When working with first time home buyers, many want to know what the difference is between co-op and condo apartments. The answer is best broken down by some overall categories.
The main difference between the two types of apartments lies with how ownerships is structured. With condos, you are purchasing “real property” much like if you were buying a single family home. At the end of the process you will receive a deed granting you ownership of the interior of the apartment as well as an undivided interest in the condos common spaces. With coops, you are buying shares of a corporation. The benefits of being a shareholder is that you are granted a proprietary lease allowing you to live in a specific unit. On the surface, both properties can look and function similarly, however, because of the differences in ownership structure, it can impact the owner’s rights regarding the property.
PURCHASE PROCESS AND REQUIREMENTS:
In general, it is much easier to buy a condo than in a coop. Coops often have stricter purchase requirements including but not limited to how much the buyer is putting down. I have seen some coops require as much as 50% down (although that is rare). Expect to see a minimum of 20% down required. Also, coops are more stringent on weighing the buyer’s post closing liquidity. Many want to see one to two years of moneys to cover mortgage and maintenance in the bank after closing. Also, they require many buyers to have a good “debt to income ratio.” The debt to income ratio is measuring the amount of money the buyer is paying to carry the property against what they are earning annually. As a rule of thumb, coop buyers should aim for around 25-28% debt to income.
In order to vet the buyer, the coop board requires an extensive purchase application. This includes letters of personal and professional reference, income verification, detailed financial statements with supporting documents, as well as credit check and background check releases. This package is reviewed by the managing agent and then submitted to the coop board to review. Assuming everything looks good, they will schedule a board interview. Only after the interview is completed does the purchaser get the green light to close.
Conversely, the condo process is much simpler. Typically there is no board interview and the application package is much easier. Also, the likelihood of a buyer getting turned down is much smaller than in a coop. The most a condo board can do is stall the process or purchase the unit outright based on the “right of first refusal,” which rarely ever happens.
Lastly, the closing costs are significantly more when purchasing in a condo due to the mortgage taxes and title insurance requirements. For example, the closing cost for a property just under $1M could be $7,000 for a coop versus $20,000 in a condo.
In general, condos are 20% more expensive than their coop counterparts. According to the appraisal firm Miller Samuel, in the first quarter of 2016, condo buyers paid an average of $2061 a square foot whereas the average coop buyer paid $1269 per square foot. The main difference in price comes from the fact that condos are more desirable for a purchaser due to the agency they have over the property and have more amenities than their coop counterparts.
As a general rule of thumb, if you are looking for something you can rent out in the future, avoid purchasing a coop. Most coops have strict sublet rules either limiting or forbidding the practice. Some even won’t allow the purchaser to use the property as a pied a terre or second home.
If you have a large breed dog or multiple dogs, it is best to focus your search on condos over coops. Most coops have size and breed restrictions. Sometimes the coop will want to meet the animal before granting an approval!
The question of which type apartment to focus on really comes down to how you need to utilize the property and what you can afford. Often, first time buyers are drawn to coops simply because they can get more for their money.
Worried about the coop purchase process? The best advice is to consult a real estate professional who can work closely with you to make sure you will qualify to purchase before making offers on those types of properties. For more information, feel free to email me at firstname.lastname@example.org.