Condo Vs. Co-Op: What is the Difference?
Co-ops and condos are the two housing types that are confused the most often with each other. It is important to understand both types of properties, so you know which option is the best fit for you. Let us look at a few of the specific differences between condos and co-ops.
Ownership
When you buy a condo, you receive a deed to the home like you would if you bought a single-family home. However, you only own the interior of your property. The condo association owns the exterior of your condo and handles maintenance and repairs.
When you buy into a co-op, the property belongs to everyone who lives in the co-op. If you own more shares, you own a larger percentage of the corporation. This also usually means you are entitled to a larger living space within the co-op. Every shareholder splits the costs of maintenance, taxes, repairs, and property management fees.
The Application Process
The application process is a unique part of buying a co-op. You may have to take part in personal interviews with board members before you are able to buy shares in the co-op. The co-op board might also ask to look at your financial documents just like a mortgage lender would. You cannot buy into a co-op until you get approval from the board.
Keep in mind that a co-op cannot reject you for any of the reasons forbidden by the Fair Housing Act. This includes race, gender, religion, or membership of any other protected class. However, the co-op can reject you for almost anything else ranging from your attitude toward community rules to the viability of your finances.
You usually do not need to participate in any kind of interview before you buy a condo. Even if your condo association sets strict rules on how you can use your property, it does not control who moves into any unit in the association.
Market Value
Determining the fair market value of a condo is very similar to determining the market value of a home. The condition of your condo and the values of other residences close to your condo can influence its fair market value. An appraiser can give you an estimate of how much your condo is worth.
There are two main types of co-ops: market rate and limited equity. In a market rate co-op, you can determine your co-op’s value in essentially the same way as a condo or home. An appraiser takes current market conditions into account and determines how much your shares of the co-op are worth. You can sell your co-op for whatever price the market will bear.
In a limited equity co-op, there are limits to how much you can gain in equity from your shares. In some instances, you may also earn $0 in equity due to co-op rules that limit how much you can sell your shares for. These types of co-ops are usually set in place to provide affordable housing below market rates. Make sure you understand the equity rules before you sell a co-op in the future.