Ownership — Purchasing a condo is similar to purchasing a house. If you purchase a co-op, you technically do not own your apartment from a legal standpoint. Rather, the entire building is owned by a single corporation. At the closing you are purchasing shares in this corporation as opposed to the actual apartment.
In most cases, the larger and more expensive the apartment you are purchasing, the more shares you will receive. At the closing, simultaneous with the purchase of shares, corporation will sign a lease with you that gives you the right to occupy the apartment you have just bought. Costs to Purchase — In NYC, the purchase prices of co-ops are usually much less expensive than condos, and you can receive more bang for your buck, so to speak, when it comes to square footage.
Purchasing a condo can also mean higher closing costs, since you will be required to purchase a title insurance and pay a mortgage tax if you choose to finance your new home; neither of which are required when purchasing a co-op.
Speaking of mortgages, condos may offer more flexible options if you do not have a large amount of cash for a down payment. Some co-op boards require a higher down payment than condo buildings, in addition to a year or two worth of mortgage and maintenance charges left over in your checking or saving account after the down payment. This is called a liquid assets requirement and the exact amount varies from building to building.
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.
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.
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.
Rules may vary, such as subletting may never be allowed or only allowed after a number of years of shareholder occupancy. 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. 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. It seems that with all the strict rules in place, you wouldn't want to bother with purchasing a co-op.
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.
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 tax abatements periodically and as needed.
Good management companies will also. 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. 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.
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. 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. 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. 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.
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. As a co-op board is assessing your qualifications, you should be assessing the cooperative itself as well. 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. 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 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. In more extreme cases, a co-op may restrict the maximum amount of subletting during the lifetime of ownership to 1 to 3 years.
NYC co-ops have strict financial requirements for purchasers in addition to a grueling board application process. A typical co-op board application requires the submission of a completed REBNY Financial Statement , supporting bank and statements, tax returns as well as reference letters. Post-closing liquidity is how much in liquid assets a buyer has after closing on the apartment and factoring in the down payment and buyer closing costs.
Furthermore, a co-op building in NYC has no obligation to provide the reason for any board rejection. Condos, on the other hand, have a much less rigorous application process which only rarely results in a rejection from the board. A condo may only reject a purchaser by utilizing its right of first refusal , however this requires the condo itself to purchase the unit at the same terms being proposed between the prospective buyer and seller.
Another factor buyers must consider when choosing between a condo and co op in NYC is the ease of obtaining a mortgage. Because of the more onerous board approval process with co-ops, it typically takes longer to close on a co-op apartment compared to a condo in NYC. The average closing timeline for a financed co-op deal is two to three months from the time a fully executed contract is in place.
There are a number of factors to consider when choosing between a co-op and condo in NYC. Co-ops are generally less expensive which means you can buy a larger home if you opt for a co-op instead of a condo. Although co-ops are cheaper, they may be more difficult to afford as a result of their higher down payment rules and stricter buyer financial requirements. A co-op generally works well if you intend on living in NYC indefinitely and using the property as a primary residence.
A co-op is a better choice for buyers who plan on living in NYC and using the apartment as a primary residence indefinitely.
However, a condo is a better choice if you plan on moving or buying a larger place in a few years and wish to continue to own and rent out the apartment.
In addition, co-ops have lower buyer closing costs versus condos. However, the higher down payment rules and buyer financial requirements for co-ops often negate any affordability advantage a co-op may have due to a lower purchase price compared to a condo. Condos are a considerably more flexible form of home ownership versus co-ops. Condos have little or no restrictions on subletting, and most condo buildings are significantly less strict when it comes to rules and regulations versus co-ops.
Owners of condo units generally have more liberty and flexibility to improve their unit with renovations and improvements without being subject to the onerous approval process of a co op board. Furthermore, selling a condo is faster because most condo bylaws require the Board to review and approve a purchase application within 30 days of the submission of the application. Price point, location, layout, exposure, monthlies and building characteristics all impact the marketing timeline for an apartment in NYC.
If you have small minded neighbors who harbor memories of petty grievances against you, they may simply choose to give you a hard time by rejecting numerous purchasers for your apartment. And because most co-op buildings require potential subtenants to go through a similar board approval process, if they allow subletting at all, you can find yourself in the same situation of not being able to sublet your co-op apartment if some board members happen to dislike you.
Last Updated: January 12th,
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