Before purchasing an apartment in a building in New York City, it helps to understand the difference between the two main options: a condominium and a cooperative building. The biggest difference between the two lies in what ownership entails. In a coop, a unit owner owns shares in a corporate entity that owns the building and has a proprietary lease, which gives her the right to occupy a specific unit. A condo unit owner owns real property – her unit – and has a deed to her apartment.
There are other big differences – viewed sometimes as positives and negatives depending on a buyer’s needs – between a condo and a coop. For instance, condo owners have considerably more freedom to transfer and sell their apartments than coop owners, who may be restricted to limits on the amount of financing, imposition of flip taxes and the requirement that a prospective owner submit an application, be interviewed and ultimately approved by the coop board of directors. While condo owners are more easily able to transfer and sell their units, the costs associated with purchasing a coop are quite a bit less than those incurred with buying a condo. Condo buyers must pay a mortgage recording tax on any financing, purchase title insurance, order a full title search, pay for the lender’s title policy and pay for departmental and other searches associated with real property. Condo buyers also must pay real estate taxes imposed on the unit and are typically required by the lender to deposit these taxes in escrow. When it comes to building-wide expenses, however, a condo owner typically pays less than coop owners. A condo owner pays monthly common charges to cover costs associated with maintaining the common areas, obtaining financing if necessary and hiring a managing agent based on her percentage ownership, but separately pays her own real estate taxes. A coop owner, on the other hand, pays much higher fees in the form of maintenance charges and occasional special assessments to cover all of the costs and expenses incurred by the corporate entity, including real estate taxes, finance charges and expenses incurred by the coop in connection with general operation of the building, maintenance, renovation, upkeep and any necessary financing.
There are many more discussion points when it comes to whether to buy a condo or a coop, but the bottom line is, your real estate attorney and your broker should be well-versed in these differences and able to help you make a fully-informed decision. Stay tuned for more, including an overview of the parties involved in the construction, sale and day to day maintenance of condo and coop buildings and how their actions are governed.