What are the differences between a condominium and a co-operative?

Introduction

As a realtor, I'm often asked about the differences between a condominium and a co-operative, the two principal alternatives to a traditional home whereby the owner owns the land and any buildings on it. 

Like New York City, where I lived for 26 years, there are a relatively high number of co-operatives in the Washington DC area.  Condominiums (condos) and cooperatives (co-ops) are both forms of multi-unit housing, but they differ significantly in terms of ownership structure, responsibilities, and legal frameworks. 

For the purpose of clarity I am going to divide the two by the various criteria on which they are beholden. 

Ownership Structure

Condominium (Condo)

In a condo, each unit is owned outright, except the common areas (hallways, amenities, etc.) which are shared with other residents. The ownership is structured like real estate, where you hold a deed to your specific unit.

Cooperative (Co-op)

In a co-op, ownership is expressed in the form of shares in the underlying cooperative corporation that owns the entire building. These shares entitle you to a proprietary lease, allowing you to live in a specific unit.

Legal Framework

Condominium

They are governed by state condo laws and individual deeds, and condo owners themselves have a direct interest in their unit as real property.

Cooperative

They are governed by corporate law since a co-op is considered a corporation. Ownership is expressed in the form of shares, rather than real estate directly.

Purchase Process

Condominium

Unless one pays for the home by cash outright, the purchase is financed through a mortgage, and the owner holds a title to the property as per the case with a traditional home. 

Cooperative

Purchasing a co-op involves buying shares in the cooperative, but first the co-op board must vet approve the purchaser, a process that can put some off when compared to purchasing a condo. 

Maintenance Fees

Condominium

Owners pay monthly maintenance fees to cover building upkeep, amenities, and shared utilities. These fees are based on the relative size of the unit, meaning the bigger the unit the higher the fee. 

Cooperative

Co-op residents pay monthly fees that include maintenance costs as well as the building’s mortgage (if applicable), property taxes, and utilities. The fees are usually higher than condo fees due to these added expenses and similarly they are apportioned by way of their relative size. 

Decision-Making and Control

Condominium

Condo associations are typically managed by a board elected by the unit owners. Each owner has voting rights in the association.

Cooperative

Co-ops are run by a board of directors elected by the shareholders/residents. The board has more control over the management and decisions of the building, and they can impose stricter rules, including the aforementioned vetting process as far the barrier to entry.

Financing

Condominium

Mortgages for condos are typically easier to obtain, as they are treated as real estate purchases.

Cooperative

Financing a co-op can be more complex. Some banks offer "share loans" instead of traditional mortgages, and they may have stricter terms. Additionally, some co-ops limit the amount of financing a buyer can take on (e.g., requiring a large down payment). There is also a smaller pool of loan officers to draw from when it comes to loan qualification as I have learned over the years.

Subletting

Condominium

Subletting is generally easier in condos, with fewer restrictions. Owners have more freedom to rent out their unit.

Cooperative

Subletting in co-ops is typically more restricted. The co-op board may impose strict rules or limit the number of units that can be rented at any given time.

Summary

Condominiums offer individual ownership of units, easier financing, and more flexibility with rentals and decision-making.

Co-operatives involve purchasing shares in a corporation that owns the building, with stricter rules, more control by the co-op board, and usually higher monthly fees that cover more expenses.

Both options have pros and cons, depending on personal preferences, financial goals, and lifestyle needs. However, like I tell my buyers, co-operatives are more likely to be misunderstood. While they are typically attached to older buildings that carry bigger reserves they offer more square footage for the buck, and the fees, although higher, typically cover ALL the ancillary costs, including utilities and property taxes. 

As always, thank you for reading and feel free to comment or like the post!







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