With the spring sales market in full swing, we thought it would be worthwhile to revisit the coop vs. condo debate and the pros and cons of each.  All too often we hear buyers are fixated on one versus the other, when instead a balanced perspective would suit them better.

Co-ops

Coops still make up about 2/3 of the overall home ownership market in NYC. That said, co-ops turn over at a slower rate, meaning that they represent slightly less than half of sales at any point in time.  Typically, co-ops trade at a discount to condominiums, and for good reason.  There are various aspects of these properties that are found to be more restrictive – the greatest of which is the limitation or outright ban on renting the property out.  Other limitations include:

  • Onerous renovation rules:  often renovations must jump over long and costly board approval hurdles or are limited to certain months out of the year, making large scale renovations a massive and long-term pain.
  • Pet ownership restrictions:  many co-ops either limit or altogether ban any pets, limiting the potential buyer pool right off the bat.
  • Financing hurdles:  co-ops require more cash down to purchase and look at your debt-to-income ratios when considering a transfer
  • Resale limitations:  when selling, owners are at the mercy of the board, which is hyper focused on price.  Since no one owns actual property but shares in the overall building, one sale “below market” affects everyone.  This board “control” was very helpful in the downturn, preventing fire sales.  However some buyers may be put off by limiting free market forces in this way.
  • Purchase process speed-bumps:  coops are known for their more-intrusive-than-a-root-canal application process that requires buyers to reveal more about their finances in order to get board approval. Again the flipside of this is that you have a building filled with financially secure tenants with less likelihood of being in arrears

Condos

Condos have been slowly increasing their share of the market consistently. This is because all new development comes to market in the form of condos.  Their greatest benefits are the inverse of the co-op downsides, which is why they command a 15%+ premium to their elder brethren.

  • Do what you want: basically, you can do what you want with your condo for the most part. Want to use it as a pied-a-terre?  No problem.  Want to rent it out indefinitely?  Check.  Want to renovate it in glistening gold inlay and swap the floors for concrete?  ‘Got you covered.  Want to add a diamond-collared Chihuahua into the mix?  Bow wow.  And if the market crashes, want to piss everyone off by selling it at 75% of its market value to buy yourself a bungalow in the Carribean? Pass over that pina colada!
  • Financing leeway: buyers can purchase condos by putting as little as 5-10% down in some cases, though 20% down is typically the norm.
  • Straightforward purchasing process: buyers will find a far more streamlined and standardized process, both in terms of the time it takes and the paperwork required.
  • Greater transience: due to the lowered limitations of condos, you may find yourself being the only owner on a floor filled with renters.  Typically, this greater percentage of renters comes with less care for the overall building or its residents.  Often this goes hand in hand with a lowered sense of community in the building.

Now, based on the above, you may wonder why one would ever purchase a co-op.  Simple:  if you are cash rich and know you want to lay down roots, raise a family and want to do so in a very stable community, biting the bullet on the application process may well be the way to go.   It’s worthwhile to try to purchase a unit as close to the condition you seek, to not bear the brunt of the renovation headaches.   On a closing note, many co-ops have seen themselves become less “competitive” in New York’s hot real estate market, and have become more lenient on the limitations outlined above to keep up.   So for you buyers out there, make sure to speak with your broker partner on the building specifics of each and every property, lest you miss out on the right property for your needs.

One comment

  1. One other factor which makes coops trade cheaper than condos is the fact that most coops have underlying mortgages. This often is seen reflected in higher maintenance. However, when buying there is no mortgage recording tax on a coop loan since it is a loan against shares rather than a loan against real property as in a condo.

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