GDoN Revisited by Hipchickindc – 1731 20th St NW

Voted one of the best real estate agents in DC by the Washington City Paper Readers’ Choice Poll in 2009, hipchickindc aka the not-so-hip Suzanne Des Marais is an Associate Broker with Urban Pace. She lives (and sells a lot of houses) in Bloomingdale, but works all over DC, with everyone from first time buyers to highly regarded developers. Unless specifically noted, neither she nor the company that she is affiliated with represented any of the parties or were directly involved in the transaction reported below. Unless otherwise noted, the source of information is Metropolitan Regional Information Systems (MRIS), which is the local multiple listing system. Information is deemed reliable but not guaranteed.

Featured Property: 1731 20th St NW

Original List Price: $349,000.
List Price at Contract: $285,000.
List Date: 04/02/2010
Days on Market: 147
Settled Sales Price: $255,000.
Settlement Date: 09/27/2010
Seller Subsidy: $0.
Bank Owned?: No Short Sale? No

Type Of Financing: Since purchasing in a cooperative is not technically buying real estate, but rather buying a share in a corporation, co-op loans are an animal unto themselves. There are a small hand full of lenders who will do them. Because the financial health of the cooperative is tied together, co-ops often have their own rules regarding a minimum down payment.

Original GDoN is: here.

The Listing can be seen: here. To see the pics, after opening the listing link, click on the main pic and scroll through using the arrows.

As noted in the comments in the original Good Deal or Not (GDoN) post, this unit is in a building that is cooperatively owned. DC actually has a good number of co-op buildings all over the city. Although most were set up with that ownership structure several decades ago, both The Chastleton (at 16th and R St NW) and Capitol Hill Tower (near the new baseball stadium) are both examples of recently structured co-ops.

Living in a co-op feels a lot like living in a condo unit. (I’ve owned in both situations). With condominium ownership, each owner individually owns their unit, while co-op owners cooperatively own the building. What is effectively being purchased is a certain number of shares in a corporation and in turn the owner receives a proprietary lease to the unit. Given that purchasing a co-op is not technically a real estate transaction, one of the advantages used to be that the District did not expect transfer and recordation taxes at settlement, which meant for very low closing costs. Unfortunately, co-ops are now subject to both transfer and recordation, as in regular real estate transactions.

Continues after the jump.

The challenge with looking at co-ops as GDoNs is that they are not true comparables to condos. Most agents and buyers are used to thinking in terms of condo prices. For the same reason that it makes absolutely no sense to compare the price per square feet of houses to condos, it doesn’t work to valuate co-ops in relation to condos. Why? All three are a completely different type of ownership structure.

In the GDoN post, the $508. monthly fee is called out as being “fairly high”, whereas it is probably on the low side compared to a lot of other buildings. It’s important to note that because there is not an individual tax bill generated for each unit in a cooperatively owned building, the taxes are typically paid via the monthly fee. Many buildings also have financing tied to the entire building, which is known as an underlying mortgage. One of the reasons this fee is on the lower side is because the agent mentions specifically that there is no underlying mortgage. In the case where there is an underlying mortgage, even though the monthly fee is higher, the mortgage held by the individual shareholder is adjusted to offset the amount of the building that is currently being financed.

I know. It’s complicated.

Back to the issue of comparing the value of co-ops and condos…What if you are not sure about whether to buy a co-op or a condo? One way of comparing is to look at the overall cost of ownership in either structure. Even with a unit that has a $1000.+ per month monthly fee, it is sometimes possible to purchase a co-op for a lower monthly outlay than a condo unit of similar size and condition.

11 Comment

  • Because of the two reasons mentioned in the good explanation above (among others):

    1. Usually a higher down payment is required
    2. A handful of banks lend for coops

    Isn’t it more difficult to sell a coop?

  • Nice to have this summary from hipchick in light of yesterday’s discussion of another co-op GDoN.

    I think the higher down payment requirements are less of a difference these days as most lenders are requiring higher down payments across the board so co-op financing isn’t likely to be that different from condo financing. Also, it’s true that not every bank will finance for a co-op, but co-op boards can share their financial information with banks in an effort to get more banks to approve loans in their building, which in turn makes it more attractive to buy there and can increase property values. My co-op building (yesterday’s GDoN) had 7 different banks when I lived there who would approve loans in the building and they included most of the major mortgage lenders.

    In terms of selling your unit, your pool of potential buyers will be smaller (no investors who plan to rent out), but as co-op prices are lower, your unit will be very attractive to home buyers who do plan to occupy the unit they are buying. Your profit margin should be the same as the neighborhood overall as you also likely purchased at a lower price.

  • I had no problems whatsoever selling my co-op – under contract in less than a week. When I bought it, I made an offer on the first day it was on the market, so the previous owner had no problem either. So actually, NO – there’s no problem selling a co-op…

    • That only tells us that you both listings were under market prices. You could have sold for more money. This coop (scroll up), was on the market for half a year and eventually an offer $100k less than the seller wanted was accepted.

      • OK, the logic here is co-ops sell for less than condos. So when you buy it you pay less. When you sell it you sell it for less. But your total amount of profit can be the same. I bought a 1BR co-op in 2001 for $110K when the average 1BR condo was selling for $145K. I sold it in 2005 for $265K when the average 1BR was selling for $300K. Did I “lose” $35K because I couldn’t sell it for $300K? NO, because i also paid $35K less for it. My rate of increase was the same as the increase for the rest of the neighborhood.

        The argument saying that co-ops are a worse deal is like saying you shouldn’t buy a 3BR house because a 4BR house will sell for more money. The question is really whether there is a strong market for the less expensive places. Unless the actual unit is weird (a basement apartment or the views are of a brick wall) you are going to be able to sell it. In my case my co-op unit was on the top floor of a historic building in a beautiful neighborhood and it was no problem at all to sell it.

        • I didn’t say anything about condos in responding to you. You were arguing that because you sold your co-op in a week, all co-ops are easily salable. You can always sell any real estate whatsoever within in a week — the question is at what price. If you mark it down, say 10% from what other same building units are going for, yes it will sell in a week.

          All I’m saying is that the argument you presented had nothing to do with the type of property one is selling. It merely showed that you sold for a price lower than what your co-op neighbors were selling for. We’ve taken condos out of the equation.

          • Tres, all properties are easily sellable if they are priced correctly. You argued that the owner had to reduce their price and sell for less because it was a co-op. In fact, they had to reduce their price because it was overpriced.

            You also said “That only tells us that you both listings were under market prices.” Actually both times the unit sold for exactly the market price, not under market price. The selling price IS the market price.

          • Yet again, I never mentioned a thing about condos vs. co-ops in my response to you. That’s where we went off track, if you read that into what I said. I compared your co-op sale to the co-op sale of this GDoN, showing that while your co-op sold easily, there are others that don’t. In other words, any one example does not prove a rule.

            You were trying to argue that co-ops are as easy to sell as condos, but the only thing you showed us is that you chose a price for your co-op that buyers loved. That doesn’t mean a well-priced condo next door wouldn’t have received a full price offer in one day as opposed to one week. Or maybe the well-priced condo next door would have taken two weeks — whatever, point I was making is you weren’t proving anything about how co-ops sell compared to other type of real estate investment.

            Ah, what I meant by market price is market value. How embarrassing.

      • That only shows that the seller wasn’t being realistic about the market. Tons of people overprice their units and they sit and rot on the market. Price a unit properly and it will always sell and it doesn’t matter if it’s a co-op or a condo. BTW, my old co-op building has 1BRs selling for over $300K and that building also has window unit ACs and no in-unit laundry. The fact that the unit featured in this post didn’t sell is probably because it was WAY overpriced. I bet if they had listed it for $300K in the first place they would have gotten their price. Instead they were greedy and probably lost an extra $45K because of it.

  • I think someone made a good point about co-ops yesterday: fewer foreclosures. That’s good for owners, but doesn’t help buyers today. If you’re looking now, you will benefit from condo prices being depressed by a greater number of REOs relative to a couple years from now when banks have cleared their excess supply of REOs.

    So condos are a better deal today, while co-ops offered more appreciation going into the crash.

    I still think single should think twice about co-ops. At some point — maybe one year or ten years hence — a single who buys will find themselves paired off and with child. At that point, they are forced to sell for more room, regardless of the market’s condition. A condo owner can rent to wait out the market.

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