Buyer 3: Should I Buy a Coop or a Condo?

Looking more closely at the condo ‘advantage’

When beginning their search, most buyers initially voice a preference for condos. Before getting into whether or not that’s a good idea, let’s explore some of the basic facts of both these ownership structures. Condos are real property. They come with a deed and title. They’re not tightly regulated; anyone can purchase a condo, regardless of employment, citizenship, planned usage, credit, or mortgage product. Owners are billed common charges (similar in function to HOA fees), and quarterly tax bills. Condo boards hold only a right-of-first-refusal on purchases in their buildings.

The Scoop on Coops

Coops are not real property; the buyer is technically purchasing shares in a corporation which entitle them to lease a space still owned by the coop. Mortgages may be used to purchase these shares, and they’ll valuation will fluctuate along with the real estate market. Owners receive a stock certificate and proprietary lease upon purchase. Coops boards require lower debt-to-income ratios, more post-closing liquidity, higher credit scores, and higher down payments than condos. Coops will also have restrictions on usage, with primary occupancy preferred, and regulations on gifting, co-purchasing, subletting, and parents buying for children. Coops will have tighter standards on citizenship status, requiring owners to be US citizens, or have a US visa with funds held in a local bank. Coops typically require interviews of applicants, and theoretically may refuse a purchase without stating a reason for doing so. Shareholders are billed a single monthly maintenance payment, which includes both the expenses associated with building upkeep (similar to an HOA fee) as well as their portion of a single tax bill for the building. Click here to learn more about the difference in purchase timeline between coops and condos.

So Why Buy in a Coop?

Why, then, would buyers consider purchasing in a coop? First, coops comprise about two-thirds of the purchase inventory in Manhattan, so disregarding them limits a buyer’s options considerably. Second, coops typically sell for 25% less than condos. Their monthly carrying costs are lower as well due to their tax structure. So, buyers at most price points will find that virtually all of their more affordable options are in coop buildings, not condos. In addition to the affordability of coops, their more regulated ownership structure offers advantages as well. Because the condo market is disproportionately made up of investors and foreign buyers, it tends to become over-valued in seller’s markets, and tends to over-correct in buyer’s markets. The value of coops is much more stable. In down markets, coops experience very few foreclosures, since every shareholder purchased as a primary residence with no less than 20% equity in the home, and fewer were allowed to use adjustable rate mortgages. Holding the reins on subletting also gives a coop more of a communal, neighborly feel, while some condos feel more like hotels.

In short, if an NYC buyer is purchasing their primary residence and is employed locally, odds are they will find more attractive homes in coops rather than condos. If a buyer is foreign, an investor, or looking to purchase in new development, condos will be their only option.