What is a coop?

While coop apartments are not entirely unique to NYC, there is no other place where they make up a majority of the housing stock as they do here. The crux of the distinction is that a coop apartment itself is actually not real estate, rather the apartment's owner is a shareholder in the corporation which owns the building and has a lease to reside in the specific apartment.

So what does this mean? It means you still "own" an apartment, but there are some strings attached. Since a potential buyer of a coop apartment is seeking membership in a private corporation rather than purchasing real property, the corporation can pick and choose to whom to extend membership. Thus the dreaded coop board packages and even more dreaded coop interviews. While the corporation can't base its decision to reject a potential shareholder based on membership in a protected class, boards do not articulate the underlying reasons for a rejection which has in the past resulted in the exclusion of minorities. Now it means that a coop board can require disclosure of all financial details and any personal information that will aid in their decision whether to approve a potential buyer. There are some scary boards out there, but most just want to make sure that the purchase is financially stable and will not default on their obligations. Your real estate agent can advise you as specific requirements and will help you prepare a board package.

In addition to the power to approve or reject potential new shareholders, the board can set rules curtailing certain ownership rights. For example, many coop boards restrict the right of an owner to rent out (technically, sublease) their apartments. Others may require that the apartment is used as a primary residence and not as a pied-a-terre.

Other differences exist, but are less significant. For example, individual owners of a coop apartment are not subject to property tax -- again since they don't own any actual real estate. Instead, the whole corporation incurs real estate taxes for the building, and each unit holder pays their share as part of the monthly maintenance charges. Thus there is a single "maintenance" for coop apartments (on listings the "% tax deductible" figure represents what portion goes to taxes), whereas condo or other real estate owners get separate bills for common charges and real estate taxes. In either case, the real estate taxes are tax deductible for individual unit holders and the total monthly charges are roughly equal all other things being the same.

Another example, a "mortgage" on a coop apartment is not actually a mortgage -- the collateral is not the apartment as it would be in a coop or other real property, but rather a lien on the shares in the corporation. For most intents and purposes, the loan is treated the same as a traditional mortgage, at least when dealing with lenders familiar with the NYC market (out-of-area lenders may be unfamiliar with NYC coops and not able to complete the transaction). Beware, however, that a mortgage recording tax of 1.8% (or 1.925% for loans over $500,000) will apply to loans on condos but not coops.

Some distinctions that work in favor of coop ownership? If the buyer is planning to finance part of the purchase price, coops have much lower closing costs as they are not subject to the mortgage recording tax (since it's not really a mortgage...). Also, coops are significantly more affordable than comparable condos, but let's save those for next month when I discuss inventory and pricing in of coops vs. condos, and under what circumstances a buyer might choose one over the other.

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Isil Yildiz Team



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Compass is a licensed real estate broker and abides by Equal Housing Opportunity laws. All material presented herein is intended for informational purposes only. Information is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdraw without notice. No statement is made as to accuracy of any description. All measurements and square footages are approximate. Exact dimensions can be obtained by retaining the services of an architect or engineer. This is not intended to solicit property already listed.