Understanding Co-Ops, Part 1: What’s a Co-op?
Co-op buildings are the most common type of housing in Manhattan, but are rare outside of New York City. There are three times as many co-ops as condos in Manhattan. This is why it’s especially important to work with a real estate broker and attorney who are familiar with New York City.
Co-ops are apartment buildings owned by a corporation. Rather than buying the apartment itself, you are buying shares of stock in the corporation that correspond to your apartment unit. Rather than a deed, you have a stock certificate. The corporation pays real estate taxes, building maintenance, doorman and superintendent salaries, and upgrades and any underlying mortgage on the building. Your maintenance payment corresponds to your portion of these expenses, based on how many shares of the corporation that you own. Typically, much of the maintenance fee is tax-deductable because it covers real estate taxes and interest payments on any underlying mortgage.
Your use of the apartment is subject to the terms of a proprietary lease. Subletting your apartment, getting a pet and making renovations all typically require board approval.
Co-op buildings tend to have a community atmosphere, since they work together to elect the Board of Directors that run the building. This board interviews all prospective owners, protecting the other tenants by allowing only qualified candidates to buy into the corporation. As a result, many co-op boards require a large down payment. Some buildings don’t allow any financing at all. Typically, they expect that the buyer’s salary is at least four times their housing expenses (maintenance and mortgage). They may want to see a certain amount of liquid assets available after closing. Your broker should be able to tell you about the building’s financial requirements. Co-op buildings may also have strict policies regarding subletting. They also may require a “flip tax” to cover the expenses of approving new share owners.
In order to buy a co-op apartment, you will have to submit an application to the board and attend an interview before you can close on the sale. The application and interview can be time-consuming and intrusive. You may have to be flexible about your move-in date, because it may be hard to predict how long the board approval process will take.
Are co-ops worth the hassle? Many New Yorkers think so. Numerous co-ops are gorgeous pre-war buildings with generous layouts and architectural details. They hold desirable locations near parks and transportation. Co-ops may have fantastic views and luxury amenities. Since most Manhattan buildings are co-ops, being able to own your dream home requires meeting the requirements of a co-op board.