Living in New York City: Co-ops vs. Condos

In many ways, the New York City real estate market is unlike any other in the United States. One of the biggest differences between NYC and Any-Other-Town, USA, is that apartments for sale in NYC are either condos or co-ops. In most places, condos are the rule, but not in the Big Apple. Although co-ops outnumber condos in NYC – by about 75%, per most estimates – more condos are on the active market at any given moment.

Let’s start with a brief examination of the difference between a co-op and a condo. When you buy a condominium, your apartment as well as a percentage of the common areas belong to you. When you buy a coop, you don’t actually buy your apartment; instead you are buying shares in a corporation that is your building. The size of your share depends on the size of your apartment; buying the shares allows you to occupy a unit in the co-op building. At the closing for a condo, you’ll be given a deed; at the closing for a co-op, you’ll get a proprietary lease. (For a more detailed comparison, see Basics and Differences of Co-ops, Condos & Condops.)

Some prospective buyers, such as one couple we spoke to, set out to buy a condo but change their minds once their search is underway. Originally, this couple thought they’d like to avoid the whole co-op board review and the restrictions on renovating and subletting a two-bedroom apartment, but in the end, finances won out: “It came down to the apartment and the price. So far, the board has been fine, and the building has been great – so, no complaints.” 

According to a New York Times article, condos and co-ops are still different commodities but “in subtle yet tangible ways, each is taking on characteristics of the other as they compete for well-heeled buyers in an ever-more-challenging marketplace.”

To help you with your buying decision, here’s a comparison of the features of condos and co-ops.

Generally speaking, the older, established residential areas have a preponderance of co-ops. The newer neighborhoods, once considered outliers but now considered hip, are where you’ll find the condos.

As Gary Malin, president of Citi Habitats, a New York real estate brokerage, explains: “If you like historic properties, you are likely to end up in a co-op, as nearly all prewar buildings are organized in this way. Also, because co-op buildings tend to be older than condo developments, they are often located in more central locations. For example, nearly all the residential buildings that line Park Avenue on the Upper East Side (a prime location by any measure) are co-ops.” 

If living in a glass house in the sky is more your style, you will likely be looking at a lot of condos, according to Malin. Condo buildings didn’t become common in New York City until the 1970s, so they are often more modern than co-ops. “Since available land for new condo buildings is limited in Manhattan,” he says, “the newest condominiums are likely to be found in up-and-coming and fringe neighborhoods on the far East and West Sides. In Queens and Brooklyn, we have seen a lot of new-construction condos being built in former industrial areas along the waterfront in Long Island City and Williamsburg, as well as in Downtown Brooklyn.”  

For the most part, both condos and co-ops have a doorman and a superintendent on staff; some will add a concierge who will do everything the other two don’t. The amenities can be low-key (maybe just a storage room in the basement) or as all-encompassing as those in one waterfront condo in Brooklyn: a daycare center and spa for pets (called The Wag Club) where staff watch, train, and groom your dog; for two-legged residents, there’s a landscaped terrace, a billiards room, a piano room, a screening room, a children’s playroom, a gym, a golf simulator, and an outdoor putting green.  

One of the most relied-upon indicators of the co-op and condo market in NYC is The Quarterly Elliman Report. According to the Q2 2015 report on co-op and condo sales, prices for both types of properties were moving upward. Two-bedroom co-ops had a median price of $1.575 million; condos – just under $2 million. For 3-bedroom units the differential was even more substantial: just under $3 million for a co-op, $4.65 million for a condo. 

According to Warner M. Lewis of The Harkov Lewis Team at Halstead Property, “All new developments are condos, and their pricing is eclipsing what anyone could have imagined years ago... Foreign and domestic buyers want a safe place to put their money. New York real estate has gotten a huge boon as capital preservation has been key for some investors: they’ve planted money in investment apartments – which condos allow and co-ops (for the most part) do not.”  

Downpayments also differ substantially for the two types of properties. It is possible to put down just 10% of the purchase price of a condo; for a co-op, you will need to put down 20% to 50%.

Closing costs on a condo are higher than on a co-op. For details, we asked New York real estate attorney Adam Stone to compare the two. Here’s what he came up with: For a $1 million condo with an $800,000 mortgage, closing costs would be: title insurance for purchaser, $4,500; title insurance for lender, $1,000; title searches, $700, recording fees, $700, New York State mansion tax, $10,000, NYS mortgage recording tax, $15,370. The grand total: $32,270 (without lender’s fees, which vary by lender). For a co-op, it’s just the $10,000 mansion tax. The substantial difference is due to the fact that the condo is real property, while the co-op shares are personal property. “It may just be semantics to some, but not when calculating closing costs.”

And for anyone wondering what the mansion tax is, Stone explains: “New York State has a transfer tax of 0.4% of the sales price, which is charged to the seller of any residential property. It also has a 1% purchaser’s transfer tax, also referred to as the 'mansion tax' because it only applies to residential properties priced at $1 million or more.” 

With condos, the monthly bill is called 'common charges'; in co-ops it’s 'maintenance'. Both charges are used for the upkeep of the building – common areas and landscaping, payment of the staff, and often some of the utilities. Co-op owners write one check a month, condo owners write two (one for building upkeep, and one for property taxes) but often the condo owner’s combined total is lower than the co-op owner’s maintenance bill.  

Maintenance and common charges are not set in stone; any major expense – a new roof, a new lobby, more staff members – may trigger an assessment: something that board members decide on, and something that can rarely be reversed.

Most co-op boards have a rigorous and often lengthy application process; condo boards are generally less demanding. Lewis sums it up: “In a co-op, not only do you have to have the money to buy the apartment (or financing to do so), you also have to be approved by the board after submitting an application, which is usually very detailed and time-consuming. Then, with little to no reason, a buyer can be rejected after their interview, or even before, just because of something in their package. I have had deals and seen deals where there is zero rhyme or reason for rejections.” 

Think he’s exaggerating? Take a look at these columns in BrickUnderground, a New York real-estate news site, on top reasons New Yorkers get turned down by a co-op board and curveball co-op board interview questions.

“With a condo, a building can request a package on the buyer,” says Lewis, “but there is no interview, and the building only has the right of first refusal (i.e., either they have to approve it or the condo has to buy it themselves) which means, when you have a signed contract, unless something happens to the buyer (or the financing) the deal is as good as done.” 

Co-op boards make lots of rules. They may mandate when you can practice your trombone, whether you can put holiday decorations on your door, and whether your pet can move in with you. Most rules are meant to promote harmony, calm, and the civility of co-operative living.

But the rules that discourage some domestic buyers, and just about all international buyers, are co-op restrictions on subletting – it is rare for co-ops to allow shareholders to rent their apartments out for any extended period of time, if at all. Another rule of co-ops that makes purchases by internationals impossible is that they are unlikely to accept anyone whose funds are outside the U.S.

Condos do allow international investors to buy and rent out their spaces; usually with some caveats, but none that are onerous.

“Co-ops are all about establishing a stable, in-for-the-long-run group of residents. Condos don’t seem quite as concerned about that, although many, according to the New York Times, are “imposing heftier and more numerous fees, tightening house rules and discouraging the short-term rentals that can give a building the hectic ambience of a hotel.” 

Malin sums it up best: “Generally speaking, co-ops are a smart choice for those who value stability and want to plant roots in a building. Simply ask yourself, ‘Am in it for the long haul?’ Co-ops are much less transient than condos, so they're a great place to live if you want to get to know your neighbors. Just be prepared to be analyzed, poked, and prodded, but understand that this process is what keeps a co-op a stable and remarkably secure investment.” 

Alternatively, he says, “if you would rather march to the beat of your own drummer – and you value flexibility – then a condo may be the wise choice for you. However, understand that this freedom comes at a price. Condos are nearly always more expensive than equivalent co-ops. In addition, if seeing new faces in the elevator on a regular basis is an issue for you – look elsewhere. Renters can be common in condo buildings. Owners do often take advantage of a condo’s more liberal policies.” 

For related reading, see Manhattan Luxury Condos As Investments and Have The Right Condo Insurance?