By James McGrath
Condos and co-ops are attractive alternatives to single-family homes. These types of properties offer home ownership without all the upkeep of an actual house. But what exactly are the differences between a condo and a co-op? We’ll dive into the most important differences in this post.
Table of Contents:
Condos Are Real Property, Co-ops Are Personal Property
Co-ops vs. Condos Monthly Fees
Are There More Co-ops Or Condos In NYC?
Why Are Condos More Expensive Than Co-ops?
Buyer Closing Costs In A Condo Vs Co-op
What Fees To Expect At Closing When Buying A Condo or Co-op
What Fees To Expect At Closing When Selling A Condo Versus Co-op
Does A Co-op Or Condo Give You More Flexibility?
Is A Co-op Or Condo Better?
FAQ – Condo Vs Co-op Questions
Co-ops are not considered real property since buying a co-op apartment means you are purchasing shares in the corporation that owns the building. Along with shares, you receive a proprietary lease which entitles you to occupy your specific apartment within the co-op. These shares and the proprietary lease are personal property. The number of shares you own in an NYC co-op is determined by a range of factors including square footage, frontage, number of rooms, outdoor space as well as the floor of your unit. There is no correlation between the number of shares owners may have in different buildings, as each co-op corporation apportions shares differently.
A condo is the more traditional real property ownership where a unit owner has a physical deed to the apartment. Think of purchasing a condo like purchasing a house in the suburbs. The purchaser is given an actual deed to the property purchased. Seeing that you own real property rather than shares in a building, each individual apartment will receive a separate tax bill from the city (rather than having your taxes be compiled into monthly maintenance as seen in co-ops).
Co-op Maintenance Fees
For co-ops, the maintenance fee covers the operating expenses for the building and usually includes:
It can also include:
The specifics vary from one co-op building to another.
How big of a maintenance fee you pay is based on the number of shares your co-op unit holds in the corporation. In other words, the bigger the unit, the more shares, the higher the maintenance fee. You should ask your broker what exactly is included in the maintenance fee for a co-op building in which you are considering a purchase.
Maintenance fees can be a big driver of purchase decisions for prospective buyers in the NYC market. Keep in mind that the maintenance fee quoted to you prior to closing on a co-op may change and fluctuate over the course of your co-op ownership.
Co-op boards can require shareholders to pay extra cash to boost the reserve fund or for a specific project or repair. This is called an “assessment.” Broken elevators, paint jobs and restoration of the building’s facade are some examples of special, sometimes unexpected, projects that force co-op shareholders to fork out extra dough for a period of time in addition to their normal maintenance.
Not only should you pay attention to the current maintenance fee figure, but you should look into the trends in the maintenance fee for a building. Typically you can expect the fee to rise a few percent each year.
If there has been an increase or decrease in the maintenance fee for a unit, ask the seller or seller’s broker why. It’s also smart to find out how the co-op board tends to spend the corporation’s money and what activities or projects are happening or may happen in the future.
Condo Common Charges And Property Taxes
The big difference in monthly charges for a condo is property taxes are billed separately. Owners make two payments each month. The “common charges” portion goes to everything required to run the building - basically, the same items mentioned above for a co-op - but property taxes are billed separately.
Common charges are calculated by taking each condo unit’s “percentage of common interests” and multiplying this number by the total operating costs of the building. Percentage of common interests is mostly dependent on the square footage of the condo unit and the unit’s location within the building. While you may pay higher common charges for a bigger or more desirable condo unit, you will not necessarily gain any significant benefit other than added votes on building matters.
Just like with co-ops, common charges in condos usually increase in relation to how many amenities and services the condo building offers. Given condos are generally newer and include more amenities (think pools, golf simulators, etc), monthly charges are typically higher in condos. Condo boards also implement assessments or higher common charges when needed, just like co-ops.
For newer buildings, it’s important to ask if there is a tax abatement depressing current property taxes. Developers will often work out a deal with New York City so owners pay a lower tax rate for a defined period of time. Resale values may be impacted after the abatement decreases or ends so it’s important to understand the underlying property tax bill.
Future Plans for Monthly Charges
You can also ask for information about what discretionary spend the board is considering implementing soon. For instance, has the board moved to reduce utility or electricity costs by improving building systems, like LED lights or solar panels?
The more information you get about the habits of the board, the better decision you’ll be able to make about whether this building is right for you. You may love the unit under consideration, but there is a bigger picture and monthly fees are an important part of that.
There are significantly more co-ops than condos in NYC. The greater supply of co-ops versus condos is one of the main reasons why co-ops are less expensive than condos. Available apartment inventory in NYC is roughly 75% co-op and 25% condo. Co-ops historically accounted for 80-90% of NYC’s apartment supply during the 1970s and 1980s rental conversion boom. Due to the influx of new condo construction in recent years, the number of condos as a percentage of the available NYC housing supply has been increasing.
Each neighborhood in New York City has a slightly different inventory breakdown between condos and co-ops. The Upper East Side, West Village, Upper West Side and Gramercy Park, for example, have a larger percentage of co-ops whereas neighborhoods such as Battery Park and the Financial District have a larger percentage of condo units. Most co-ops in NYC are pre-war buildings. Buyers of co-ops tend to prefer the older and more historic features of the buildings as well as the old-world character they exude compared to the mostly generic, glass facades of new construction.
Co-ops tend to be purchased by locals while condos are more popular with foreigners. Their international demand comes from the fact that they can function as an investment vehicle to move and protect cash from the volatility associated with buyers’ home country currencies, markets, and governments. Foreign buyers have been flooding the condo market over the past decade and have been known to come to the table with all-cash deals. This concentrated demand from foreign buyers is part of the reason condos are more expensive than co-ops.
Foreign buyers and locals alike value the ability to rent out a condo. Most co-ops won’t let owners rent out their apartments unless they’ve lived in them for a minimum period of time. Additionally, co-ops will have limits imposed on how often an owner is able to rent out their apartment within a certain time frame.
In simple terms, given their bylaws, co-ops are often not very investor-friendly. That’s not to say that they aren’t a great investment for a primary home buyer. It just means that for someone looking for an investment property they plan on renting out, a co-op is likely not the right choice.
Condos also tend to be newer, concentrated at the higher end of the market and have more amenities, further contributing to the premium. With more luxury units coming to market every day, the price per square foot in the condo market keeps on being pushed upward (before considering market moves). Co-op values have also increased but on average, they will never surpass the pricing of condos. It’s important to note that just because something is new doesn’t mean that it’s better.
Despite having to pay sky high prices for apartments in New York City, some buyers may not even realize that there are additional NYC closing costs that they haven’t considered. The extra costs can really add up, especially for condos.
Overall when purchasing a co-op in NYC, buyers should expect to pay about one to two percent of the purchase price, or two to three if the apartment costs more than $1 million. As for condos, expect two to four percent as a safe range, the lower end for properties under a million dollars with small mortgages. New construction can be much higher, in some cases above 5%.
It’s a double whammy, condos cost more, and they also have higher closing costs! The reason is that when you purchase a condo with a mortgage you a required to pay a mortgage recording tax as well as title insurance. Mortgages on co-ops are not subject to the mortgage recording tax as the tax only applies to real property versus the co-ops’ personal property. While it may be possible to purchase title insurance for a co-op, most opt not to buy it.
Attorney Fees (Condos & Co-ops): Most real estate agents will estimate that attorney fees will generally range anywhere from $1,500-$4,000 for the transaction. The good news is that real estate lawyers don’t typically charge you an hourly rate and are usually only paid upon the closing of the transaction. Many buyers are hesitant to bring a lawyer in early on to ask questions about a potential purchase, but they shouldn’t because you only have to pay if the deal closes. In some cases, you will also have to pay for the bank’s attorney which could run you an additional $1,000.
Mansion Tax (Condos & Co-ops): While the threshold for the mansion tax in New York City is $1,000,000, you certainly won’t be getting a mansion for that price by most people’s standards. The mansion tax, also technically considered a transfer tax, is paid by the buyer on properties equal to or larger than $1,000,000. The tax amount is equal to at least 1% of the sale price. This only applies to properties purchased for that amount or more so if you bought something for $999,999.99, you owe nothing. One penny more and be prepared to pay at least $10,000. You can find more information in our dedicated mansion tax post.
Title Insurance (Condos Only): If you are purchasing a condo and getting a mortgage you will need to get title insurance. This cost can vary depending on the provider but plan on 0.45% of the purchase price. Title insurance is expensive, but it protects buyers and lenders against claims on the title of your property prior to you owning the home. For example, unpaid property taxes or undiscovered liens are two potential issues for which title insurance protects you (and your bank). While expensive, a bank probably won’t lend you money without title insurance.
Mortgage Recording Tax (Condos Only): And the hits just keep on coming for condo purchasers… The mortgage recording tax requires purchasers to pay 2.05% on mortgage amounts under $500,000 and 2.175% on mortgage amounts above $500,000. Remember this is the loan amount, not the purchase price. That’s real money out the door and paid at closing.
Don’t Forget About Everything Else (Condos & Co-ops): Smaller items such as appraisals, application fees, and incidentals can start to add up. Some of the mortgage fees may be negotiable so don’t hesitate to ask your bank to see if they’ll be willing to chip in. If you don’t ask, you’ll never know.
Transfer Taxes (New Development Only): This typically only applies if you are buying a new development in NYC. While transfer taxes are normally paid by the seller, on new development, buyers are expected to pay. Depending on the strength of the market and demand for the unit, these can be negotiated with the sponsor. The New York City Real Property Transfer Tax is 1% of the price if the value is $500,000 or less, or 1.425% if over $500,000. Unfortunately, New York State also has a transfer tax. New York State charges you an additional 0.4% transfer tax on the purchase price so all in, expect to pay the 1.4% or 1.825% transfer tax on new development.
Sellers can expect to pay a lot more than buyers, largely because they have to cover the broker commissions, which is traditionally 6 percent (split equally between the listing and buyer’s brokers). The selling cost can be higher for co-ops due to the flip tax. In total seller closing costs can total more than 9% of your sale price!
Commission Costs (Condos & Co-ops): This makes up the lion’s share of the closing costs when selling a home. Unless otherwise negotiated, sellers in NYC pay all of the commissions (including the buyer’s agent’s commission, hence the half-truth that it’s free to have a buyer’s agent). Typical commissions range from 5-6% of the apartment price in NYC. These commissions are usually split evenly between a buyer’s agent and a seller’s agent.
Transfer Taxes (Condos & Co-ops): In a resale transaction (as opposed to new construction), the seller is responsible for the transfer taxes mentioned above - 1.4% for properties below $500,000 and 1.825% for properties above $500,000. Yoreevo also has a dedicated transfer tax post for those looking for more information.
Attorney Fees (Condos & Co-ops): Most real estate attorney fees will generally range anywhere from $1,500-$4,000 for the transaction. Real estate attorneys in NYC typically charge you a flat fee upon the closing of the transaction.
Flip Tax: (Co-ops) A flip tax is a fee typically paid by the seller to the building and is not deductible as a property tax. Flip taxes are significantly more common in co-ops but not all co-ops have a flip tax and some condos do have them. Yoreevo conducted a sample and found the most common flip tax is 2% of the sale price but varies. If negotiated as part of the transaction, buyers can pay the flip tax as well.
Condos are more flexible than co-ops since you’re buying real property which gives you full ownership and more freedom to use the property. Co-ops tend to have more rules about what you can and can't do.
The infamous co-op board sets their own standards in terms of the approval process as well as how the building is managed. Seeing that everyone owns shares in the building, the community as a whole is more concerned with who the building does or does not allow into the building. Co-op boards also require an interview to meet you and ask any questions regarding the information you provided. They can still deny any applicant outright as they choose. For a condo, the only way potential buyers can be rejected is if the condo exercises its right of first refusal. In order to do so, the condo would have to purchase the unit on the same terms as stated in the contract between buyer and seller and is very rare.
Another restriction for co-ops owners is the ability to make renovations. Even after presenting your renovation plans to the board, you may still be denied. It is best to learn as much as you can about each individual co-op since each has its own house rules and guidelines for shareholders.
It all depends! The straightforward nature of buying a condo plus the fact that in some cases you can finance up to 90 percent of the purchase price and rent your apartment freely makes this form of ownership a top choice for flexibility, especially among investors, foreign buyers and parents purchasing for their children. That being said, there are significantly fewer condos to come by and they are usually more expensive.
On top of lower prices, co-ops also tend to have more of a community feel which appeals to many buyers. Co-op owners are more likely to see their ownership as part of the whole building rather than their specific unit. Closings costs will also be lower in a co-op.
If you’re unsure whether a co-op or condo is better for you, send us a message and we’re happy to run through the pros and cons of each!
1. Can You Deduct Co-op Maintenance Fee?
You can deduct the portion of your maintenance that pays the co-op’s property taxes. Your co-op will tell you this every year. However, because of the new tax law, there is a $10,000 limit for deducting state, local and property taxes. This prevents most people from deducting property taxes.
2. How Long Is The Approval Process for A Co-op?
While each co-op is different, you should plan on at least six to eight weeks for the entire approval process.
3. How Long Is The Approval Process for A Condo?
The process is much quicker for a condo - usually two to three weeks
4. What Are The Rules For A Co-op?
New York City co-op boards are notorious for their rules which can be found in the co-ops “house rules.” These rules cover general topics such as common areas, noise levels, and pet guidelines. It is best to check each co-op’s house rules since they may be different.
5. What Are The Differences In Approval Process For Condo And Co-op?
Co-ops applications are usually more involved and require an interview. Your purchase can also be outright rejected. Condos also require an application, often with much of the same information requested by the co-ops, but do not require and interview and denials are extremely rare.
6. Can I Rent Out My Co-op?
Each co-op is different with its own house rules and policies. Generally, most co-ops either don't allow you to “sublet” (a co-op’s term for rent) the property altogether or require you to own the property for a certain amount of time before giving you permission to rent.
7. Can I Rent Out My Condo?
Yes, since your buying real property, in most cases your allowed to rent out your condo. An application may still be required.