Co-op vs. Condo in NYC: A Detailed Comparison
Key differences between co-op and condo apartments in NYC include the purchase price, buyer and seller closing costs, subletting restrictions, down payment and buyer financial requirements, the board approval process as well as the underlying structure of individual apartment ownership.
Click on a topic below to learn more or watch this short video about the main differences between condo vs co-ops in NYC.
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A condo in NYC can be up to 40% more expensive than a comparable co-op, as there is less supply of condos and the vast majority of apartment inventory in the city is comprised of co-ops. Furthermore, condos have additional demand from investor buyers who may not be able to purchase a co-op since most co-op buildings have subletting restrictions.
In addition to being less expensive, co-ops have lower buyer closing costs compared to condos. Typical buyer closing costs on a $1m co-op in NYC for a financed buyer are less than 2% compared to 4% or more for a comparably priced condo. However, when selling the reverse is true: co-ops generally have higher seller closing costs. This is because most co-ops charge sellers an additional closing cost called a flip tax.
Unlike condos, most co-op buildings in NYC have significant restrictions when it comes to an owner’s ability to sublet her or his apartment. The majority of co-ops require an initial occupancy period of 1 to 3 years before any subletting is permitted. Some buildings will permit subletting for 2 out of every 5 years (or 3 out of every 6 years) thereafter. Stricter co-ops may only permit 1 or 2 years of subletting during the lifetime of ownership.
Down Payment Requirements
The vast majority of co-op buildings in NYC require a minimum down payment of 20%. In some cases, a co-op’s down payment requirement can be up to 50% of the purchase price.
Condo buildings in NYC usually require just 10% down. The larger down payment required for co-ops can actually make them less affordable the condos, even though co-op apartments are usually less expensive.
Buyer Financial Requirements
Most co-op buildings in NYC require buyers to have a Debt-to-Income (DTI) Ratio below 30%. For stricter co-op buildings in Manhattan, the DTI requirement can be 25% or less. More flexible co-op buildings may permit a DTI up to 35%, however these buildings are harder to find and usually more prevalent in Brooklyn and Queens vs. Manhattan.
In addition to the DTI requirement, most co-ops also have a Post-Closing Liquidity Requirement for buyers. A typical co-op building in NYC requires buyers to have between one (1) to two (2) years of combined monthly mortgage and co-op maintenance payments in liquid assets after closing. The specific formula for calculating Post-Closing Liquidity varies by co-op.
Board Approval Process
Buyers of co-op apartments are subject to the co-op board approval process which requires the submission of a lengthy application as well as an interview. The co-op’s Board of Managers has complete discretion on whether to approve or reject the buyer, and and co-ops in NYC are not required to disclose the reason for any rejection.
Buyers of condos in NYC are not subject to this same discretionary approval process, although most condo buildings still require the submission of a condo board package. A condo’s Board of Managers can only reject a prospective purchaser if the condo exercises its right of first refusal to purchase the unit on behalf of the condo association.
A key difference between coop and condo ownership is the fact that co-op apartments are not considered to be ‘real property’ in the same way as houses, condos and land. A buyer of an individual co-op unit receives shares of a private corporation which owns the co-op. The purchaser also receives a proprietary lease which allows them to occupy the specific apartment they purchased.
Condos, on the other hand, are considered to be real property. An individual condo owner receives a deed, just like owners of houses, townhomes and land. On a practical level, there is no difference between owning a condo vs. co-op as it relates to your right to indefinitely own and occupy the apartment you purchase.
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.
A condo is a more traditional form of ‘real property’ ownership in that a unit owner receives 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.
On a practical level, the technicalities of the ownership structure of condos vs. co-ops have no impact on your ability to indefinitely own and occupy the apartment you purchase (regardless of whether it’s a condo or a co-op). It’s just as easy to obtain a mortgage for a co-op as it is for a condo.
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 2020, the apartment housing stock in NYC is roughly 70% co-op and 30% condo.
Co-ops historically accounted for 80% to 90% of NYC’s new apartment supply during the 1970s and 1980s rental conversion boom. However, the percentage of condos has been increasing due to the influx of new condo construction in recent years.
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 condominiums.
Condos in NYC are 10% to 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% higher than for co-ops. 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% to 2% lower for co-ops. This is because most co-op buildings charge sellers an additional closing cost called a flip tax.
Buyer closing costs for condos in NYC are 2% to 3% higher than for comparable co-op apartments. Co-op buyers have fewer buyer closing costs because co-op units are not considered to be ‘real property.’ Because condos are considered ‘real property’, condos are responsible for the Mortgage Recording Tax (if financing) and Title Insurance. Assuming you’re financing your purchase, this means that buyer closing costs for a co-op will be significantly lower vs. a condo.
Mortgage lenders require that condo buyers purchase a Title Insurance policy. The average cost of Title Insurance in NYC as of 2019 is 0.4% to 0.5% of the purchase price.
For a $1m apartment, that would equate to a Title Insurance closing cost bill of approximately $4,000 to $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.
Seller closing costs in NYC are 1% to 2% higher for co-ops compared to condos. This is because most co-op buildings charge sellers an additional closing cost called a Flip Tax.
The specific Flip Tax formula and amount vary by co-op. Depending on the building, a Flip Tax may be calculated as a percentage of the sale price, a percentage of sale profits, a per-share amount or a flat fee.
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. Many co-op buildings in NYC also prohibit the use of apartments as pied-a-terres.
A typical NYC coop sublet policy is designed to encourage owner-occupancy. Sublet policies for many co-op buildings in NYC can be quite restrictive and even cap the number of years that a shareholder is permitted to sublet her or his unit during the lifetime of ownership.
The most common co-op sublet policy in NYC permits submitting 2 out of every 5 years after the purchaser has resided in the apartment for an initial occupancy period of 1 to 2 years. In more extreme cases, a co-op may restrict the maximum amount of subletting during the lifetime of ownership to 1 to 3 years.
NYC co-ops have strict financial requirements for purchasers in addition to a grueling board application process. A typical co-op board application requires the 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 evaluate a buyer’s net worth, debt to income ratio, financial liquidity and demonstrate an applicant’s willingness to contribute to its community and follow the rules.
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.
There are more flexible co-ops in Manhattan, but it’s more common to see looser buyer financial requirements in Brooklyn and Queens.
The Debt-to-Income Ratio (DTI) is the percentage of a buyer’s income which goes towards the monthly co-op maintenance and mortgage payments in addition to fixed monthly payments on any other debt (such as car and student loans). Post-closing liquidity is how much in liquid assets a buyer has after closing on the apartment and factoring in the down payment and buyer closing costs.
Keep in mind that it’s still possible for a co-op to reject a buyer even if she or he meets all of the Board’s financial requirements. Furthermore, a co-op building in NYC has no obligation to provide the reason for any board 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 only reject a purchaser by utilizing its right of first refusal, however this requires 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. Most co-ops in NYC require a minimum of 20% down, and in some cases a building may require up to 50% down. It usually possible to put down just 10% on a condo in NYC.
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.
Should I Buy a Coop or Condo in NYC?
There are a number of factors to consider when choosing between a co-op and condo in NYC. Co-ops are generally less expensive which means you can buy a larger home if you opt for a co-op instead of a condo. Although co-ops are cheaper, they may be more difficult to afford as a result of their higher down payment rules and stricter buyer financial requirements.
Buying a condo is more advisable if you’re an investor or if you intend on renting out your apartment after a few years. A co-op generally works well if you intend on living in NYC indefinitely and using the property as a primary residence.
Condo vs. Coop NYC: Which is Best For Investors?
Condos are a better choice for investors for the following reasons:
Condos are easier to sell because they have a more straightforward board approval process
Condos permit lower down payments and higher mortgage loan to value (LTV) ratios
Condos are more desirable for all-cash foreign buyers
Condos have little or no restrictions on subletting
Key disadvantages of condos in NYC include:
Condos are 10% to 40% more expensive vs. co-ops
Condo buyer closing costs are roughly 2% higher than for co-ops
Condo vs. Coop NYC: Which is Best For Long Term Owners?
A co-op is a better choice for buyers who plan on living in NYC and using the apartment as a primary residence indefinitely. However, a condo is a better choice if you plan on moving or buying a larger place in a few years and wish to continue to own and rent out the apartment.
Condo vs. Co-op in NYC: Which Is More Affordable?
Co-ops are usually more affordable because they’re simply less expensive than condos. In addition, co-ops have lower buyer closing costs versus condos. However, the higher down payment rules and buyer financial requirements for co-ops often negate any affordability advantage a co-op may have due to a lower purchase price compared to a condo.
Condo vs. Co-op in NYC: Which Is More Flexible?
Condos are a considerably more flexible form of home ownership versus co-ops. Condos have little or no restrictions on subletting, and most condo buildings are significantly less strict when it comes to rules and regulations versus co-ops.
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. Keep in mind that specific rules vary by building, and it’s not unheard of for condo buildings in NYC to have co-op like rules and regulations.
Co-op vs Condo: Which Is Easier to Sell?
Condos are slightly easier to sell since there’s a much less rigorous board approval process compared to co-ops. Furthermore, selling a condo is faster because most condo bylaws require the Board to review and approve a purchase application within 30 days of the submission of the application. Co-ops have no such requirement which means that co-op boards can in theory take 2 to 4 months or more to review a buyer’s application.
That being said, how easy an apartment is to sell in NYC depends many more factors beyond whether it’s a condo or a co-op. Price point, location, layout, exposure, monthlies and building characteristics all impact the marketing timeline for an apartment in NYC.
If you’re selling a co-op, it’s important to understand that the board can reject your buyer without providing any formal reason or explanation. Just imagine how difficult it will be to sell your co-op apartment if you don’t have a good relationship with your neighbors who happen to be on the coop board. If you have small minded neighbors who harbor memories of petty grievances against you, they may simply choose to give you a hard time by rejecting numerous purchasers for your apartment.
And because most co-op buildings require potential subtenants to go through a similar board approval process, if they allow subletting at all, you can find yourself in the same situation of not being able to sublet your co-op apartment if some board members happen to dislike you.
Just imagine how frustrating it might be if you’ve already moved and purchased a property outside of NYC and your ‘neighbor’ board members keep rejecting your buyers, perhaps to punish you for some perceived slight from years ago. As a result, you’ll continue to have to pay the carrying costs for your apartment for much longer than anticipated as the sale process drags out.
Last Updated: January 12th, 2020
Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial 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, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided. Hauseit LLC is a Licensed Real Estate Broker, licensed to do business in New York under license number 10991232340. Principal Office: 148 Lafayette Street, New York, NY 10013.