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Condos vs. co-ops: for buyers, the difference can mean a lot

The housing market in New York City is very different than it is in the rest of the nation. One significant difference is the high number of cooperatives, or "co-ops" in the market. Although co-ops outnumber condominiums in New York City by 75 percent to 25 percent respectively, condos continue to increase due to new construction.

As a result, New York buyers are increasingly being faced with the decision between co-op and condo. Although these two types of housing may seem similar (and are easily confused because both are governed by boards), they are quite different when it comes to the purchase process and ownership responsibilities. As a result, it is important to be familiar with the main differences between the two before deciding what to buy.

Co-ops

When you purchase a co-op, you are not actually purchasing real property. Instead, you are buying shares in a corporation, which owns the building. The shares entitle you to a proprietary lease of an apartment in the building, which gives you landlord-tenant rights and protections. In general, the larger the apartment, the more shares that you need to purchase.

Unlike condos, the approval process for co-ops is very intensive. The co-op board must approve you before you may purchase shares (some boards are very selective). You typically must provide the co-op board proof of your net worth, assets and annual income, in addition to copies of tax returns and brokerage statements. Also, mortgages typically may not be used to finance co-ops. Instead, co-ops are financed through the co-op board. Many boards require you to come up with down payments of 25 to 50 percent of the purchase price. Some especially excusive buildings do not allow financing at all, forcing you to pay the entire purchase price outright.

Once they have completed the purchase process, co-op shareholders must pay a monthly fee to cover building expenses, such as heat, hot water, real estate taxes, staff salaries and any mortgage debt on the building. These fees can be substantial.

Condos

The main difference between a co-op and a condo is that you actually own the apartment. Because of this, you are taxed individually on your unit, rather than paying your share of the building's taxes through monthly co-op fees. Owning units individually also gives condo owners more flexibility when it comes to subletting their units in most cases (co-op boards may strictly limit this).

Because you own the unit you occupy, you have the option of financing the condo by using a mortgage. Although some condo boards may ask buyers to submit some of the same financial information as co-ops do, condos generally cannot reject potential buyers, unless the board has the financial ability to buy the apartment on the same terms offered. However, few boards have sufficient finances to do this. Generally, you will pay higher closing costs with a condo than a co-op.

Additionally, like co-ops, condo owners are required to pay monthly fees for maintenance and upkeep of common areas. However, these charges are typically substantially less than co-ops, as there is no charge for the building's mortgage, since all owners own and finance their units individually.

Speak to an attorney

Although condos and co-ops may seem similar, the choice you make has a significant effect on the fees and taxes you pay, as well as the legal rights you have in the future. Before making this significant purchase, contact the experienced real estate attorneys at Greenberg & Wilner. Our Manhattan attorneys can explain your rights and obligations and give you the information you need to make an informed decision. Once you have made your decision, we can guide you through the purchase and closing processes, protecting your rights along the way.

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