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What is the difference between a condo and a co-op?

In both a condo and a co-op, you typically live in one unit, which could be an apartment or a house, in a larger structure or complex. The key difference between the two is in what you, as a homeowner, actually own. 

Condo ownership

The term condo or condominium may refer to the entire complex of homes or to a single unit within that complex. Owning a condo generally means owning both of these:

  • A unit within the condominium complex.
  • A share of the complex’s common area.

Suppose you own a unit in a condo building that has a lobby, pool, exercise room, and reserved parking garage. You share ownership of these common areas with the owners of the other units.

You and the other owners belong to a condo association, which works just like an HOA. It is typically responsible for taking care of the common areas, handling security, and dealing with other matters that affect everyone in the building.

Your unit belongs only to you. Usually, you may do with it as you please, within condo association rules. If you do not live there, you can often use a Condominium Lease to rent it to someone else. If you cannot make it to a condo association meeting, you may be able to have someone else attend and vote for you by using an HOA Proxy.

Co-op ownership

In a co-op, you own a share of the entire property, including all living units and common areas. The co-op is a corporation that owns the real estate, and you own shares in the corporation. The shareholders typically must follow an agreement for sharing the use of the property, much like a Tenants in Common Agreement.

As a shareholder of the co-op, you have the right to use a unit as your home. You basically have a lease agreement with the corporation. You will likely have to follow a few rules, such as limits on subleasing the property. The co-op board, which is made up of the shareholders, can usually decide who may or may not buy shares in the co-op.

What to consider when choosing between a condo and a co-op

When comparing condos and co-ops, it is helpful to think about the total cost of buying a unit, the upfront cost, the ongoing costs of ownership, how you intend to use the property, and the type of relationship you would like to have with your neighbors. You might need to take some time to research the rules and methods of a specific condo or co-op. An Intent to Purchase Real Estate letter can buy you some time to think carefully about a property before you decide whether to buy it. A Home Evaluation Worksheet can help you compare and contrast several properties.

Total cost and upfront cost

In terms of the total cost, shares in a co-op tend to cost less than a similar condo unit. You might have to pay more upfront to buy shares in a co-op. You can usually get a mortgage loan to buy a condo and put as little as 3% down for a conventional loan. A co-op might require up to 20% of the purchase price as a down payment.

Property tax and other ongoing expenses

Most condo owners pay property taxes directly to their local taxing authority, or to their lender as escrow funds. The amount of property tax is based on the assessed value of their condo unit.

Co-op shareholders pay a partial share of property tax on the entire property. For example, if you own 5% of the shares in a co-op, you may have to pay 5% of the total property tax bill.

Both condos and co-ops have other ongoing costs as well. Condo owners must pay regular fees to the condo association to take care of common areas, repairs, security, and other needs. Co-ops have the same need for funds, and they may also include monthly costs like utility services in a single bill for each shareholder. Generally, each shareholder pays a partial share of the total cost for the building’s utilities.

Use and sale of the property

Condo owners are generally free to rent their units out to others and to sell them as they see fit. Co-ops, on the other hand, may not allow shareholders to sublet their units. Co-op boards often have the right to approve or reject sales of shares to someone new. They may be able to reject a sale for almost any reason that does not directly break the law.

Condo associations and co-op boards

Co-ops tend to be more social than condos. Residents often manage all aspects of a co-op, although very large co-ops might outsource the job to a management firm. Every resident of a smaller co-op is generally expected to help run the property in some way. Condo associations, like many HOAs, usually are not nearly as hands-on as co-op boards.

How do I finance my condo or co-op?

Conventional mortgage financing is available for most condo purchases. Since a condo unit is a distinct piece of real estate, a lender can put a lien on it to secure the loan.

Buying shares in a co-op, however, is not the same as buying a condo. When it comes to co-ops, you are usually not directly acquiring ownership of real estate. You're only purchasing shares in the co-op corporation. Hence, mortgage lenders might not want to lend money for something that they cannot foreclose on if you fail to pay. Other types of financing, such as a co-op loan, may be available.

How do co-op or condo boards and associations work?

Condo associations and co-op boards do the same basic job of managing and maintaining the property for the benefit of the owners. Both can usually set and enforce rules for the look of the property and the actions of residents in common areas.

Co-op boards tend to take a greater interest in who may be an owner since the board typically must approve all sales of shares. The Fair Housing Act bars co-op boards from treating potential owners unfairly due to certain factors, such as race. At the same time, they are free to limit ownership due to financial factors and other traits. Some co-op boards carefully screen potential shareholders to make sure they will follow the community’s rules.

To learn more about condos, co-ops, and which one might be right for you, contact a Rocket Lawyer On Call® attorney for affordable legal advice.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.


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