Co-Op vs Condo: What is the Difference?

When it comes time to buying an apartment, many people confuse co-ops (cooperatives) with condos (condominiums).

As far as living standards go, the two are very similar. From a legal and financial point of view, the differences between the two are significant. In New York City, there are more co-ops than condos. The gap is shrinking though because apartments in new buildings are now most often sold as condominiums.

So what are the differences between buying a co-op vs a condo?

The central difference between a co-op and a condo is in what the purchaser is actually buying. Buying a condominium means the purchaser now owns real estate property. Purchasing a co-op is like buying shares of the corporation that owns the building. The building then “leases” the coop to the buyer under a long-term proprietary lease. A co-op purchaser is like an investor, but when you buy a condo, you buy an individual parcel of real property.

That is not where the differences end between condominiums and cooperatives.

The approval process to get a co-op is much more stringent as opposed to for a condo. While we are all concerned with who we are living next to in our respective communities, those in a co-op are a bit more selective. There is a higher rate of owner occupancy than with condominiums, too.

Most co-op associations approve or decline a prospective buyer by a committee of current co-op owners.

“Many people that don’t want to deal with a co-op board prefer a condo,” says Jacques Ambron, owner of Madeleine Realty in Forest Hills, Queens. “Also, keep in mind that condos run approximately 30% higher in price than cooperatives.”

The usage of a co-op or condo unit also varies. The biggest example of this is the ability of an owner to sublet their unit. For an owner of a condo, sub-letting the unit is straightforward and allowed in most buildings. To sublet a co-op is much more restrictive. Many buildings do not allow it altogether. Those that do can require fees, making the proposition less desirable.

Affordability is often the most important factor when deciding between a condo and a co-op. Closing costs are generally higher when you’re buying a condo because of the addition of mortgage tax and title insurance.

“For the first time home-buyer, buying a co-op can be the more affordable option because of lower purchase and closing costs,” explains Stephen Casil, Vice President of Secondary Markets at Lyons Mortgage.

For buyers that are looking for a lower sale price and to be a part of a community, a co-op would be a preferred option. Given the selective approval process, occupants of co-op buildings have a more vested interest in the building and their fellow neighbors. For those placing a premium on flexibility, a condo is often the better choice. Homebuyers need to do their homework and determine which type of property is the best fit for them.