The vast majority of apartments available for purchase in New York City are either cooperatives or condominiums. The major difference is that purchasers of cooperative apartments or co-ops own shares in the entire building corporation. Condominium ownership is more like owning a single-family home in that purchasers own their physical unit.
Pricing Differences New York City Co-op vs. Condo
In general, in New York City, cooperative apartments tend to have lower asking prices than comparable condominium apartments. But there are other factors to consider. Since co-op owners are shareholders in the entire building, the costs associated with the building such as the underlying building mortgage and the real estate taxes are the pro-rata responsibility of each of the shareholders. The number of shares allocated to each apartment is typically determined based on apartment size and location within the building.
Board Approval for Co-op Purchases
Each co-op building has a Board of Directors and its own set of requirements for prospective purchasers. Typically a would-be buyer must submit a full financial package listing all of their assets and liabilities and include copies of recent tax returns. The package is usually reviewed by the Board members or an admissions committee and then an interview is scheduled with the prospective purchaser. Boards can dictate the percentage of the purchase price that the buyer can finance. Boards can also require maintenance escrows or other forms of financial assurances. Condos generally do not require board approval.
Maintenance Fees in Co-ops and Condos
Since shareholders in a co-op own a stake in the underlying building, their maintenance fees sometimes referred to as common area charges, are generally higher than in a condo. However, since a co-op maintenance fee includes a portion of the underlying mortgage payment and local real estate taxes, a portion of the maintenance is tax deductible. Other costs covered by the maintenance charges in both co-ops and condos include staff salaries and electricity in the building common areas such as hallways and stairwells.
Other Considerations for Purchasing a Co-op or Condo
When considering the purchase of an apartment is a co-op or condo, it is important to look at the following items:
- House Rules – In addition to containing standard language regarding noise policies and rules about floor coverings, the House Rules also set forth the building policies on pets, washer/dryers, restrictions related to apartment terraces and balconies and any flip tax requirements. Flip taxes are fees paid to the co-op or condo at the time of sale of the apartment usually by the seller but sometimes passed on to the buyer purchase.
- Maintenance History – Find out how often the maintenance has increased in the last several years and ask why. Also find out if the building has imposed any assessments on apartment owners. Assessments are usually used to cover major building expenses such as an unexpected repair or a renovation of common areas.
- Reserve Fund – The reserve fund is the amount of money a building has set aside for capital improvements. A prospective buyer should feel comfortable that the reserve fund is large enough to pay for foreseeable capital expenses such as building repairs and mandatory façade inspections required by New York City.
Narrowing Down Choices in NYC – Co-op vs. Condo
In the end, whether to buy a co-op or condo might well be determined by personal preferences about the actual building and unit. The majority of NYC apartment buildings are cooperatives especially the pre-War buildings. New construction tends to be built as condominiums.