We’re Revisiting the Oldie but Goodie: What’s the Difference Between Condos and Coops?
Interviewers have a goal of trying to find out as much about a person in 30-60 minutes as they possibly can. Most questions prompt projecting the best picture of yourself. However, there is one surefire question HR departments need to be asking that will paint a revealing, albeit dark, picture of their interviewee:
What’s the worst thing you ever did in the Sims?
A few of my friends’ answers just to give more color…
“I always bought the heart shaped bed and made them have…you know. I had so many kids and then I’d put them in the pool to play and remove the ladder so I’d have more money for food and furniture.” – @julesthemenace, the only one willing to be quoted
“I’d place them in a 1×1 walled room with windows and a phone but no door so they could slowly starve, call for pizza, watch it arrive, have no way to collect it, look at it on the floor after the delivery driver leaves it, and then watch the food go moldy. “
“My sister and I would trap people in corners and light them on fire. My mom took the game away when she found out.””My Sim would seduce the neighborhood husbands, get them to leave their family, sleep with them, paint their portrait, and then kick them out. Then I hung the portrait in the long hallway to my Sim’s bedroom, so each new victim walked past a gallery of all the previous victims. The old family won’t take the cheater back, so they end up living alone in a crappy little cracker-box, watching their ex-wife and the former lover enjoy life without them.”
Seeing that *this* what what our primitive, malleable minds first understood as “homeownership”, you’d think people would have a favorable view of coops, the slightly less medieval form of ownership compared to a lawless mansion run by a hyperactive, conscious-less 11-year old. However, the truth is, most people aren’t clear on what types of ownership exist in New York.
Because there’s been a notable uptick of interest in home-ownership, we’ll review the differences between coops and condos, from the fundamentals to the fine details.
A condominium apartment is real property and a purchaser is given a deed as if they were buying a house. The difference between owning a condo and a house is that in addition to owning the apartment, you also own a small percentage of the common elements of the building. Each individual apartment in a condominium receives a separate tax bill from the city. There is still a monthly common charge similar to the maintenance charges in a coop, which is paid to the condominium association to cover items such as payroll, building maintenance, management fees and building repairs. Common charges in condos do not include real estate taxes and are not tax-deductible. They also tend to be lower than in coops because there is no underlying mortgage for a condo.
Condo owners elect a board of directors who are hands off but can fine an owner if they’re being particularly hellish. Since one owns the physical apartment outright, the board cannot control how it’s used so subletting is unlimited from day 1, subletters are easily approved, and every purchasing structure (pied-a-terre, co-purchasing, purchasing under an LLC, gifting) is all allowed. They’re very investor friendly due to this but in turn, the building can seem a bit transient. Regarding the chance of a deal falling apart, the condo board has the right of first refusal or can stall a deal, which is the only thing an unenthusiastic board can do.
Condos allow for a maximum of 90% financing and don’t scrutinize your post-closing liquidity and debt-to-income ratio. However, the closing costs are much higher. New York condo buyers typically have to pay 1.8% of the mortgage amounts for loans under 500K and 1.925% for mortgage amounts above that in state mortgage tax. Also, lenders require buyers to also pay title insurance, which costs about 0.5% of the purchase price.
The straightforward nature of buying a condo, plus the fact that in some cases you can finance up to 90% of the purchase price and sublet your apartment at will, makes this form of ownership a top choice for flexibility, especially among investors, foreign buyers, and parents purchasing for their children. However, condos tend to be 30-40% more expensive than comparable coops. They take between 45 days and 3 months to close, depending on whether or not you’re financing.
However, note that Condos are the newer form of ownership and do not make up the neighborhoods that have been around the longest. Condos are mainly in FiDi, Williamsburg, Midtown, sprinkled throughout the UES and UWS, Downtown Brooklyn, and anywhere where there are New Development projects (all New Devs are Condos). You won’t find many in the villages, Soho, Nolita, older parts of the UES and UES, Brooklyn Heights, Cobble Hill, Carroll Gardens, Boerum Hill, and Park slope. So as enticing as Condo ownership is, it’s markedly more expensive than Coops, the units have less character and charm, and they’re not found in all neighborhoods.
In Manhattan, cooperatives have been the traditional way to own for nearly a century and comprise two thirds of all apartments available for purchase. They are the more abstract form of ownership, as coops are owned by an apartment corporation. When purchasing an apartment in a coop building, instead of title, one is buying shares (stock certificates) of the corporation that entitle a shareholder to a “proprietary lease.” Typically the larger the apartment, the more shares of the corporation are owned. Coop shareholders pay a monthly maintenance fee to cover building expenses like heat, hot water, insurance, staff salaries, real estate taxes and the mortgage debt of the building. Portions of the fee are tax deductible and shareholders can deduct their portion of the building’s real estate taxes. This can increase 3-7% annually and the board can require shareholders to pony up money for the reserve or for a particular project for the building
Approval to purchase shares of a coop must be granted by a board of directors, who also have the authority to determine how much of the purchase price may be financed and minimum cash requirements. This volunteer coop board works with the property management company to oversee and care for the maintenance of the building, enforce and create rules, have the authority to force an unruly shareholder to sell their apartment, which would never happen in a condo. All prospective purchasers must submit a “board package” containing a purchase application, personal, and professional letters of recommendation plus detailed information on income and assets. The board will also require an interview so they can meet the prospective purchaser and ask any questions regarding the information provided. They can turn down a buyer for any reason; but because it does not need to be disclosed, it can be unlawful and violate fair housing, as coop boards are protected regardless of any presumed violations in their decision making process.
Since a coop does not entail buying title – as shares, not title, are being traded – the buyer does not need to pay title insurance or a state mortgage recording tax. That being said, because a shareholder don’t technically “own” the specific unit, the board does have rules regarding how one can use a unit that they enforce, which range from laissez faire to extremely restrictive. It’s basically the building’s way of controlling who is allowed to purchase/sublease in the building and the general discourse of the building itself.
Owners are typically restricted in subletting – sometimes as lenient as unlimited after two years of ownership, sometimes a shareholder can sublet 2 out of every 5 years repeating, sometime 2 years total, sometimes no subletting. The board also charges a fee for subletting and has to approve any incoming tenant.
Coops require 20-25% of the purchase price as a downpayment; while rare, sometimes that number can be as low as 10% and sometimes as high as 50%. They also expect buyers to have sufficient funds left over (liquid asset requirements), ranging from a few months of maintenance payments to 1 times the purchase price – two years mortgage and maintenance payments is the average. They will also want a debt-to-income ratio of 25%-29%. Meaning monthly payments – mortgage, maintenance, and any other monthly debts – cannot exceed the specified percentage of one’s gross monthly income.
They can approve or deny any applicant without stating a reason. Purchasing a coop can be an intricate process and subletting can be challenging. Each coop has its own rules and should be considered carefully prior to purchasing.
While I didn’t paint coops in the most enticing light, they do tend to make up 75% of the city so if you want to live in a certain area, they’re unavoidable. The positives of coops is that they’re more affordable; they are usually larger and have much more character than condos due to the fact that they are the older buildings in New York; since subletting is not encouraged, buildings tend to be mainly owner-occupied, which leads to a less transient building; due to the building being less transient, owners take a bit more pride in the common areas, building upkeep, it’s financial health, and the community itself. Overall, coops can be a wonderful place to settle roots.