What’s the Difference between a Co-op and a Condo?

So you’ve decided you’re ready to stop renting in New York City and want to dive into a more permanent property situation like a co-op or condo? As you begin that exciting apartment hunt, you may start wondering what the difference is between a condo and a co-op. Sure, we’ve all heard the horror stories of co-op applications, interviews and approvals made popular by television shows and movies placed in metropolitan cities across the nation, but what about condos? We don’t hear much about those unless someone is talking about their retirement property down in Tampa, Florida. How do they work in the New York market?

As far as living standards, co-ops and condos will offer a very similar experience. The difference between a co-op and condo mostly relates to the legal and financial aspects of the properties.

Ownership vs. Tenancy

In a co-op the association, which usually consists of all the shareholders, owns the entire building including its units and common areas. Each co-op owner (or resident) holds shares in the association. Ultimately, you are under a long-term lease within the co-op that allows you to occupy your specific unit; however, you have shares in the overall ownership of the building and therefore get the same tax treatment as other homeowners. Put simply – all residents are in “cooperation” to own the entire building and individually contribute to it to reside in their own units.

If you own a condominium, you are buying an individual parcel of real estate. Your apartment and a percentage of the common areas belong to you, similar to traditional ownership of a single-family home.

Approval Process

Typically both co-ops and condos ask buyers to submit a formal application for occupancy that includes things like net worth, assets, income and tax returns to demonstrate your financial health and responsibility; however, co-ops are generally much stricter in their requirements.

Another main difference between a condo and a co-op is that condos cannot reject potential buyers while co-ops can. In addition to asking you to disclose everything aside from a blood sample, co-ops will typically conduct formal interviews with the co-op board or other shareholders to be sure you are the right fit for the building. Fido may even have his own interview to make sure he’s as well behaved as you promise he is.

Financial Differences

Buying a condo is a similar process to buying a single-family home. You find the property you love, make a bid for purchase and then secure a mortgage to finance the purchase. Your mortgage payments are made directly to your lender and you own everything within your walls of the condo, as well as part of the common area. Generally, condo owners do have to pay monthly homeowner association dues to assist with the maintenance of the building. This may include the employment of a doorman and ongoing maintenance like window washing. If there is a large repair that needs to take place, the condo may issue an assessment on the building and the owners would all have to pay a share of it to repair the issue.

Another main difference between a condo and co-op is the process of building equity in your property. Because you are essentially leasing your unit in a co-op, you cannot build equity in it but you can benefit financially from selling your shares to the next co-op owner. You will still be responsible for monthly HOA payments and potentially even assessments, but your HOA dues in a co-op will cover the property taxes that are the responsibility of the co-op association as a whole. Co-op owners will need to finance their unit through a home loan instead of a mortgage and once they’ve made the purchase they become a shareholder as opposed to a property owner.

As you’re looking for your more permanent spot in New York, it’s important to also remember that the inventory on co-ops in the city is much higher than condos; however, most new buildings are being sold as condos. This means that if you’re looking to purchase a charming prewar apartment on a tree-lined street, you may need to opt for a co-op. If sleek lines and high-speed elevators are your sort of thing, condos will be easy to find.

Another difference between a condo and co-op is that prices may be slightly lower for co-ops but this is often attributed to the age of the building and the size of the units. With most condos you’ll find new construction and larger apartments, and all the amenities (do I hear heated swimming pool?)! So polish up your financials, get Fido that doggie treadmill to meet that 25-lb weight limit and you’re ready to start the hunt for your little piece of real estate in the concrete jungle!