Comparing Cooperatives and Condominiums

Condominiums and cooperatives can sometimes look like similar arrangements from the outside, but in reality, they are really quite different. So much so, they vary even when it comes to real estate law.

Condominiums – Property Ownership

In a “condo” arrangement, you legally own a particular unit in a multiple-unit structure or building. Under a typical arrangement, you would, of course, have the right to live in your own unit, but you would also the right to use and enjoy common property, or common areas, like hallways, elevators, gardens, swimming pools, clubhouse, etc.

Monthly payment to an “association” for expenses incurred in maintaining the common property is normally required. In fact, according to the Insurance Information Institute (III), those fees typically include insurance costs.

The association gains its legal authority from the legal documents which created it – declarations, by-laws, and articles – and these associations typically run like a corporation and may be managed by professional property management companies.

There are usually complaint and appeal processes built into the association documents to protect individual rights and to provide a mechanism for resolving controversies within the community. Association documents also provide for the process by which the Board of Directors are selected, the body of elected individuals who oversee the management of the association.

Cooperatives – Property Investment

A “co-op,” on the other hand, is legally a very different entity. As a member of a co-op, you would not own specific units in a building. Instead, you would own stock in the corporation that actually owns the building and all the apartments. You would lease your apartment or unit from the corporation.

The unit’s size determines the number of shares of stock you must purchase. Monthly fees, which are based on the number of shares of stock you own, are assessed for the mortgage payment, taxes, and general operating expenses.

As a shareholder, you have a say in electing the Board of Directors who manage and decide on how the cooperative is to be run, who is qualified to buy shares, and so on.

Which Option is Best for You?

When you are purchasing shares in a co-op, you are effectively purchasing an investment, and you are doing so with all of the other co-op members. As such, the stakes are particularly high for the co-op community as a whole.

Who is allowed in, and who isn’t, has an impact on the type of living experience enjoyed by the co-op community, and therefore directly impacts the value of the investment. Some co-ops require that potential members be interviewed before buying in.

Condos, on the other hand, involve a direct purchase of real estate. When you buy into a condo, you are purchasing real estate and you own it outright. There is no interview and each owner lives a bit more autonomously than they otherwise would in a co-op.

Assuming you have a choice between a co-op or a condo arrangement, your decision will likely rest on the type of community you wish to live in and whether or not you desire a closer-knit community arrangement (the type a co-op would provide) or prefer to keep mostly to yourself (with a condo being the better arrangement). Your broker or agent can help you decide which makes the most sense for you.

Case Studies: Comparing Cooperatives and Condominiums

Case Study 1: The Condo Owner

John is a condo owner in a multiple-unit building. He owns his unit outright and has the right to live in it. He also enjoys the use of common areas, such as the pool and clubhouse.

John pays a monthly fee to the condo association, which covers the maintenance of the common property, including insurance costs.

The association operates like a corporation and is managed by a professional property management company. In case of any disputes or controversies, there are complaint and appeal processes outlined in the association documents.

Case Study 2: The Co-op Shareholder

Sarah is a member of a co-op. Instead of owning a specific unit, she owns stock in the corporation that owns the entire building and all the apartments. Sarah leases her unit from the corporation and pays monthly fees based on the number of shares of stock she owns.

These fees cover the mortgage payment, taxes, and general operating expenses of the co-op. As a shareholder, Sarah has a say in electing the Board of Directors who manage the cooperative and make decisions about its operations.

The co-op community values who can become a member as it directly impacts the living experience and the value of the investment.

Case Study 3: Choosing Between Co-op and Condo

Emily is considering whether to purchase a unit in a co-op or a condo. She wants to live in a community where she can decide the level of interaction with her neighbors.

If she chooses a co-op, she will be part of a closer-knit community with a collective decision-making process. Potential members may need to go through an interview process before being allowed to buy shares. On the other hand, if she opts for a condo, she will have more autonomy as she will directly own the real estate.

There is no interview process, and each owner can maintain a more independent lifestyle. Emily seeks advice from a broker or agent to help her determine which option aligns better with her preferences.