One of my most joyous and memorable Co-Op transactions was when two devoted Sons contacted me wanting to help their retiring Mom to transition from the maintenance of a home in Chicago Heights, Illinois.
She and they determined a Co-Op would be perfect for her, because she had the sufficient cash to purchase a very affordable Townhome in Park Forest. The monthly maintenance fee would insure she would experience a maintenance-free lifestyle in a well maintained comfortable community.
During the deal pending process we had one challenge to overcome. The Co-Op Association in their review of the Mom’s application determined her income was basically pennies short of their required minimum income standards. The Association graciously allowed the Son’s to write a note confirming they would gladly supplement the remainder of the required income.
This happy Mom has probably been living there now nearly a couple of decades. This was a Win-Win for the Seller, Buyer, Co-Op Association, and especially for those devoted Sons wishing to help their Mom accomplish her relocating goals.
You may have noticed I called the Townhome a Co-Op. This can be very confusing for Buyers. In the very affordable Chicago-Southland marketplace I serve, actually Co-Ops short for Cooperatives are really primarily found in just a couple of Communities.
When I explain to Buyers what they really are, and how challenging to get an application accepted, most Buyers prefer to limit their search to Condominiums or Townhomes.
In the Chicago-Southland Buyers will find Condominiums with shared entrance, and Condominiums designed as Townhomes with a private entrance. There is a big difference between the two, some will have an active Homeowners-Association with a monthly maintenance fee, and some will not.
My Respected Colleague below took the time to thoroughly explain the difference between all attached residences. I am so proud of how he broke it down to the very simple to understand.
Whatever your preference in your relocating goals, I appreciate you allowing me to serve you, your Loved-Ones and/or your friends.
The differences between a coop and a condo are quite significant, and frequently confusing to members of the public, as well as to some in the real estate brokerage community.
But, before I get into explaining the differences between a coop and a condo, let's start out by establishing an understanding of an important basic fact
The physical form of the real estate does not determine whether a property is either a coop or a condo. In fact, you can't look at the physical nature of a building or a group of buildings and know whether or not it's a condo or a coop.
That's because the name "coop" (which is an abbreviation for "cooperative"), and "condo" (which is an abbreviation for "condominium") are both terminology to identify form of legal ownership; these labels DO NOT describe the PHYSICAL nature of the real estate.
In fact, either a coop or a condo can take any physical form, from a single building with multiple units, to a group of free-standing individual units that visually appear to be your typical suburban residential subdivision.
Again, it's the legal form of ownership, not the physical nature of the real estate, that determines what is a coop or a condo. And, one can only make such a determination by looking at the legal documentation for a specific property.
Now that we understand this basic fact, let's move on to understanding the differences between a coop and a condo.
A "coop," or more formally, a cooperative, is pretty much what it sounds like. And, that is, it is a single parcel of real estate that is owned by a group of people in a cooperative manner.
In other words, a person, or more commonly a group of like minded people get together and buy a single parcel of real estate; most commonly a multi-unit residential building. (However, while multi-unit apartment buildings are the most common type of real estate purchased in this manner, does not mean there is any legal limitation on the type of real estate than can be bought in a cooperative manner.)
When the property is bought, the group forms a corporation and the property is deeded to that corporation. And, as any other corporation, the corporation created by these cooperative people is also managed by a Board of Directors.
Each founding member of the coop also becomes a stockholder in that corporation. The amount of stock each stockholder receives is proportionate to the percentage of the building their specific unit consumes.
For example, if we have a 20,000 sf building, and one shareholder's unit is 2,000 sf, which equals 10.00% of the building, that shareholder pays for and receives 10.00% of the stock in that corporation. Each shareholder also pays their proportionate share of the operating expenses of the real estate, and has the right to vote to approve or disapprove various expenditures.
It's very important to understand, that because a shareholder in a coop does not get a deed to their unit, they can't use their unit as collateral for a mortgage. Consequently, most banks will not make a loan to purchase a coop unit.
Even more important, is that many, if not most coops do not allow a stockholder to pledge their stock as collateral for any type of loan, because the Board of Directors is responsible to the other stockholders to insure the safety of their investment, therefore won't allow any of their stock to be placed in jeopardy.
Another idiosyncrasy of the coop, is that each time a stockholder wishes to sell their unit, they must first get the approval of the Board of Directors to sell. Frequently, the Board of Directors must also approve the asking price and the sale price to the new stockholder buyer.
But, even more significant (as if that wasn't enough), is that the new stockholder buyer must be interviewed and approved by the Board of Directors. And, if the Board approves the new stockholder buyer, the new stockholder buyer must also be approved by a majority of the remaining stockholders before the sale of the stock is allowed to be completed.
Finally, because a coop sells stock in a corporation rather than selling real estate, it does not come under any of the consumer protection laws related to the sale of real estate, including the Federal Fair Housing Act.
One might say, with a 100% degree of accuracy, that coops can legally discriminate against whom ever for what ever reason that they, and they alone decide; and they don't even have to give the denied buyer a reason. The coop's decision is final, and the buyer has absolutely no legal recourse.
In fact, coops have frequently refused to allow the sale of their stock to various prominent people, including entertainers, business people, and even former presidents of the United States.
A "condo," or more formally, a condominium, is an individually deeded portion of a greater parcel of real estate which is made up of other individually deeded units and some amount of real estate that's owned in common by all of the unit owners.
When a person buys a condo, they actually receive a deed to that individual parcel of real estate. In addition to that individual parcel of real estate purchased, the buyer also becomes part owner in the common area that's owned in common by all of the owners of all of the condo units.
It's important to know, that any type or use of real estate can be created as, or converted to condominium ownership. In addition to residential real estate, other property that frequently is a condominium are office buildings, industrial buildings, and retail buildings. In each case, the real estate is subdivided into individually deeded portions, or "units."
The amount of the common area owned by each individual unit owner is based on the percentage of the physical percentage that their unit is to the whole property; this is the same method as I described above in the coop section.
The entirety of the condominium is operated by an owner's association, which is a legal entity charged with the responsibility for being the caretaker of the common area and the enforcement of the rules and regulations under which all owners have agreed to abide by.
Each unit owner also has voting rights on decisions that effect the community, including the cost of maintaining the community; this is similar to the manner in which a coop is operated.
However, unlike the coop owner, because the condo owner actually owns a deeded parcel of real estate in their own name, they are legally allowed to use that real estate as collateral for a loan, including a mortgage loan.
It's most common that condo unit owners are free to sell to anyone they wish and at what ever price they wish to accept. They typically don't need any condo association approval of their sale, and the buyer almost never needs to be approved by the condo association.
Additionally, since residential condo units are individually deeded units, they are subject to all applicable consumer protection laws, including the Federal Fair Housing Act.
As you can see, the differences between a coop and a condo are quite significant.
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