Which Should I Buy: A Condo Or Co-op?
If you purchase a co-op, you technically do not own your apartment from a legal standpoint. Rather, the entire building is owned by a single corporation, which you will purchase shares in. In most cases, the larger and more expensive the apartment you are purchasing, the more shares you will receive. You will then sign a lease, which gives you the right to occupy a single unit in the building. Purchasing a condo bears a much greater similarity to purchasing a house, in that you legally own your apartment and will receive a deed to it and an equal share of interest in the building’s common areas.
THE APPROVAL PROCESS
While both condos and co-ops elect a board of directors to make important decisions regarding the maintenance and upkeep of the building, the co-op board wields MUCH greater power. In a co-op, the board can come up with rules regarding how you renovate your apartment, pet policies, and much more. In extreme cases, the co-op board can even evict a shareholder that it deems disruptive. When buying a co-op, you must go before the board and submit to a potentially arduous approval process. The board will go over your finances and credit, and review your debt-to-income ratio(click-thru to debt to income page), which they usually expect to be between 25% and 30%. The process involves a great deal of paperwork, which may often require the assistance of an attorney to prepare. The board can reject you for any reason (except for reasons of race, religion, disability, etc. which are protected by law). However, the board does not have to specify the reason why they reject your application. There is always the risk that you will spend significant time and energy going through the approval process, only to be rejected. Looking to sublet your apartment? Co-op boards usually have much stricter subletting policies, making condos a better choice for those looking to purchase an investment property.
COST TO PURCHASE
The purchase price of co-ops are usually much less expensive than condos, and you can receive more bang for your buck, so to speak, when it comes to square footage. Purchasing a condo can also mean higher closing costs, since you will be required to pay a mortgage tax if you choose to finance your new home, and purchase title insurance, neither of which are required when purchasing a co-op. Speaking of mortgages, condos may offer more flexible options if you do not have a large amount of cash for a down payment. Some co-op boards require a higher down payment than condo buildings, in addition to a year or two worth of mortgage and maintenance charges left over in your checking or saving account after the down payment. This is called a liquid assets requirement or Reserves(CLICK THRU TO QUALIFICATION PAGE) and the exact amount varies from building to building.
AMENITIES & LOCATION
Many of the newer developments in NYC are condos rather than co-ops. These buildings usually include many luxury amenities such as fitness centers, spas, pools, concierge services, etc. and have an overall newer, trendier feel. However, most of the classic, “Old New York” pre-war buildings have been converted to co-ops during the 1980s. These buildings often have larger apartments with more ornate décor such as crown moldings, fireplaces etc. Of course, this is all a matter of personal preference. However, location may also play a factor as well. For example, many of the buildings in the Battery Park and in the Financial District are condos, while many of the buildings located around Central Park, on the Upper East Side, and in Gramercy Park are co-ops.
Both condos and co-ops have monthly charges (respectively referred to as common charges and maintenance fees) which you will be required to pay toward the operation and maintenance of the building’s common areas. These vary and things like the size of the building, number of amenities, etc. will affect the amount that you will end up paying. Both condos and co-ops can also charge assessment fees for building renovation projects, such as the installation of a new elevator. The main difference between a condo’s common charges and a co-op’s maintenance fees is that the maintenance fees for co-ops include charges for a percentage of the building’s property tax, calculated according to the number of shares you own. If you own a condo, you are responsible for paying your unit’s property taxes directly to the government.