Dear PoP – What’s the difference between Coop and Condo?

Photo by PoPville flickr user Rukasu1

“Dear PoP,

I am a first time home buyer from the Ohio farm lands. I have living in DC for about 18 months and I am finally looking to buy a condo, but I have a question; what is the difference between a condo association and coop? I have not heard to much about either, so I would love to hear some experiences from the readers.”

I know folks have spoken about this before. Simply put, a condo is when you purchase your unit and a coop is when you purchase a “share” of the building. Does anyone know what the pros and cons are of purchasing a coop vs. a condo?

22 Comment

  • Co-ops can get sticky, and many banks are reluctant to loan into them. The typical downpayment to get into a co-op is HUGE compared to a condo – you can get into an FHA-approved condo building for a 3.5% downpayment, but the co-ops I looked at when buying needed 10% down. On a 300K unit, that’s a chunk o’ change.

  • more and more banks are willing to finance coops. I purchased and sold my coop w/ not a problem.

    the few things I didn’t like (cons) were as follows:
    -Limitations on renting out the unit for extended period of time
    -Having to submit and get approval for a roommate
    -I couldn’t get a line of credit or a bridge loan (I didn’t need either but was told I couldn’t get them by a bank)

  • Previously, coops didn’t have to pay the DC transfer tax–a major advantage. But that exemption was recently eliminated.

  • I now live in a single-family house, but previously lived in both a co-op and a condo. Besides the issue of financing (more places issue loans for condos than co-ops), the principal distinction is one of control. Co-ops can “control” their residents more than condos do. Whether this is a good thing depends on the individual; I liked the fact that my co-op essentially prohibited tenants, which resulted in better overall building maintenance and fewer concerns that the tenant ratio would “tip” so high that new buyers would have trouble getting financing. On the other hands, co-ops tend to be a lot more bureaucratic than condos.

  • Common ground living isn’t for everyone, but given a choice (for the long term) I’d rather live in, and especially own in, a cooperative apartment building rather than a condominium apartment building.

    The more restrictive financing requirements in a cooperative apartment building often result in a better collective of more solvent unit owners with substantial equity in their individual apartments and thus a more stable, better association of regular paying unit owners.

    There are generally fewer foreclosures, less turn over of apartments, and more long term residents in coops. Again, they aren’t for everybody.

    I just don’t like being part of an association where unit owners and their lenders can and do often get away with not paying their unit’s share in the association, and then subsequent special assessments have to be made upon and paid by the rest to make up for the deadbeats.

    Not to sound uppity, but the common building expense bills simply have to be paid. If you’re a responsible, stable and solvent homeowner, why not better join a group that is also ?

  • I lived in a coop for a while and liked it. It’s a little bit more burdensome to buy and sell the coop. You pay a little less than you would for a similar condo, and you sell it for a little bit less than a similar condo would sell for–basically a wash.

    I liked that the other people in the coop were really invested in the building…much more friendly and caring than most condo buildings.

    On the flip side, there is a board that interviews prospective buyers before approving them. It’s pretty much a formality, but, it is more red tape.

    The downpayment requirements for a coop these days are higher, usually around 10% vs. 3.5% for a condo. But this cuts both ways. The coop is typically more stable. Whereas I have looked at condos with 50% investor ratios (e.g. 50% of the units are not owner occupied or are rented out), and it was impossible to get an FHA loan for that building anyway.

    Finally, the last major advantage of a coop is that the coop can borrow money collectively. So, suppose the building needs to be repointed or some other work that costs $1 million. The coop can borrow this money collectively and pay it off over 15 years like a mortgage. However, a condo typically must assess its residents for any repairs–so if there is a really big construction project that has to happen, then everyone pays for it up front.

    Just some things to think about. As long as you plan to stay for a few years and you like the place you are going to buy, you probably will be fine with either ownership structure.

  • Check out this website.

    A great resource for anyone considering buying into a coop building

    • they are also the folks who handle almost all (maybe 100%, i’m not sure) dc co-op share transfers.

      a responsible co-op has a sizable reserve. when i bought into mine, i was most comforted by the fact that in almost 100 years, there had not been a single assesment on residents bc the reserve was so responsibly managed. i had no problem getting a position on the board, giving me plenty of say in how the co-op spends its money.

      i knew nothing about co-ops and had i not accidentally ended up falling in love with a unit i accidentally stumbled on. i did a ton of googling and qeustioning realtors with local co-op experience (mine has lived in dc co-ops for over 20 years) before i felt even close to comfortable with it. and now i love it.

  • I can’t beleive that nobody has commented on the fact that in the majority of coops, the ‘association’ or monthly maintenance fees are usuaully significantly higher than in a condo. I know you pay less for the unit itself in a coop and in the end the total cost is roughly the same (apples to apples of course) but wouldn’t you rather have that money going towards your equity? Also, you can’t write off ANY of the monthly fees, giving the condo a significant tax advantage every year…

  • You can write off the portion of coop fees that goes toward taxes. This will often be up to 1/3 of a coop fee.

  • Co-op fees are sometimes higher, but they include your real estate taxes, so it often winds up being a better value. I purchased one in DC as my first place, and it worked out well, as it allowed me to get in at a lower market rate than I would have paid for a comparable condo.

    In general, co-ops sell for a bit less than condos in DC, most likely because of the additional challenges with lending (all the major banks now generally finance co-ops in DC, but you can’t use some of the cut-throat rate internet banks). Banks will generally require a lot of documents regarding a co-op’s management and stability, as it is more challenging for them to foreclose on you – they’ll be dealing with a corporation rather than a single customer.

    Don’t get scared off, however. For all intents and purposes, it’s pretty much the same as owning a condo. And the process in DC is nothing like the horror stories you may have heard in NY (with heavy scrutiny in interviews, personal references, hefty income requirements, etc).

    The imposition of the transfer tax on co-ops is a bummer for those selling now, but it was one of the measures intended to help close DC’s budget gap. And to be frank, it was kind of a silly loophole to begin with.

    Edmund J Flynn is the title company for the majority of co-op sales in DC. Someone linked to their page, but they also have a pamphlet that really explains the differences in detail – you can request it here (not sure why they don’t have it PDF’ed yet):

    • Great response. I live in a co-op, and I think the co-op bashing here has been primarily by people who have never been a part of one.

      Simply put, there’s really nothing about either a coop or condo that’s a dealbreaker. Go after the real estate you’re interested in, and if a place you visit “clicks” then that’s what matters. Limiting your real estate options based on location, size, or price is fine, but to categorically limit yourself based on the structure of ownership would be silly.

      Only piece of advice:
      Regardless of what you settle on, check the financials of the organization you are going to be a part of. This is especially true of a co-op since you are, technically, investing in part of a corporation. However, an understanding of a condo’s financials is also an important indicator for the likelihood of special assessments in the future.

  • link to the book (in pieces) here:

  • Just as a clarification to the previous poster — condo associations can also borrow money, but it typically requires approval of a greater number of owners (up to 2/3rds in some cases).

  • I don’t think you’ll notice much of a difference between a coop and condo. I hadn’t heard of coops until I bought mine three years ago, but would have no hesitation about buying another one. They do go for a little less, which in my case meant I got more space for my money, and not having to pay the transfer tax saved me thousands at closing (I haven’t heard that it was changed, so can’t speak to it currently). Coops also take responsibility for central systems, so when I moved in and an unknown leak in my bathroom caused my neighbor’s ceiling to flood, the coop took care of both the plumbing and the internal repairs. My building is also nearly all owner occupied – vs the condo building I lived in before which was mostly young people there for a year or two. I’ve definitely noticed that neighbors are friendlier and do things like accept packages or pet sit. We have not had any foreclosures or assessments. Fees are only a few hundred/month but include utilities and property tax, though I’ve heard that some buildings – like the Watergate, DC’s most famous coop – use high monthly fees as a way to guarantee residents of a certain income level. My mortgage is Bank of America and I had no trouble finding one with 5% down.

    Overall, I wouldn’t weigh coop vs. condo too heavily. It’s not a good fit for someone looking for a rental property, but as a homeowner, it’s a great option.

  • I lived in a co-op for 4 years. They can be great as long as you know you will want to live in your unit while you own it – you could rent your unit in my building but there were time limits and quotas on how many could rent.

    Co-op fees in DC may seem to be higher, but I think that is mainly because they are usually older buildings that also tend to have higher fees due to higher maintenance costs. Our fees included our heat and water, so considering that the cost was actually quite low.

    Taxes in a co-op can be VERY LOW – my annual taxes were $125/YEAR, because you are only paying your share of the building’s taxes. Compare that to $200+/month in taxes for a $300,000 1BR condo.

    Also, co-ops can be a great deal for first time home buyers because they tend to cost less than similar condos (I think mainly because investors don’t buy co-ops). When I bought my 1BR it was the cheapest unit that size for sale in Adams Morgan and needed work (I spent $10,000 in renovations); I only put 5% down. When I sold it 4 yrs later, it was again the cheapest 1BR for sale, but it sold for nearly triple what I paid for it and sold in a week.

    Our building had agreements with 4 different banks to provide mortgages. So while you don’t have a huge array of banks to choose from, you still had options…

Comments are closed.