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Co op vs Condo NYC

Curious about the difference between condo and co-op apartments in NYC? Condos and co-ops have a number of differences which you should familiarize yourself with as a home buyer in NYC.

Co-ops in NYC are typically less expensive and have lower buyer closing costs, however co-ops have a rigorous board application process and subletting restrictions.

The largest difference comes in the form of the ownership structure: buying a condo means that you are buying real property and have a title, while buying a co-op means that you are purchasing shares in a corporation that owns the co-op building.

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Co-ops Are Not Real Property

Buying a co-op apartment means you are purchasing shares in the corporation that owns the co-op building. Along with shares, you receive a proprietary lease which entitles you to occupy your specific apartment within the co-op.

The number of shares you own in a NYC 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. There is no correlation between the number of shares owners may have in different buildings, as each co-op corporation apportions shares differently.

Co-ops Do Not Have Titles

A condo is a more traditional form of ‘real property’ ownership in that a unit owner has a physical deed to the apartment. The ownership structure of a condo is similar to that for a house or land. Owning a condo is also considered a “fee simple” or “freehold” form of real property ownership.

The contrasting ownership structures of condos and co-op apartments do not affect what it means to own an apartment. Whether you buy a condo or co-op apartment in NYC, you are entitled to live in the apartment until you sell your apartment.

Pro Tip: Owning shares (co-op) vs. real property (condo) has implications for how large your buyer closing costs are in NYC. Co-ops have lower buyer closing costs than condos in NYC because the mortgage recording tax and title insurance don’t apply to co-ops since they are not ‘real property.’

Reduce Your Closing Costs by Requesting a Hauseit Buyer Rebate

Requesting a Hauseit Buyer Rebate is a legal and non-taxable way to discreetly save money on your purchase and reduce your buyer closing costs in NYC. Because our partner brokers don’t openly discount, you can be assured that requesting a rebate won’t risk your deal.

There Are More Co-ops than Condos

There are significantly more co-ops than condos in NYC. The greater supply of co-ops vs. condos is one of the main reasons why co-ops are less expensive than condos. As of 2018, available apartment inventory in NYC 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. Due to the influx of new condo construction in recent years, the number of condos as a percentage of the available NYC housing supply has been increasing.

Each neighborhood in New York City 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 compared to the mostly generic, glass facades of new construction.

Reduce Your Closing Costs by Requesting a Hauseit Buyer Rebate

Requesting a Hauseit Buyer Rebate is a legal and non-taxable way to discreetly save money on your purchase and reduce your buyer closing costs in NYC. Because our partner brokers don’t openly discount, you can be assured that requesting a rebate won’t risk your deal.

Condos are More Expensive Than Co-ops

Condos in NYC are 10-40% more expensive than comparable co-op apartments. Condos are more expensive because there are fewer condos than co-ops (meaning less supply) and condos are investor friendly (meaning more demand).

Furthermore, buyer closing costs for condos are approximately 2.5% higher than for comparable co-op apartments. Buyer closing costs are higher for condos because of Title Insurance and the Mortgage Recording Tax. These two closing costs only apply to ‘real property’ which means that they only apply to condos and houses (not coops).

Seller closing costs for condos are 1-2% lower for co-ops. This is because most co-op buildings charge sellers an additional closing cost called a flip tax.

Save Money When Buying by Requesting a Hauseit Buyer Rebate

Requesting a Hauseit Buyer Rebate is a legal and non-taxable way to discreetly save money on your purchase and reduce your buyer closing costs in NYC. Because our partner brokers don’t openly discount, you can be assured that requesting a rebate won’t risk your deal.

Buyer Closing Costs are Higher for Condos

Buyer closing costs for condos in NYC are at least 2.5% to 3% higher than for comparable co-op apartments. Because condos are considered ‘real property’ (unlike co-ops), condos are responsible for the Mortgage Recording Tax (if financing) and Title Insurance. If you are financing a co-op apartment purchase, you will avoid the Mortgage Recording Tax because co-ops are not real property and the tax only applies to real property.

Condos Require Title Insurance

Mortgage lenders will require that you purchase Title Insurance if you are buying a condo apartment. The average cost of Title Insurance in NYC as of 2018 is 0.4% to 0.5% of the purchase price. For a $1m apartment, that would mean your Title Insurance closing-cost bill is approximately $5,000.

Title Insurance is not required for co-ops since they do not have physical titles. If you are buying a co-op apartment, your attorney may conduct a lien search instead. The combined cost of Title Insurance and the Mortgage Recording Tax for a $1m condo (with 80% financing) amounts to approximately $20,000 in extra closing costs compared to what you’d have to pay when buying a co-op apartment.

Confused about closing costs for co-ops vs. condos? Compare closing costs for co-ops and condos in NYC here.

Reduce Your Closing Costs by Requesting a Hauseit Buyer Rebate

Requesting a Hauseit Buyer Rebate is a legal and non-taxable way to discreetly save money on your purchase and reduce your buyer closing costs in NYC. Because our partner brokers don’t openly discount, you can be assured that requesting a rebate won’t risk your deal.

Seller Closing Costs are Higher for Co-ops

NYC home sellers can expect to pay an additional 1% to 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. A seller flip tax of 2% on $1m co-op apartment in NYC amounts to $20,000 in extra closing costs compared to what you’d pay as a condo seller in NYC.

Whether you are selling a condo, co-op or brownstone in NYC, you can easily reduce or eliminate the largest seller closing cost in NYC: The average 6% broker commission.

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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.

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Co-ops Have Subletting Restrictions

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.

The most common co-op sublet policy in NYC permits submitting 2 out of every 5 years after you’ve resided in the apartment for an initial occupancy period of 1-2 years. In more extreme cases, a co-op may restrict the maximum amount of subletting during the lifetime of ownership to 1-3 years.

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 co-op 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.

Save Money When Buying by Requesting a Hauseit Buyer Rebate

Requesting a Hauseit Buyer Rebate is a legal and non-taxable way to discreetly save money on your purchase and reduce your buyer closing costs in NYC. Because our partner brokers don’t openly discount, you can be assured that requesting a rebate won’t risk your deal.

Co-ops Have a Board Application Process

NYC co-ops have strict financial requirements for purchasers in addition to a grueling board application process. A typical co-op board application will require submission of a completed REBNY Financial Statement, supporting bank and statements, tax returns as well as reference letters. The goal of the co-op board application is to ascertain your financial net worth, debt to income ratio, financial liquidity and demonstrate your willingness and ability to support the co-op financially and contribute to its community.

25% and 2 Years

A typical Manhattan co-op requires applicants to have a debt-to-income ratio of no more than 25% as well as post-closing liquidity of at least 2 years. D/I ratio is the percentage of your income which goes towards your monthly co-op maintenance and mortgage payment. Post-closing liquidity is how much in liquid assets you have after closing on the apartment.

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.

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.

Because of the more onerous board approval process with co-ops, it typically takes longer to close on a co-op apartment compared to a condo in NYC. The average closing timeline for a financed co-op deal is two to three months from the time a fully executed contract is in place.

Pro Tip: You can bypass the co-op board approval process by purchasing a sponsor apartment. 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 coop board approval process required!

Save Money When Buying by Requesting a Hauseit Buyer Rebate

Requesting a Hauseit Buyer Rebate is a legal and non-taxable way to discreetly save money on your purchase and reduce your buyer closing costs in NYC. Because our partner brokers don’t openly discount, you can be assured that requesting a rebate won’t risk your deal.

Coops Have Higher Monthly 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.

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.

Home Office Deduction

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.

Co-op vs. condo is one of the most important topics in NYC real estate. Read Hauseit's comprehensive comparison between coop and condo apartments in NYC. Condo vs. co-op topics covered include comparisons on price, closing costs, sublet policy, board application procedure, buyer financial requirements and other considerations of ownership.

While 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 a condo’s common charges with its 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.

Reduce Your Closing Costs by Requesting a Hauseit Buyer Rebate

Requesting a Hauseit Buyer Rebate is a legal and non-taxable way to discreetly save money on your purchase and reduce your buyer closing costs in NYC. Because our partner brokers don’t openly discount, you can be assured that requesting a rebate won’t risk your deal.

Condo vs. Co-op NYC - FAQ

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 $20K or More by Requesting a Hauseit Buyer Rebate

Requesting a Hauseit Buyer Rebate is a legal and non-taxable way to discreetly save money on your purchase and reduce your buyer closing costs in NYC. Because our partner brokers don’t openly discount, you can be assured that requesting a rebate won’t risk your deal.

Disclosure: Hauseit and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. The services marketed on Hauseit.com are provided by licensed real estate brokers and other third party professional service providers. Hauseit LLC is not a licensed real estate broker nor a member of any multiple listing service (MLS).
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