Everything to Know About Buying a Co-Op, According to NYC Real Estate Pros

published Dec 23, 2023
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Street in West Village, Manhattan, New York City, USA
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You make a lot of big choices when buying your first home. One of which, of course, is what type of home you want to live in. If you reside in a metro area, condos are popular but pricey. Co-op housing is often less expensive than traditional real estate — however, it’s not always an outright bargain. You might know co-op is short for cooperative housing, but beyond that, you’re probably wondering the following question: What is a co-op? 

From a lengthy application process and strict income requirements to a unique decision-making process, there’s much to learn about this communal living situation. To help you understand co-op ownership, I spoke with licensed associate real estate broker Kimberly Jay and John Walkup, co-founder of real estate data analytics company UrbanDigs.

What is a co-op apartment?

“[Co-op] owners do not actually own their physical [unit],” says Jay, who has over 15 years of experience selling property in Manhattan. When you buy into a co-op, you don’t own the title or deed to the apartment you’ll live in. “You get a proprietary lease that allows you to occupy a specific unit,” says Walkup, who is on the co-op board where he lives.

The building is owned collectively by a nonprofit corporation that determines how many shares each unit will have when the structure is converted into a co-op, according to CooperatorNews, a New York-focused publication. You, as a co-op owner, hold shares in that company. “Each unit is allocated a certain amount of shares that in total make up the corporation,” Jay says. 

Walkup adds that “the size and amenities of your [co-op] apartment determine the number of shares you own.” Generally, two “identical units” will have the same number of shares, per CooperatorNews.

According to Cooperative Housing International, New York City is home to half of all the co-ops in the United States — co-ops are scarcer in non-metropolitan areas. Jay says that in places like New York, there’s also “a bigger buyer pool” for the co-ops. 

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How does a co-op work? 

Each co-op has different rules and requirements, as determined by the co-op’s board. Jay says shareholders work democratically by appointing board members. A board typically has four officers (president, vice president, secretary, and treasurer). “[The board runs] the finances of the building. They hire the managing agent. They are the managers of the building,” Jay says. These individuals also set the co-op rules.

Co-op shareholders vote on some big-ticket issues. Jay points to an example of redoing the lobby as an issue that shareholders and the board would vote on. However, the board doesn’t put every item up for a vote. Jay says some boards will cut down on building workers, such as elevator attendants, without a vote if they’re trying to keep expenses down.

Co-op boards must operate within state corporation laws, and most co-ops have one-year terms for board members, who can be reelected annually.

Co-ops vs. Condos 

The major differences between a co-op and a condo could sway you one way or the other.

Shareholder vs. Owner

As mentioned, as a co-op shareholder, you own shares in the building cooperative, not the unit itself. You’re limited in scope with what you can do to your unit without approval, as you don’t own the deed — the nonprofit corporation that owns the building owns the deeds to the units. Any major renovation requires co-op board approval.

However, when you buy a condo, you own your unit and you can do with it what you want. “You get a deed, [your condo is] yours, you can mortgage it, sell it, bequeath it, whatever,” Walkup says. (Of course, it is still limited by HOA rules.)

Monthly Fees

Walkup notes that monthly co-op fees are usually higher than monthly condo association fees. “Typically, co-op maintenance fees include property taxes, building maintenance, utilities, and the underlying mortgage,” he says. A co-op board may also ask shareholders for extra money to increase building reserves or pay for a one-time project. 

Condo fees are for amenities and common area maintenance. “Property taxes and mortgages are separate and are paid by the condo owner directly,” Walkup says.

Financial Requirements

Financing a co-op can be more challenging than taking out a traditional mortgage loan. 

“Some co-ops may allow 20% down when you purchase,” Jay says. “Others don’t allow any type of financing,” she adds. According to Jay, many co-op buildings require you to have a specific amount of liquid funds available in addition to the money down. According to Jay, you should have enough money to pay for two years of monthly co-op fees. She notes that more stringent buildings look for even more liquidity. 

On the other hand, when financing a condo, traditional loans allow buyers to put down as little as 3% of the total home cost. Your assets and income are reviewed by the bank when you apply for the loan, and you’ll either be approved or denied.

Selling a Co-Op Unit vs. Selling a Condo

“Many co-ops have a ‘flip tax’ in place, which is a fee paid to the co-op when you sell your unit and usually added to the building’s reserve fund,” Walkup says.

Traditional condo sales don’t have an added cost you need to pay to the building when you sell.

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Pros and Cons of Co-Ops 

Think a co-op is right for you? Jay and Walkup expand on some of the benefits and drawbacks.

Pro: Lower Prices

Housing co-ops provide affordable, community-oriented housing. According to Jay’s UrbanDigs data for all Manhattan closings in November 2023, a studio-sized condo had a median price of $628,000, while a studio-sized co-op had a median price of $419,000. Similarly, a one-bedroom condo had a median price of $1.08 million, while a one-bedroom co-op had a median price of $708,000. 

Con: Rigid Buying and Application Process

The lower-priced co-ops have pretty strict financial requirements, as previously stated, with the final say up to the board. “There is an approval process with an interview for you to qualify,” Jay says. 

Pro: A Stable Environment

“The co-op buying process is long and typically undertaken by people who want to be residents in the building,” he says. “As a result, they tend to stay longer and tend to be sounder financially, as the board qualifies each purchaser,” Walkup explains.

Con: Less Freedom

In addition to needing board approval for most changes to your unit, a co-op apartment is not a good choice for a rental property. Jay says that many co-op buildings have stringent rules against leasing. “[In] some co-ops, you can never lease the unit. Other co-ops have a little more liberal sublet policies,” she says. 

Jay says that some co-op buildings will let you rent after “two years of ownership,” but this also comes with strict requirements. “Each year, the person [renting] has to be approved because they want the people that own the shares, the owners, to be the ones who stay in the unit.”

Pro and Con: Older Buildings

Co-ops are not generally new builds. People who prefer a newer, more updated building and contemporary amenities may feel more at home purchasing a newer condo, according to Jay. 

On the flip side, your co-op unit could serve as the starting ground for board-approved renovations with historical charm. “You could make it your own if you wanted to with [a] little TLC,” Jay says. (It’s true — some co-op renovations are stunners, like this one in Queens, this chic gut renovation, and this bookish co-op kitchen remodel.)