subletting policies and more restrictive board policies for who can purchase,” Mahgerefteh admits—so if you’re looking to purchase and move into an apartment right away (or want to be able to resell it quickly eventually), a co-op won’t be a good fit for you.
Condos have higher closing costs
“For condo and single/multi-family house transactions, the costs are mostly determined by the state taxes that apply to the property location,” says Donald Sharpe, senior loan officer at Movement Mortgage. “For example, in New York State there’s a 2% mortgage tax. The actual amount of the mortgage can affect this to some degree too—for instance, if the loan is over $2 million as opposed to $1 million.” Other costs associated with condos include the title insurance (the second highest fee), which will generally run about 2% of the mortgage amount, plus a flat lender’s fee and attorney fee. One important point: “The vast majority of closing costs are not charged by the actual lender,” Sharpe notes.
On the flip side, co-op buyers are exempt from most closing costs, but are still subject to a number of flat fees. “Those fees, regardless of price or loan amount, will add up to just under $5,000 for every transaction,” says Sharpe, adding that the rest of the fees are various filing fees not charged by the lender. That said, co-ops have incredibly low closing costs relative to other property types.
The bottom line?
“When evaluating which property type makes the most sense for them, buyers should consider condos when they do not have an excess amount of capital on hand, since there is no requirement for post-closing liquidity or maximum debt-to-income ratio,” Mahgerefteh advises. “Co-ops should be considered when buyers want more space for generally less money.”
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