Condo or Coop - What is the Difference?

Condo or Coop - What is the Difference?

With all the turbulent weather we've been having recently there must be plenty of people ready to consider giving up their homes in favor of a lifestyle free of the responsibilities that come along with home ownership. 

If you've had enough of mowing lawns, trimming shrubs, shoveling walks, cleaning gutters, and repairing roofs it might be  time to consider moving to a condo or co-op.  By owning a condo or co-op, you get to enjoy your home but someone else gets to do the dirty work and maintain the property. 

One of the questions I'm often asked by those considering this new lifestyle, is what is the difference between a condo and coop?  The day to day  life in a condo and coop is about the same; as a resident you might not notice much of a difference. But, as a buyer you need to be aware that there are some very critical differences.

Firstly, both terms, condominium and cooperative describe the type of OWNERSHIP.  Because they typically include common areas of shared ownership, they are subject to maintenance fees to manage the common elements.  Here are some ways that Condo's and Coops significantly differ from each other:

• Form of ownership - Coop owners do not own the deed to their unit.  Title is owned by a corporation and the buyer owns shares in that corporation.  As a shareholder you get the right to lease space in the building and the corporation owns the common areas. With a Condo, you actually own the "real estate" that the unit sits on and a percentage of the common areas that surround it.  (This percentage is usually calculated based on the square footage of your unit.)
• Financial Liability - Individual condo owners are responsible for their own mortgage debt and taxes for their individual property.  If they default on their mortgage, the bank assumes their debt.  With a co-op each individual is dependent on the solvency of every other coop owner.  It anyone goes bankrupt and defaults on their debt (mortgage) all shareholders feel the pinch.  This makes it harder to get a mortgage for a coop and also makes it harder to get board approval.
• Monthly fees - In a coop, since you don't own the "real estate", you don't pay the real estate taxes, the corporation does and your share of the mortgage and taxes for the corporation is reflected in your monthly fees.  Also, in many coops the utilities may be included and your share of the total will also be reflected in your monthly fees. With a condo, though the monthly fees may be lower, you are responsible for your own tax bill and utilities in addition to the monthly fees.
• Federal tax deduction - The co-op shareholder can deduct his proportionate share of the property taxes and interest on the underlying mortgage so a good part of his monthly maintenance is deductible.   A ondo owners monthly maintenance fee is not a deductible expense.  His personal mortgage interest and taxes are.
• Transfer of ownership and closing costs - Because a coop is not considered real estate ownership, when a co-op unit changes hands, settlement costs are much lower.  There is less in the way of state and local taxes on the transaction, and no survey or title work is required.
• Board Approval - Condo boards have very little power to either approve or disapprove of a sale.  Coops have a right to approve or deny the sale based on the buyers financial resources and criminal background since they will be left holding the bag if a share owner defaults.  This makes it harder to buy and sell a coop than a condo.

Whether you decide to purchase a coop or condo, the style of the unit can be anything from a garden apartment, hi-rise flat, townhouse or detached home.  But no matter your choice, you'll get to enjoy your home while someone else gets to maintain the property!!

 Flickr photo by grendelkhan