Co-ops vs. Condos: An Overview

Condos and co-ops share similarities but also have unique characteristics that offer a variety of options for residents. In many ways, the New York City聽real estate market is unlike any other in the United States. One of the biggest differences is that apartments for sale in NYC are either condos or co-ops.

In most places, condos are the rule, but not in the Big Apple. Although co-ops outnumber condos in NYC鈥攂y about 75% per most estimates鈥攎ore condos are on the active market at any given moment.

Let鈥檚 start聽with a brief examination of the difference between a co-op and a condo.聽When you buy a condominium, your apartment, as well as a percentage of the common areas, belong to you. When you buy a co-op, you don鈥檛 actually buy聽your apartment; instead, you are buying shares in a corporation that is your building. The size of your share depends on the size of your apartment; buying the shares allows you to occupy a unit in the co-op building. At the closing for a condo, you鈥檒l be given a deed; at the closing for a co-op, you鈥檒l get a proprietary lease.

For the most part, both condos and co-ops have a doorman and a superintendent on staff; some will add a concierge who will do everything聽the other two don鈥檛. The amenities can be low-key (maybe just a storage room in the basement) or as all-encompassing, such as a landscaped terrace, a billiards room, a piano room, a screening room, a children鈥檚 playroom, and a gym.

Key Takeaways

  • When you buy a condominium, your apartment, as well as a percentage of the common areas, belong to you.
  • When you buy a coop, you don't actually buy聽your apartment; instead, you are buying shares in a corporation that is your building.
  • Condo prices are higher than co-ops, but co-ops require a larger downpayment, higher monthly fees, and a lengthy approval process.
  • Condos allow subletting of the apartment while co-ops don't, which offer buyers a more stable, less transient community.

Condos

The newer neighborhoods, once considered outliers but now considered hip,聽are where you鈥檒l find the condos. According to Gary Malin, president of Citi Habitats, a New York real estate brokerage, "If living in a glass house in the sky is more your style, you will likely be looking at a lot of condos. Condo buildings didn鈥檛 become common in New York City until the 1970s, so they are often more modern than co-ops.

鈥淪ince available land for new condo buildings is limited in Manhattan,鈥 Malin聽adds, 鈥渢he newest condominiums are likely to be found in up-and-coming and fringe neighborhoods on the far East and West Sides. In Queens and Brooklyn, we have seen a lot of new-construction condos being built in former industrial areas along the waterfront聽in Long Island City and聽Williamsburg,聽as well as in Downtown Brooklyn.鈥澛犅

Down Payment and Price

The cost can often drive the decision process for purchasing real estate, and condos offer attractive down payments,聽whereby, usually, only 10% of the purchase price is required. However, condos tend to have higher prices than co-ops.

Closing Costs

Closing costs on a condo are higher than for a co-op. For details, we asked New York real estate attorney Adam Stone to compare the two. Here鈥檚 what he came up with. For a $1 million condo with an $800,000 mortgage, closing costs would be:

  • Title insurance for the purchaser, $4,500
  • Title insurance for the lender, $1,000
  • Title searches, $700
  • Recording fees, $700
  • New York State mansion tax,聽$10,000
  • New York State mortgage recording tax, $15,370
  • Grand total: $32,270 (without lender鈥檚 fees, which vary by lender)

For anyone wondering what the mansion tax聽is, Stone explains: 鈥淣ew York State has a transfer tax of 0.4% of the sales price, which is charged to the seller of any residential property. It also has a 1% purchaser鈥檚 transfer tax, also referred to as the 'mansion tax'聽because it only applies to residential properties priced at $1 million or more.鈥澛

Monthly Charges

Condo owners have a monthly bill called "common charges," which are used for the upkeep of the building鈥攃ommon areas, landscaping, payment of the staff, and often some of the utilities.

Condo owners write two checks each month (one for building upkeep, and one for property taxes) but often the condo owner鈥檚 combined total is lower than the co-op owner鈥檚 maintenance bill.

The Board

Condo boards tend to be less demanding than co-op boards. Co-ops have a more lengthy approval process, including an interview. The board of directors decides if a prospective buyer can purchase the co-op.

According to Warner M. Lewisof The Harkov Lewis Team at Halstead聽Property, 鈥淲ith a condo, a building can request a package on the buyer,鈥 says Lewis, 鈥渂ut there is no interview, and the building only has the right of first refusal (i.e., either they have to approve it, or the condo has to buy it themselves) which means, when you have a signed contract unless something happens to the buyer (or the financing) the deal is as good as done.鈥

Rules

Condos tend to have fewer rules, including restrictions on the use of foreign funds for the purchase. Condos allow international investors to buy and聽rent out their spaces;聽usually with some caveats, but none that are onerous. Condos also allow the apartment to be sublet or leased out to another party. However, some condo associations may impose more rules than others. As a result, it's聽important that prospective buyers do their research to determine what is and what isn't allowed.

The Buyer's Preference

According to Gary Malin, president of Citi Habitats, 鈥淚f you would rather march to the beat of your own drummer鈥攁nd you value flexibility鈥攖hen a condo may be the wise choice for you. However, understand that this freedom comes at a price. Condos are nearly always more expensive than equivalent co-ops.

In addition, if seeing new faces in the elevator on a regular basis is an issue for you鈥攍ook elsewhere. Renters can be common in condo buildings. Owners do often take advantage of a condo鈥檚 more liberal policies.鈥

Co-Ops

Generally speaking, the older, established residential areas have a preponderance of co-ops. As Gary Malin explains: 鈥淚f you like historic properties, you are likely to end up in a co-op, as nearly all prewar buildings are organized in this way. Also, because co-op buildings tend to be older than condo developments, they are often located in more central locations. For example, nearly all the residential buildings that line Park Avenue on the Upper East Side (a prime location by any measure) are co-ops.鈥澛

Down Payment and Price

As with a condo, the decision might come down to how much you can spend and have saved for a down payment. Although it's possible to put down just 10% of the purchase price of a condo, a co-op may require a much higher down payment鈥攊n the neighborhood of 20% to 50% of the purchase price. The good news is that the purchase price of a co-op tends to be smaller than condos. Although, prices can vary depending on the neighborhood involved.

Closing Costs

According to New York real estate attorney Adam Stone, a co-op has lower closing costs. In the example cited above for a condo, which had over $32,000 in costs, a co-op just has the $10,000 mansion tax. The substantial difference is due to the fact that the condo is real property, while the co-op shares are personal property.

鈥淚t may just be semantics to some, but not when calculating closing costs," Stone adds.

Monthly Charges

Co-op owners write one check a month called "maintenance" charges. Similar to condos, the monthly fee goes to basic upkeep of the property and staff needed to keep the building running properly. Co-op fees tend to be higher than condo fees since the fee often includes at least part of the mortgage for the building. Although monthly fees can vary depending on the size of the building.

However, it's important to note that maintenance and common charges are not set in stone. Any major expense鈥攁 new roof, a new lobby, more staff members鈥攎ay trigger an assessment:聽something that board members decide on, and聽something that can rarely be reversed.

The Board

As stated earlier, most co-op boards have a rigorous and often lengthy application process that can require the buyer to hand over financial information, submit to employment verification, and possibly a personal background check.

Warner M. Lewisof The Harkov Lewis Team at Halstead聽Property, sums it up: 鈥淚n a co-op, not only do you have to have the money to buy the apartment (or financing to do so), you also have to be approved by the board after submitting an application, which is usually very detailed and time-consuming. Then, with little to no reason, a buyer can be rejected after their interview, or even before, just because of something in their package. I have had deals and seen deals where there is zero rhyme or reason for rejections.鈥澛

Rules

Co-op boards tend to have more rules than condos and may mandate when you can practice your trombone, whether you can put holiday decorations on your door, and whether your pet can move in with you. Most rules are meant to promote harmony, calm, and the civility of co-operative living.

But the rules that discourage some domestic buyers, and just about all international buyers, are co-op restrictions on subletting鈥攊t is rare for co-ops to allow shareholders to rent their apartments out for any extended period of time, if at all. Another rule of co-ops that makes purchases by international individuals impossible is that they are unlikely to accept anyone whose funds are outside the U.S.

According to Lewis, 鈥淐o-ops are all about establishing a stable, in-for-the-long-run group of residents. Condos don鈥檛 seem quite as concerned about that."

The Buyer's Preference

When it comes to choosing your preference, Gary Malin puts it the following way:

Co-ops are a smart choice for those who value stability and want to plant roots聽in a building. Simply ask yourself, 'Am in it for the long haul?' Co-ops are much less transient than condos, so they're a great place to live if you want to get to know your neighbors. Just be prepared to be analyzed, poked, and prodded, but understand that this process is what keeps a co-op a stable and remarkably secure investment.