About Coops & Condos

Coops

A cooperative, or "coop," is a corporation that owns a building. As a "coop owner," you own stock in the corporation, and proprietary rights to occupy a specified unit in the building. Your number of shares is based upon the size of the unit, the height in the building, and in some cases, other amenities such as exposure or view. Your monthly "maintenance" payments are based on the percentage of your shares to the total number of shares held in the building, both of which have been pre-determined at the time the building originally converted to coop. Generally, the number of shares never changes unless units are combined or sub-divided. Your monthly maintenance payment actually covers your share of three different types of expenses: First, the basic operating costs or upkeep of the building, such as heat, water, electricity and gas for the common areas, salaries for the superintendent, doormen, management and maintenance staff, liability and other insurance for the building. Second, real estate taxes are assessed by the city on the entire building, and again, you pay your share. Finally, there is usually a mortgage on the building itself, transferred to the coop corporation from the original owner of the building, or in many cases, a refinance or equity loan taken out by the coop for restoration and capital improvements.

In general, coops originated as rental buildings, where the landlord chose to incorporate and sell shares in order to reduce his/her overhead in the face of stabilized rents and rising fuel and other operating costs. Conversion must be approved by the local rent stabilization authority, which protects existing stabilized tenants' rights. A conversion may be an "evict" or a "non-evict" plan, which determines what percentage of the tenants must agree to purchase in order for the building to convert. For instance, a landlord may win the right to convert with a lower percentage of tenants agreeing to buy if he agrees to abide by a "non-evict" clause for those tenants choosing to continue as renters. An eviction plan would normally require a substantial majority of the building agreeing to buy. Once the conversion takes place, the landlord becomes known as the "sponsor" of the coop, and usually retains the right to dispose of his/her remaining unsold units without coop Board approval.

Condos

Most newer buildings and complexes that house multiples families with common grounds, services, and amenities are constructed as condominiums. Unlike coops, condominiums, or "condo" units are individually-assessed pieces of real estate property that are taxed to you directly by the City. There is no underlying mortgage on the building or property. The condo association manages and determines the operating budget for the building and its grounds and bills each owner monthly for "common charges," or your share of heat, water, electricity & gas for the common areas, staff salaries, insurance, etc. Thus, in shopping for a condo, you're quoted estimated annual real estate taxes and common charges separately, while with a coop, "maintenance" includes real estate tax, carrying charges, plus building mortgage payments. Total monthly costs for a condo tend to be lower than for a similar coop unit, but the initial purchase price is generally a good bit higher.

Condops

Technically, a "condop" is a condominium in which one of the owners is a residential coop: for example, a large residential building with shops, stores, and a public garage at the street level. The stores and garage may be individually owned by their proprietors, while the entire residential section of the building is considered one condo unit, owned collectively by a coop corporation. However, the term "condop" has been borrowed and very popularly used today to indicate a "coop with condo rules." Condos generally have few restrictions or Board approval on subletting the units. Therefore, a coop that allows unlimited subletting may be referred to informally as a "condop."

SHOULD I BUY A COOP OR A CONDO?

The purchase price of shares in a coop is generally lower than the price of a comparable condo unit, because of the underlying building mortgage. Thus, the monthly carrying costs for a coop tend to be higher because of this mortgage payment, although the interest on that portion of the maintenance is tax-deductible as with any home mortgage. Also, most coops endeavor to maintain high owner-occupancy levels, and place some restrictions on subletting. If you intend to personally occupy the unit, coops are attractive because of the screening process exercised by the coop on all new owners and tenants, which promotes stable occupancy, maintenance of property value, and financial security for the common tax and mortgage obligations of the building.

If your goal is investment and you wish to sublet the unit for income, condominiums are generally the better choice due to fewer restrictions and lower monthly costs, although the initial purchase price may be 20% to 40% higher than a comparable coop unit.

When you finance a condo unit, you obtain a traditional home mortgage. If it's a coop, you're taking a "coop loan" to purchase stock in a corporation, not a piece of real estate. The bank loan collateral on a condo is the deed; on a coop it is your stock certificate and proprietary lease for the unit.

When you choose to sell, coops and condos are generally advertised and marketed very much the same as any real estate property. The purchase price is established by the individual owner. However, the common charges and maintenance payments are set by the coop or condo association and are not negotiable. [Note: there are some rare exceptions with city-subsidized coops, which may control sale prices and have maximum income restrictions].

The above is an abbreviated summary of coop and condo distinctions, and individual properties have their own unique characteristics and policies. There are advantages and disadvantages of each, and if you'd like to learn more about them, an in-person conversation with an experienced real estate broker or attorney should get you the understanding that you need. Generally, if you intend to use the apartment as your personal residence, coops are advantageous because of owner occupancy policies and financial scrutiny of new owners. Condos tend to give you more flexibility in subletting, but less control over who buys or rents in the building. It is important to learn the policies of the individual property, since some coops have flexible sale and sublet policies and some condos have rigid restrictions.

For more detailed information on coops, condominiuums, and other common-interest real estate entities such as planned townhouse-type communities, please see the following online article:

Wikipedia: "Housing Cooperatives"

To discuss your individual needs and concerns, please contact:
Paula Brown (201) 866-6500
paula@hudsonviewrealty.com

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