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Co op vs Condo NYC

What’s the difference between a coop and a condo here in NYC? Understanding the difference between coops and condos in NYC is something every home buyer must know.

It’s almost as important as knowing that you can save money on your purchase with a broker commission rebate.

In this Hauseit article, we explain everything you need to know about the difference between condos and coops in New York City.

What’s the difference between a coop and a condo here in NYC? Understanding the difference between coops and condos in NYC is something every home buyer must know.

It’s almost as important as knowing that you can save money on your purchase with a broker commission rebate.

In this Hauseit article, we explain everything you need to know about the difference between condos and coops in New York City.

What is the difference between a condo and a co op in NYC?

1. Coop Ownership is Not a Form of Real Property Ownership

NYC home buyers who purchase a coop apartment are not in fact purchasing real property. Rather, co op owners actually purchase shares / stock in a privately held corporation which runs the co op. Owners of co ops do not have a physical deed to their unit because it is not considered real property in terms of an ownership interest. In turn, co op owners receive a Proprietary Lease for their unit in the co op building, entitling them to reside in the unit. The number of shares you own in a co op is determined by a range of factors including square footage, frontage, number of rooms in the unit, outdoor space as well as the floor of your unit.

Owners of condos, on the other hand, are considered owners of real property and have an actual deed for their unit as well as the proportional share of the building’s common areas. A condo’s form of ownership is no different than what one would expect when purchasing a traditional home or property in the rest of the country. Owning a condo is also considered a “fee simple” or “freehold” form of real property ownership.

2. There are Significantly More Coops than Condos in NYC

At present, a home buyer in NYC can expect to find inventory which is roughly 75% co op and 25% condo. Co ops historically accounted for 80-90% of NYC’s condo supply during the 1970s and 1980s rental conversion boom, however because the vast majority of new construction today is sold as a condo, the number of condos as a percentage of the available NYC housing supply has been increasing.

Keep in mind, however, that each neighborhood of NYC has a slightly different inventory breakdown between condos and co ops. The Upper East Side, West Village, Upper West Side and Gramercy Park, for example, have a larger percentage of co-ops whereas neighborhoods such as Battery Park and FiDi have a larger percentage of condo units. Most co ops in NYC are pre-war buildings. Buyers of co ops tend to prefer the older and more historic features of the buildings as well as the old-world character they exude.

Compare a co-op vs condo in NYC when you are buying an apartment in New York City

3. Condos in NYC are Much More Expensive than Coops

NYC condos carry a 10-40% premium over the cost of a comparable co op in the same neighborhood. Furthermore, NYC condos have much higher closing costs for buyers than with co ops. Buyers of a condo in NYC can expect to pay roughly 2% more in closing costs because condos require both Title Insurance and payment of the Mortgage Recording Tax. When selling, however, co op owners pay 1-2% more in closing costs than what a comparable NYC condo seller would pay.


PRO TIP: SAVE 1% ON YOUR NYC HOME PURCHASE BY REQUESTING A NYC BROKER COMMISSION REBATE

Since you are paying for the buyer’s agent commission anyway through a higher sale price, you might as well save some money by having a buyer’s agent who also shares some of the commission with you. Note that sellers usually agree to pay the full 6% commission to the listing agent even if the buyer is unrepresented!

NYC condos carry a 10-40% premium over the cost of a comparable co op in the same neighborhood. Furthermore, NYC condos have much higher closing costs for buyers than with co ops. Buyers of a condo in NYC can expect to pay roughly 2% more in closing costs because condos require both Title Insurance and payment of the Mortgage Recording Tax. When selling, however, co op owners pay 1-2% more in closing costs than what a comparable NYC condo seller would pay.


PRO TIP: SAVE 1% ON YOUR NYC HOME PURCHASE BY REQUESTING A NYC BROKER COMMISSION REBATE

Since you are paying for the buyer’s agent commission anyway through a higher sale price, you might as well save some money by having a buyer’s agent who also shares some of the commission with you. Note that sellers usually agree to pay the full 6% commission to the listing agent even if the buyer is unrepresented!

Save $20,000 or more on your purchase!

Receive a NYC Broker Commission Rebate from a highly rated buyer's agent today!

Save $20,000 or more on your purchase!

Receive a NYC Broker Commission Rebate from a highly rated buyer's agent today!

4. Closing Costs for Buyers are Much Higher for Condos than for Coops in NYC

Closing Costs for NYC Condo Buyers:

Condo buyers in NYC can expect to pay an additional 2% in closing costs when purchasing a condo over a co op. The difference for NYC home buyers results from the required purchase of Title Insurance as well as payment of the Mortgage Recording Tax if financing the condo purchase. Since co ops do not have physical titles, a purchaser of a co op avoids Title Insurance. Title insurance for an individual purchasing a NYC condo with a median sale price of $1.87 million can cost over $7,500.

And since technically ownership of a co op is not considered ownership of real property, a co op buyer can sidestep the Mortgage Recording Tax which applies only to financing for real property (condos, townhouses, traditional homes, etc.). The Mortgage Recording Tax for the purchase of a condo with NYC’s average sale price of $1.87 million can amount to over $35,000.

When 2% is multiplied by NYC’s average sale price of $1.87 million, that extra cost of choosing to buy a NYC condo instead of a co op can amount to over $36,000 of cash out of pocket at closing for the buyer. Fortunately, buyers who work with Hauseit can save up to $20,000 or more on their purchase through a buyer agent rebate!

5. Closing Costs for Coop Sellers are Much Higher than for Condos

Closing Costs for NYC Coop Sellers:

NYC home sellers can expect to pay an additional 1-2% in closing costs when selling a co op (versus a condo) due to the flip taxes imposed by the co op board on sellers within a building.

Using the NYC average sale price of $1.87 million and the standard 1.5% flip tax, this expense can increase closing costs for a NYC co op seller by over $28,000.

To learn about closing costs in even more detail, please visit us at closing costs NYC.

What are condops? Condops are either condos or co-ops. Typically they’re a co-op which owns the entire residential area of a mixed use building. The rest are separate commercial condo units.

6. Coops have a Much More Rigorous Buyer Board Application and Approval Process

NYC co ops have some of the strictest financial requirements for purchasers. Most if not all applications will require prospective buyers to complete a REBNY financial statement to prove your financial net worth, debt to income ratio and financial liquidity. Documents you may be asked to provide include tax statements, bank returns and brokerage statements. In addition, most if not all co-op boards will require a set of personal references for review. The reality is that even if you can comfortably afford the co op unit and also furnish the required documentation, there’s still a very real chance that your NYC coop board package purchase application may be rejected by the co op board. The board has the right to reject you for any reason whatsoever with the exclusion of protected categories (race, creed, color, national origin, sex, age, disability, sexual orientation, marital status, citizenship, occupation, or the existence of children), and the Board of Directors has no obligation to provide the reason for the rejection.

Condos, on the other hand, have a much less rigorous application process which only rarely results in a rejection from the board. A condo may reject a purchaser by utilizing a ‘right of first refusal’, however this would require the condo itself to purchase the unit at the same terms being proposed between the prospective buyer and seller.

Furthermore, another factor buyers must consider when choosing between a condo and co op in NYC is the ease of obtaining a mortgage. NYC co ops may force buyers to provide a significantly higher down payment of 20-50% compared to a condo which can be as low as 10%. If you are an investor, making a higher down payment will reduce your leverage and likely lower the IRR (annualized return) of your real estate investment over time.

Trick: Buy a co op sponsor unit to bypass the co op board approval process   

In NYC, it’s fairly common to find units in a co-op building which are still owned by the original sponsor who initiated the building conversion. When you purchase a co-op unit directly from a sponsor, there is generally no co op board approval process required!

Save $20,000 or more on your purchase!

Receive a NYC Broker Commission Rebate from a highly rated buyer's agent today!

Save $20,000 or more on your purchase!

Receive a NYC Broker Commission Rebate from a highly rated buyer's agent today!

7. Coops Have Higher Monthly Maintenance Charges

Monthly common charges for co ops are often significantly higher than similar monthly fees levied by condos. This is because the co op corporation must pay for the underlying building mortgage, land lease and property taxes in addition to the standard fees levied by an apartment building to operate and maintain the building (employee salaries, utilities, repairs and maintenance, etc.)

Because a portion of the monthly common charges paid to the co op board is dedicated to the building’s underlying mortgage and real estate taxes, a portion of your monthly maintenance will likely be tax deductible. For condos, the monthly maintenance is usually not tax deductible however your separate payments for property tax and mortgage interest may be deductible against your income taxes. There are also other quirks for which a condo owner may be able to deduct a portion of the common charges, such as in the case of having a home office. Please inquire with your CPA, real estate broker and real estate attorney to identify the specific tax deduction which applies to your unit and your own personal taxation situation.

On occasion, both a co op and a condo may levy temporary assessments on its residents. This is an additional temporary monthly charge which is used to fund major renovations or updates to the apartment building.


Takeaway: Keep in mind that while on the surface, the lower common charges for condos relative to co-ops may be attractive, the owner of a condo is still liable for property taxes which are billed to each unit directly from New York City. When you combine the condo’s lower monthly maintenance fees with the real estate taxes, the overall monthly expense gap between condos and co ops does narrow but co ops generally remain more expensive.

The percent of a co-op apartment owner’s maintenance that is tax deductible will be provided by their co-op corporation in the 1098 form which is mailed to shareholders by January 31st of each year. This tax form will give shareholders precise numbers on what portion of the building’s property taxes and interest they’ve contributed.

8. Coops have Stricter House Rules than Condos

As a general rule, NYC co-ops impose the strictest rules on its residents ranging from severely limited sublet policies to noise regulation, pet policy and limitations on unit renovations and improvements. A typical NYC coop sublet policy is designed to encourage owner-occupancy, and therefore the policies can be quite restrictive and even cap the number of years that shareholder is permitted to sublet his/her unit. Many co ops often restrict the rental of a unit to a maximum of one or two years out of every five years of ownership.

Structurally, co-ops are managed by a Board of Directors which is elected by the shareholders of the corporation (unit owners). The Board of Directors are given the autonomy to enforce the co-op’s House Rules, vet potential buyers and work with the management company to maintain the co op building. A co-op’s Board of Directors has the ability to force a unit owner to sell his or her unit if the board deems that a material violation of the House Rules have taken place.

The co-operative style of living originated with the Government Workers Union in the tenements of the Lower East Side. Co-ops were thought up by unions looking to subsidize their members’ living expenses. The board approval process was originally intended to vet workers on their standing with the union. The flip tax was rationalized because the unions figured that since they were subsidizing their workers on their purchase, the workers should profit share when they sell.

Should I buy a coop or condo in NYC?

If you are considering purchasing a property in NYC, the decision of whether you should buy a co op or condo in NYC is a tough one. Depending on whether you are an investor, potential long term owner, or looking for flexibility and/or safety, you can approach your decision using the following framework:

Condo vs. Coop NYC: Which is Best For Investors?

Answer: Condo

NYC condos are generally superior to co-ops as an investment property for the following reasons:

  • Easier to sell due to straightforward board approval process

  • Lower down payments and higher mortgage loan to value ratios are permitted

  • Ability to attract all-cash foreign buyers who wish to rent the unit

  • Ability to rent the unit more freely than for the case of a co op

NYC condos do have disadvantages to investor versus comparable co ops:

  • Condos are 10-40% more expensive upfront, meaning that an investor must be prepared to pay top dollar for a condo.

  • Condos are hard to find, as they account for only 25% of available supply in NYC

  • Condos generally have closing costs which are roughly 2% higher than for co ops because buyers must pay for Title Insurance as well as the Mortgage Recording Tax.

Can you purchase a co-op apartment using a LLC? It is indeed possible for entities to purchase co-op units after the 1986 tax reforms. It is also possible for you to have custom ownership percentages for a co-op apartment (i.e. 65% to Paul, 35% to Mary). If you purchase outright in your legal names without stating specific percentages, the ownership will be automatically split equally among the buyers.

Condo vs. Coop NYC: Which is Best For Long Term Owners?

Answer: Co-op

For long term owners and buyers who do not anticipate having to move in the medium term, a co op may be the best choice for the following reasons:

  • Very few renters / sublets

  • Strong sense of community and strict rules on behavior

  • Rigorous buyer approval process ensures financially sound and respectable residents

However, the downsides to buying a co op remain:

  • Hard to rent out if you plan on temporarily relocating

  • Harder to sell due to co op flip tax (1-2% of sale price), strict board application process, and higher down payment requirements for buyers

How are co-op shares allocated between apartments? Until the introduction of the Martin Act, there were no rules around share allocation between apartments and developers would often retain the penthouse apartment for themselves with a smaller number of shares than fair. Because maintenance dues are allocated based on the number of shares owned, developers used to pay less in maintenance for their penthouse apartments than other shareholders living in smaller apartments on lower floors! These shenanigans were put to an end with the Martin Act which stipulated that share allocations must be fair and based on value metrics such as square footage or which floor the apartment is on.

Is a condo or co-op more affordable for NYC home buyers?

Answer: Co op

Given the lower price of a co op relative to a condo as well as a co op’s reduced closing costs for buyers, more often than not co ops are more affordable than condos. However, potential buyers must also keep in mind that the monthly maintenance costs of owning a co op are significantly higher. It’s also harder to sell a co op due to the higher seller closing costs (resulting from flip taxes charged by co op boards), higher down payment requirements as well as the co op board’s ability to reject your buyer who may be financially sound.

Watch out for high operating costs in the financial statements of buildings with 30 to 50 units. These buildings may have the high operating costs of a larger 200+ unit building such as multiple doormen without a sufficient number of owners to cover the costs.

Condo vs. Coop NYC: Which offers buyers the Most Flexibility?

Answer: Condo

If you want to have the flexibility to rent your apartment out in the future, sell your apartment without undue hindrance, make major renovations or simply not wish to participate in such a ‘strong’ and potentially intrusive community generally associated with a NYC co-op, buying a traditional condo is your best bet. Furthermore, owners of condo units generally have more liberty and flexibility to improve their unit with renovations and improvements without being subject to the onerous approval process of a co op board.

Which property type (condo or co op) is least risky for the buyer?

Answer: Co op

Co op purchases are generally viewed as less risky investments than condos for the following reasons:

  • Higher down payment requirement

  • Greater percentage of owner-occupied units and very few sublets

  • Strict co-op buyer approval process

However, each building is unique and therefore it’s important you investigate the specific merits of the condo or co op building in question before making a determination as to the risk of an investment in the context of your personal situation.

Can a proprietary lease expire? Technically yes, but it would not be in the interests of the co-op corporation to do so as it would set a terrible precedent for the building and hurt any future re-sales. When there’s roughly 30 years left on a co-op building’s proprietary leases, the co-op board will renew them all simultaneously to make sure buyers are able to get financing on their purchases. Even though there is little risk of a co-op board not renewing a proprietary lease, a bank will typically not want to take that risk if the tenor of their 30 year mortgage is longer than the remaining term of the proprietary lease.

A co-op board can’t simply date the proprietary lease hundreds or thousands of years into the future because that kind of tenor will incur city and state transfer tax as it’ll be viewed as a transfer of property vs a lease. Lastly, every shareholder will have the same proprietary lease. Newer shareholders may have some revisions to their proprietary lease but the latest version applies to every shareholder.

Please note: this article is not intended to serve as legal or tax advice.  You should consult your lawyer and tax attorney for all aspects of your real estate transaction.

Save $20,000 or more on your purchase!

Receive a NYC Broker Commission Rebate from a highly rated buyer's agent today!