What's the Difference Between a NYC Co-op and a Condo?

Explore key differences between co-ops and condos. Understand how they affect buying process, closing, future taxes and qualifications needed in NYC.

If you have ever wondered what a co-op is or what a condo is, you're one of many. It's a common question that those working in real estate hear.

Knowing the difference between them and the process to purchase is crucial to any buyer considering either.

Co-ops or cooperatives may not be what you imagine. It's actually a not a piece of real estate but a corporation with shares. These shares get divided among its corporation members.

What's unique is that these shares then get expressed in the form of a proprietary lease of a residential unit in a building. Each unit represents a specific number of shares.

For example, a two-bedroom apartment may hold 250 shares in a cooperative, while a one-bedroom apartment expresses 150 shares.

A condo or condominium is real property unlike a co-op.

Each owner actually owns their own residential unit, but shares the real property that is known as the common areas of the condominium.

Condos have their own peculiarity in that the real property buyers are purchasing is essentially air rights as many condo units are just a space within a larger structure or building.

It's easy to see from this perspective, that owning a co-op or condo unit is, indeed, distinct from buying a home, a townhouse, or a building.

How Are Condos and Co-ops Different?

  • Condominiums are real property, but cooperatives are not. Instead, your shares of the cooperative are represented by your housing unit.
  • Both condos and co-ops are governed by boards made of elected members. Co-op boards can deny applicants, but condo boards cannot.
  • Maintenance, taxes, and any assessments are monthly financial obligations associated with both condos and co-ops.
  • Co-ops typically have stricter rules and requirements to buy into the co-op. These usually pertain to down payments, financial qualifications, subletting, pets, and renovations.  However, generally, co-ops are much more affordable than condos.
  • Condos typically have less stringent rules and a much easier board approval process. Subletting is normally allowed without restrictions which makes condos great investment properties. However, they are usually much more expensive than buying into a co-op.
  • Flip taxes are associated with both condos and co-ops when selling.

Do Co-ops and Condos Have Different Rules?

The interesting thing about co-ops and condos is that while real estate-wise they are expressed very differently, the rules governing both structures can be very similar.

They can be so similar, sometimes, the rules can be nearly identical, and some condos are now referred to as condops.

But what makes them so similar?

Co-ops and Condos both have boards that also make up and enforce governing laws for their building. These rules are called bylaws.

It may seem like they are making up these bylaws to make your life more miserable, but they are in fact, to protect the bodies, the property, the community, and the values.

In the end, each member or owner should end up benefiting from these rules.

How Do Cooperatives Operate?

Most cooperatives in New York City tend towards having a tight-knit community of homeowners and dwellers. However, you may find that some condo boards also lean towards this goal.

On the flipside, there can be some co-ops that function closer to a condo community, which welcomes real estate investors and may have loose laws on subletting.

New York City cooperatives have a board with a board president.

They convene typically about once a month to discuss the issues affecting the building(s) and residents, any renovation or repair work, assessing maintenance and taxes, as well as approval of any purchases and sales.

Different cooperatives may meet at varying intervals. Some may choose to meet more frequently or less frequently.

Larger issues facing the community may call for member meetings and hearings. Elections for new board members and presidents are also determined by the bylaws.

Expect to pay a monthly maintenance fee which include your taxes.

The maintenance fee usually includes some kind of basic utilities like gas, heat, and water. Some may include electricity, or a reduced flat monthly fee.

Your maintenance fees are also usually paying for basic upkeep and security of the building(s). For larger buildings and complexes a management company is hired for this purpose.

Some smaller co-ops are self-managed and the board members or shareholders might all pitch in.

A certain percentage of your taxes are tax deductible. This is one of the benefits that co-op owners usually look forward to.

Maintenance costs and taxes can also be less than a comparably-sized condo building, but this usually varies from co-op to co-op.

Are Co-op Rules Strict?

Most cooperatives tend to have strict rules about subletting. There are specific reasons for this.

Reducing subletting is more secure as residents will tend to know each other better, rather than renters who may come and go.

Renters also don't tend to have the same sense of ownership which would rule their behavior in how they treat the property and their neighbors.

If a renter doesn't like a neighbor they can always move instead of working towards a better relationship. They may also not be as inclined to care for the property as well if they can just move when the lease is up.

Furthermore, if a renter is not paying their landlord who happens to be a shareholder, or make extensive damages to the apartment, and the shareholder faces financial hardship for this reason, it may mean the shareholder may default on their maintenance fees.

This is a way to reduce risk for the building.

Rules may vary, such as subletting may never be allowed or only allowed after a number of years of shareholder occupancy.

Also, limits on lease terms and board approval may be imposed as well as a surcharge.

Other cooperative may freely allow subletting immediately. One way to usually get around the rules is to directly buy from the sponsor.

Many co-ops may also impose strict rules on pet ownership. Some of this has to do with maintenance costs and hygiene.

However, sometimes it has to do with getting incumbent tenants out who may still be occupying units from the time before the building was converted to a co-op.

Tenants (usually of rent-controlled or rent-stabilized units) who were renting before co-op conversion are protected by NYC tenant laws and cannot be evicted.

They cannot be forced to pay any maintenance fees either. A high number of these original renters living in the building can pose a problem for the shareholders.

Prohibiting dogs or cats may discourage these renters from staying in the building.

The buying and selling procedure is also governed by specific rules. Every prospective shareholder must receive board approval, passing financial requirements in addition to an in-person interview.

Any person purchasing the co-op shares with the main buyer must also receive board approval. In some co-ops, the co-buyer must also reside in the designated residential unit.

Why Would You Want to Buy a Co-op?

It seems that with all the strict rules in place, you wouldn't want to bother with purchasing a co-op.

However, there are a lot of benefits that shareholders enjoy.

Firstly, co-op units are often priced much better than condo units in the same neighborhood.

Of course, this depends from co-op to co-op, but generally speaking, pricing of units are very affordable compared to traditional condominiums, houses, or townhouses of the same size.

Co-ops are perfect for getting your foot into a desirable neighborhood that you might normally be priced out of, while at times, getting the same

Secondly, you might save money on maintenance and taxes.

Again, this can vary, but generally, with good finances and smart planning, many co-op boards can help shareholders pay less for good upkeep, utilities, and improvements.

Taxes also tend to be reasonably low if the co-op board is able to file for J-51 tax abatements periodically and as needed. Good management companies will also

Thirdly, many co-op building have larger residential units than traditional condos.

Because these are usually converted from pre-existing apartment buildings at a time when developers usually built larger apartments with more closets, most of these apartments remained large.

Certainly, again, not true for every single cooperative, but this holds true generally.

Lastly, many cooperatives tend to be a community where neighbors are all co-owners and shareholders, so they tend to look out for each other.

This is not always the case, but working together and living together can often have the effect of community spirit.

How Do You Buy a Co-op Unit?

Buying into a co-op may be an intimidating process for many. But with the right information and preparation, you too, can receive board approval.

Most cooperatives require a minimum down payment. This percentage is normally higher than a traditional house or condo.

Although you have the off-occasion of asking for only 5%-10% down, don't be surprised if you see a minimum requirement of 20%-40% down, which is far more common.

Co-ops trying to attract new blood into their community may bring down the down payment requirement to 5%-10% to make the prospect more attractive.

The down payment is just the beginning of a longer process. However, it really doesn't need to take too long if you know exactly what they're looking for.

Passing board approval is a lot like getting approved for a mortgage.

Every board package is different and will require different paperwork, but they will be asking for a lot of the same documentation your bank will be asking from you.

These things can be past tax returns, pay stubs, bank statements, asset statements, a credit report, any debt statements, and employment documentation.

In addition, you'll be asked to include your loan application, commitment letter, and your sales contract.

Co-op boards will also ask for additional written references; both professional and personal references.

It's best to put together an organized and clean board package, with a cover letter introducing yourself and stating why you want to join their community.

Organizing your package will make the review process much faster. Also, submitting you package in a timely manner will also move things along smoothly to make the next board meeting.

Remember, that buying a co-op is not for everyone. There is usually a minimum credit score required, so if you have a low score, this may not be an option.

The board needs to assess that not only are you of good character, but that you will be paying your maintenance and taxes.

When they are reviewing your referrals and interviewing you, they are trying to assess your character.

When they are reviewing your financials, employment history, and credit history, they are making sure you can pay your HOA fees every month, and have reserves for times of hardship.

Is There an Easier Way of Buying a Co-op Apartment?

Yes, you can avoid all of the trouble by buying a sponsor unit.

A sponsor is the originator of the co-op conversion. It's usually a former landlord or property owner who decided to convert his or her rental building.

They will naturally hold all the units until purchased (normally right of first refusal is offered to the current tenants).

Once a renter leaves, the unit becomes available for the sponsor to put on the market.

The same rules usually don't apply for a sponsor unit, as your purchase counts as the very first purchase of the unit or shares for that unit.

Many of the co-op bylaws do not apply, such as board approval and rules on subletting.

When is a Co-op Not a Good Deal?

As a co-op board is assessing your qualifications, you should be assessing the cooperative itself as well.

Hiring an experienced attorney can help with this process.

It's up to your real estate attorney to review all the financials of the cooperative, the board minutes, and the offering plan.

Your lawyer can advise you on how the financial health of the cooperative is. Not all cooperative manage their finances very well.

This could mean high maintenance fees, high assessments, low returns on sales (depleted property value), mismanagement of facilities and building(s) among other things.

Be on the lookout for rock bottom-priced co-ops that demand all-cash buyers. This usually means that the co-op's finances are in shambles and may not recover for some time.

In turn, it speaks poorly for the resale value and how the building(s) may be maintained.

Many co-op corporations continue to roll out mortgages and refinance almost on an endless basis, which makes sense if it keeps maintenance fees low.

A properly managed co-op will pay the mortgage on time with everyone's collected HOA fees, property taxes, and have good reserves for emergencies.

They'll make carefully thought out and planned assessments that won't break the bank for its shareholders and help the corporation's shares increase in value.

The Takeaway on Co-ops

  • Below market price for neighborhood
  • Generally, larger apartments
  • Can have low HOA fees
  • Co-ops provide an immediate community
  • Can be difficult board approval process
  • Generally, in older buildings
  • Assessments can increase HOA fees significantly
  • Lots of rules are not for everyone

How Do Condominiums Work?

The funny thing about condos is that they can be very similar--in fact at times identical to co-ops, the main difference being that you are dealing with real property as opposed to shares in a corporation.

Generally speaking, however, condos tend to be much more straightforward and lenient than cooperative.

There usually is a board in condominium buildings much like co-ops. They oversee the management of the building, but tend to be more lenient and hands-off with rules.

It's also true that your vote or opinion may have more clout if you own a larger unit in the building.

Larger condo complex like co-op buildings may hire professional management companies. Smaller buildings may find it more cost-effective to self-manage.

Are Condo Rules Strict?

They can be but usually aren't. The reason being that each owner actually owns their unit and they wouldn't be able to evict an owner.

Furthermore, each owner appreciates their own autonomy with their own property.

Rules may be imposed for common areas and community amenities as everyone is a co-owner of these areas.

Be wary of condo boards that behave like co-op boards, as that could mean fines and strict regulations as many view the whole point of a condo is that the rules are more relaxed.

What Are the Benefits of Buying a Condo?

While there are exceptions to the rule,buyers often prefer condos to co-ops because of the more straightforward buying process, less stringent rules, and owning real property.

Furthermore, it's possible to buy a condo in a brand new construction as opposed to co-ops which are normally conversions from older buildings and houses.

Condos tend to have good resale value, especially in a reputable development or building, albeit the unit is still in good condition.

Because the buying process is generally easier, that means selling is also easier. Sales can't be held up either because your co-op board decided to put a sales freeze.

Another reason to consider a condo is that it is perfect as an income-generating property. You can live in it or rent it out as you please, without board approval.

And lastly, many condos in New York City enjoy tax abatements. The 421a tax exemption can bring your taxes down from 10-25 years.

Unfortunately, since the 421a tax abatement program got a major makeover in 2016, new developments with this type of abatement will become scarce.

However, existing condo buildings can always apply for a J-51 exemption for any improvements and renovations as co-op buildings can.

How Do You Buy a Condo?

Some condo buildings have an application process similar to a board package, but not nearly as extensive and is more of a formality.

It usually involves an application with request for the loan application, commitment letter (if financing), contract of sale, and signed acknowledgement forms for rules and bylaws.

However, there definitely condo applications that require a full package, very similar to Co-op board packages, including reference letter.

There is no interview and they cannot reject the buyer unlike a co-op board, but you still need approval to go forward with the purchase.

They can make it very difficult by delaying the process and sometimes by motioning to buy the unit instead if they don't like something about the prospective buyer.

However, this almost never happens as they would need to put up a lot of money to purchase the unit.

As a reminder, they can still seriously delay the process by demanding additional paperwork and giving repeated delayed feedback and requests, eventually scaring away the buyer, who might be having second thoughts about living close to such board members.

Nonetheless, these instances are rare, and more often than not, the sales process tends to be very straightforward.

As with co-ops, there is no board process if buying directly from the sponsor, usually when the building first starts selling its units.

When is a Condo Not a Good Choice?

Condos tend to be flexible real estate option for many, but like other properties, there are always things to look out for.

If you're looking for the laid-back vibe a condo has to offer, you should be wary of lengthy condo applications, high fees, and requirements from the condo board.

Read all the rules and regulations and see if that's what you want to sign up for.

Even with new developments, one can't be too careful.

Some units might look like they have sleek modern finishes, only for new owners to discover the shoddy work and cheap materials.

While inspections are not the norm with new developments, you can always protect yourself with one.

The Takeaway on Condos

  • Condos tend to have more lenient rules
  • Purchase and application process is easier
  • There are more condos tha co-ops available, with a wide range of choices.
  • Resale returns are usually good.
  • Condos are available as new developments.
  • Condo boards can be just as stringent as co-op boards
  • Condos are often significantly more expensive than co-op units.
  • Tax abatements will be almost non-existent for new developments.
  • Luxury amenities may mean high common charges.

What Fees are Involved at Closing for Co-ops and Condos?

Co-ops and Condos impose a flip tax at the point of resale. This amount varies according to the sales price or shares and number of years of ownership.

This can range from 1%-3%. In co-ops, you're usually awarded a lower flip tax with longer years of holding shares.

You can also expect to pay the New York State and New York City Transfer Taxes. These taxes at the state and local level differ from each other and in price range.

The seller usually pays this one like the flip tax, but for new developments, this often gets passed onto the buyer.

For full details, read our piece on NY Transfer Taxes.

From the buyers' side, you'll need to pay the New York Mansion Tax on all sales of $1 million and up. The tax will also vary on price ranges.

The full picture is given in our article on the NY Mansion Tax.

Sellers of new development frequently have different expectations at closing than resellers.

Not only do they expect the buyer to pay the transfer taxes, but can also tack on the sponsor attorney fees and creation costs.

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Ruth Shin
About the author

Ruth Shin is the Founder and CEO of PropertyNest. She shares in-depth insights on real estate, personal finance, and home improvement drawing from her experience as a licensed real estate agent, editing personal finance publications, and managing many home renovation projects. Ruth graduated with a BA from Hunter College in Writing, History, and Special Honors.