All You Need to Know About Buying a Co-Op Unit in 2024

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    Although uncommon in the U.S. overall, in some areas, co-ops — or cooperative apartments — took hold starting in the late 1800s and then ramped up post-World War I. That was followed by a virtual boom after World War II during the 1950s and leading up to the ’70s. Presently, roughly half of all co-ops in the U.S. are concentrated in New York City, where buying a co-op instead of a condo is quite common, especially in older neighborhoods.

    Co-op housing is a form of permanent residential housing similar to condominium. The essential characteristic of what is co-op housing is that residents don’t own their home outright: Instead, residents hold shares in a company that owns (or rents) the entire property.

    Put simply, the definition of what is a co-op apartment falls between the deeded ownership of a condo unit and the leasing of a rental apartment, with elements of corporate shareholding also blended in. Because of this, what is co-op housing is often defined by what it is not: co-op housing is not considered real property neither from a legal nor from a tax perspective.

    Although the lack of outright property ownership may be unappealing to some NYC buyers, the major advantage of buying into a co-op is pricing. NYC co-op median prices will usually be significantly lower than condo medians, especially when comparing within the same neighborhood.

    NYC Co-Op Median Sale Price

    So, what is cooperative housing? Cooperative housing is categorized as personal property, just like shares owned in any other company or corporation would be and is treated as such by the legal and tax systems.

    A complimentary definition to what is co-op housing is that co-op associations are single-asset companies that have one goal: To provide permanent housing to its shareholders.

    That permanent housing usually comes in the form of an apartment in a multi-story building. The essence of what is a co-op home is that the resident does not own the actual apartment itself, but rather a set number of shares that gives them the exclusive use of that unit.

    While the exclusive use of a rental apartment is secured for a limited time through a rental or lease agreement, the main difference in what is a cooperative apartment is that the exclusive use of a co-op unit is determined by a resident’s ownership of shares: As long as the resident owns their co-op shares and is current on monthly charges, they will retain the exclusive use of their specific co-op unit indefinitely.

    All in all, the higher affordability of co-ops is the main driver in co-op creation and co-op purchases. In fact, buying a co-op can easily cost several hundreds of thousands of dollars less than buying a condo, a factor that is also evident when looking at NYC co-op median prices at the borough level.

    Co-Op Median Sale Prices in NYC’s Four Boroughs

    As consumer preference shifted in the ’70s from buying co-op units to buying condos, many of the co-ops built up until that point have since disappeared and newer co-ops have been created in significantly smaller volumes. Not only that, but most co-ops built in the past 40+ years tend to be special interest co-ops, such as affordable housing for low-income families. Of course, the big exception is New York City, where co-ops represent a significant rival to condominiums, making up a sizeable percentage of the city’s residential stock.

    Map of NYC Co-Ops: Number & Share of Units by Neighborhood

    * Note: The number of co-op units, as well as the percentage of stock they represent, refers exclusively to co-ops that can be purchases by individuals. It excludes multifamily/rental co-ops or any forms of co-op housing that are not purchasable co-ops.

    NYC has a total of 310,422* co-op units, representing a 25.38%* of the city’s total residential stock.

    Co-operatives are run by a board of directors, which is usually made up of volunteer resident-shareholders. In rarer cases, board duties pertaining to finances and business operations may be contracted out to a company specialized in the field. When the board of directors is made up of residents, it can involve all shareholders, or a few members elected by residents. The former is typically the case in very small co-ops, such as those converted from a townhouse.

    When it comes to buying a co-op, a potential resident must purchase a set number of shares in order to occupy the co-op unit they want to live in. Technically, the price of a co-op home is set by the number of shares needed to occupy it, multiplied by the price of one share. Generally, the size of a unit is a significant factor in the number of shares it commands.

    But just like with condos, a multitude of other aspects may be taken into consideration for pricing, including location, age, any price limits prescribed in the co-op bylaws, as well as economic factors. Below, you can see the price trends differences among the four NYC boroughs — Manhattan, Brooklyn, Queens and the Bronx — throughout the last five years.

    NYC Co-Op Median Sale Price Evolution by Borough

    The main steps to buying a co-op:

    1. Research co-op financing

    The first step in buying a co-op is analyzing your financials and researching how you can secure additional co-op financing.

    Because co-ops are not real property, financing opportunities available to condo buyers do not apply to cooperatives, as most lenders don’t offer co-op loans — officially known as share loans. As a result, there are significantly fewer options for co-op mortgages than for traditional residential mortgages, meaning buyers have to go the extra mile to identify and secure co-op financing opportunities.

    Moreover, buyers must find lenders offering co-op mortgages specific to their location, since the few lenders that do issue co-op mortgages usually offer them in limited geographic locations. Additionally, co-op loans are available almost exclusively for buying market-rate co-ops, with next to no financing options for those looking to join LEHCs or leasing co-ops.

    2. Obtain a co-op loan preapproval

    Obtaining a co-op loan preapproval represents a significant advantage in the co-op application process. To secure one, lenders require all the documentation of single-family home mortgages plus two additional conditions. First, lenders will impose a larger down payment for buying a co-op unit than for a comparable condo unit as a condition of the loan, even if the co-op itself has a lower downpayment threshold. Second, lenders will ask for the financial state and history of the targeted cooperative to ensure the stability of the extended credit.

    3. Hire a real estate broker

    After researching the market and analyzing their finances, buyers should hire a real estate broker to help them navigate the process of buying a co-op more smoothly. Then, once the buyer has settled on a co-op unit in a building that doesn’t have a waiting list and has thoroughly researched the cooperative’s financials with the help of their broker, the buyer can discuss an offer with their broker who will present it to the seller.

    When both sides have come to an agreement and signed the contract of sale, the buyer can start the infamously challenging (especially in NYC) approval process determined by the co-op board and bylaws.

    4. Getting approved: The board package

    The first step to getting approved by the board is compiling a winning application package or board package, since this is generally the point where most applicants will be rejected, not at the board interview. Because bylaws are unique to each co-op, board packages and interviews vary. However, including a cover letter and table of contents is a good way to make a good first impression.

    Otherwise, all co-op board packages will generally have to include:

    The applicant’s net worth, which is often broken down into liquid assets, revenue streams, stocks, real estate and other holdings

    Bank and asset verification letters

    Bank statements, usually covering the last two to six months 

    A cash flow statement 

    An employment verification letter 

    The applicant’s debt-to-income ratio, which must include any form of debt or loan, including student loans or car payments 

    Tax returns, usually for the last one to three years 

    Multiple reference letters from the applicant’s employer or business partners; previous landlords; or personal references

    The completed contract of sale

    Pre- and post-closing financial statements

    A photo ID

    A credit check or release form allowing the board to perform a credit check (depending on local legislation)

    A background check or a release form allowing the board to perform a background check (depending on local legislation) 

    A purchase application, also referred to as the applicant information sheet 

    Signed building acknowledgements, including the corporation compliance letter; terms and conditions; special conditions acknowledgement; pet policy acknowledgement; move-in/move-out procedures; and elevator use restrictions acknowledgement, when applicable 

    The loan application and commitment letter (for those buying in with loans) 

    The Aztec Recognition Agreement: the tri-lateral contract between the co-op corporation, the buyer and the buyer’s bank that acknowledges and establishes proceedings in the event that the buyer defaults on their loan payment 

    Proof of payment of the application fee

    The application package is then studied exhaustively by the board, with most cooperatives’ due diligence surpassing that of a bank. This rigorous process was one of the major reasons why NYC had a lower foreclosure rate after the 2008 market crash. Generally, the board has the right to refuse an applicant for any reason other than those that infringe on human rights and fair housing legislation, such as age or religion.

    5. Getting approved: The board interview

    If the application package is accepted, the potential buyer is granted an interview with the board. Previously, boards used to overwhelmingly mandate in-person interviews, but COVID-19 ushered increases opportunities for online interviews.

    Regardless of the format, buyers must thoroughly prepare for the board interview, as the process resembles more of a job interview than a simple formality. Questions may range from financials to inquiries that might be personally intrusive from the buyer’s perspective — such as how often they play musical instruments.

    Generally, it’s advised to:

      • answer all questions calmly and thoroughly
      • not volunteer any additional information that is not specifically asked by the board.
      • not make any remarks on the building’s decor, any unit renovations planned by the buyer or how the co-op is managed.

    Then, if the interview is successful, and the board accepts the buyer, they can move forward to have the loan processed, finish the transaction, and pay all applicable taxes and fees — such as the flip tax or Mansion Tax.

    6. Pay attorney fees

    Although co-op buyers are not subject to title insurance and mortgage recording taxes, they are liable for attorney fees, payable only if and when a sale goes through. These typically range between $1,500 and $4,000 in NYC, plus an additional $1,000 if the buyer has to pay the bank’s attorney as well.

    Other costs associated with buying a co-op include real estate commissions, which average 6% in NYC. But, since New York encourages real estate commission rebates, buyers may be able to recoup some of their closing costs.

    7. Obtain ownership documentation & insurance

    When the deal closes, instead of the standard recorded deed or title received by condo or single-family buyers, new co-op shareholders in NYC receive a stock certificate as well as a proprietary lease. The latter grants them exclusive rights to live in their unit and specifies the number of shares held; shareholders’ rights and responsibilities within the co-op; and the relationship between the shareholder resident and the co-op.

    The buyer also receives a subscription agreement, which serves as the new shareholder’s application to join the cooperative and functions as a binding, two-way guarantee between the co-op and the shareholder. The subscription agreement contains the number of shares sold and their price, as well as the cooperative’s agreement to sell said shares at the determined price and the buyer’s agreement to buy them.

    Although each co-op must have a master policy to covers all co-op assets like common areas, the exterior of the building and the interior of units, many co-ops also require new shareholders to maintain co-op insurance, which covers residents’ personal assets and property.

    There are many types of co-ops that can encompass all forms of residential housing, from pre-war apartment buildings in Manhattan’s most established neighborhoods to mobile home parks in low-density locations. However, most co-ops tend to be apartment buildings in larger cities. Since they predate any federal or state housing regulations, cooperatives are subject to some types of commercial legislation due to their status as incorporated companies with shareholders.

    Co-ops can be categorized by a host of different criteria based on age; staffing; amenities; and financing among others.

    Types of co-ops by age:

    Pre-war

    Post-war

    New build

    New conversion

    Types of co-ops by elevator:

    Elevator buildings

    Walk-ups

    Types of co-ops by staff:

    Doorman

    Concierge/ Attended lobby

    Full-service lobby

    No doorman/No staff

    Types of co-ops by equity:

    • Market-rate co-ops

    Market-rate co-ops are one of the two most common co-op types in NYC. They can be bought and sold at whatever price the market is willing to offer with the co-op’s bylaws or board of directors having no say.

    • Limited-equity housing co-ops (LEHC)

    LEHC aim to provide long-term equitable housing for low- to moderate-income buyers. To keep communities affordable for future residents looking to buy a co-op unit, LEHCs will have strict regulations on pricing, limiting the profit margins of residents selling their shares.

    • Leasing housing co-ops

    Leasing housing co-ops rent the property rather than owning it, with share prices determined by the rental cost of the building and expenses stemming from the creation and maintenance of the co-op.

    • Co-housing co-ops
    • Mobile & manufactured home co-ops
    • Artist housing co-ops
    • Student housing co-ops
    • Senior housing co-ops

    When it comes to co-op versus condo, understanding the essential differences between the two is key to making the right decision, both from a lifestyle and a financial perspective. Among the most crucial differences between co-op versus condo is that the latter offer more personal freedom, whereas co-ops have the pricing advantage, especially in large urban centers like New York City.

        1. Alterations & Repairs

    One of the most important aspects for buyers considering cooperatives versus condominiums is ownership of the interior of a unit. Specifically, buyers choosing condos will own the interior of their unit and can alter it to their liking, as long as it doesn’t affect the unit’s or building’s structural integrity.

    Meanwhile, the cooperative association owns the interior of the unit, the exterior of the building, and all common areas, meaning co-op residents must secure board approval for certain changes or repairs to the interior.  For this reason, bylaws and/or the proprietary lease will specify what types of changes are allowed within a co-op apartment and who will cover the costs: the association or the resident.

        1. Taxation

    Both condos and co-ops are considered personal property and are subject to property taxes. While condo owners pay them directly to the appropriate tax authorities, with each resident responsible for settling their tax bills on time, co-op residents pay a joint a tax bill.

    Specifically, the tax bill is issued for the entire co-op building and the board breaks down the full amount per unit by the co-op apartment’s size and/or number of shares. The board then determines the appropriate monthly figure and includes it with monthly carrying charges (maintenance fees).

        1. Joint Expenses

    Although both condos and co-ops usually have a reserve fund, co-ops are likely to charge higher fees. Additionally, if approved by the majority of shareholders, co-ops (unlike condos) may trigger a special assessment. That means an additional monthly fee will be charged for a set amount of time to fund a specific goal, like emergency repairs.

        1. Mortgage Liability

    While condo owners are only liable for their personal mortgage loans, co-op residents may also have to contribute to a second loan, that of the co-op itself. Specifically, if the co-op association takes out a mortgage loan to cover large expenses (like buying the co-op’s building or implementing major renovations), all shareholders will have to contribute towards to the association’s mortgage costs on top of their own co-op mortgages. This is why it’s essential to make sure that your budget can accommodate the added (potential) mortgage expense when buying a co-op versus a condo.

    NYC Co-op, Condo & Single-Family Home Market Evolution

    As with any major financial decision, buyers considering moving into cooperative need to consider all the short-term and long-term co-op housing pros and cons. Like any form of housing, cooperative housing has its advantages and disadvantages, ranging from personal preferences to objective ones, such as the financial liability of all shareholders should one co-op member default on their maintenance and mortgages payments.

      1. Attractive pricing is the premier perk when it comes to co-op housing pros and cons. Compared to similar condo units, co-op apartments will generally have a significantly lower price point.
      2. No mortgages taxes are another one of the top advantages of co-ops versus condos. Since co-ops are not considered real property, buyers don’t need to pay a mortgage tax, which can be as high as 2% of the sale price.
      3. Sublease bans are one of the most attractive aspects of co-op living for many residents, as they. encourage long-term residency; prevent damage to both common areas and units; minimize upkeep; and eliminate potential conflicts, such as residents disgruntled by parties hosted in a unit that operates as an Airbnb.
      4. No title insurance is needed for buying a co-op, since the cooperative already has thorough records on unit occupancy. This can save up to 0.5% of the sale price.
      5. Low resident turnover is one of the prime benefits when weighing cooperative housing advantages and disadvantages, fostering a sense of community, as well as added safety and convenience, reducing the potential for problematic neighbors.
      1. Scarcity is one of the largest drawbacks of co-op housing pros and cons: Due to more accessible prices, residents tend to put co-ops on the market with a much lower frequency than condos. For example, co-ops make up about three-quarters of Manhattan’s housing stock, but generally represent only about one-quarter of listings, resulting in waiting lists.
      2. Large downpayments are one of the largest roadblocks for those looking to buying a co-op. So, while condo down payments tend to represent between 3% and 20% of the unit’s sale price, with 10% the most common, co-op downpayments start at 20% and go as high as 50%.
      3. Strict debt-to-income ratios (DTI) are put in place to minimize the financial risk of a potential buyer and by extension that of the cooperative. The board will usually require a maximum DTI of 30% for most co-ops and will rarely go under 25%.
      4. Sublease bans may be a major disadvantage as well for co-ops versus condos, since residents must obtain the permission of the board to rent their unit out as a sublease or short-term rental.
      5. Co-op mortgage defaults may be rare, but when they do happen, the effects are devastating for residents, who lose all their co-op shares and occupancy rights, even if they are current on their own personal share loans.

    In the end, it’s up to every buyer to decide whether they would prefer the wider range of freedoms and income-generating potential of condo ownership or the attractive pricing and low resident turnover that comes with buying a co-op.

    If you decide to buy a co-op, make sure you examine all options in your market, thoroughly research the financial and maintenance background of your chosen co-op, and become familiar with its bylaws and application package requirements. Once you’ve reached an agreement with the seller and secured a loan pre-approval, submit your application package, and prepare for the board interview.

    Co-op housing is a form of permanent residential housing. It is similar to condominiums, with the major difference being that condos are considered real property and co-ops are personal property. When you buy a co-op unit, you don’t receive a deed of ownership for real property (your condo unit). Instead, you buy shares in a corporation that owns the entire building, and you sign a proprietary lease for your unit. 

    Co-op housing works similarly to an incorporated company, with residents buying shares in a corporation that owns the cooperative, instead of buying a unit outright and receiving a deed of ownership. Each co-op unit is tied to a number of shares. When residents buy those shares, they get exclusive use of the unit through a proprietary lease signed with the cooperative corporation that they are now members of. 

    • Condos are real, deeded property, whereas co-ops are personal property, like owning shares in an incorporated business.
    • Co-ops have stricter financial requirements and require larger down payments than condos.
    • Condos have far more financing options than co-ops because only a handful of lenders offer share loans to buy a co-op unit.
    • Often, co-ops cannot be leased or used as a pied-a-terre due to bylaw restrictions.
    • Co-ops usually have higher maintenance fees, and many also include contributions to the building’s blanket mortgage.
    • Co-ops are more difficult to sell. The stricter financial and personal requirements imposed by co-ops decrease the buyer pool for co-op sellers.
    • Co-ops are usually sold at lower prices than comparable condos.
    • Co-ops are often located in older, more central and more established neighborhoods.
    • Co-ops have lower closing costs as co-op buyers don’t have to pay a mortgage registration tax or title insurance.

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