What are Co-Ops, and Why are They So Popular in NYC?

What are Co-Ops, and Why are They So Popular in NYC?

When buying an apartment in New York City, it pays to consider purchasing a co-op. Although co-ops are very familiar to New Yorkers – they account for 75% or so of the city's housing stock – outsiders are often confused by them. Even if you're from the area, you may still be somewhat mystified by them and how they work. Regardless, it helps to get up to speed regarding co-ops to have the best real estate buying experience possible, and BCP Real Estate Group is here to fill you in.

Co-Op Basics

A cooperative, or co-op, refers to a residential building that is essentially a corporation. When someone buys a unit in such a building, they become a shareholder. Therefore, co-op buildings aren't owned by wealthy investors but by the very people who live in them. The unique thing about this arrangement is that you don't "own" a unit in such a building at all. As a result, co-ops are often considerably more affordable than condos.

Boards of directors run co-ops. These infamous co-op boards are made up of elected fellow shareholders. They make decisions to maintain and support the building on behalf of all of its residents, ensuring that the property remains financially stable and operates smoothly. The co-op board is also responsible for resolving any conflicts that arise between residents of the building.

When you buy a unit in a co-op, you purchase a certain number of shares in the corporation. Typically, the larger the apartment is, the more shares you receive. Therefore, residents with larger apartments have more clout than those with smaller ones. Every shareholder must pay a monthly maintenance fee to the board. Boards use these fees to pay for collective expenses like property taxes, staff salaries, utilities, underlying mortgages and other costs.

Advantages of Buying Into a Co-Op vs. a Condo

Some of the top reasons to consider buying a co-op instead of a condo in NYC include:

• More Selection – As noted previously, around two-thirds of NYC housing stock is made up of co-ops. Condos didn't come onto the scene until the 1970s while co-ops have been around since the 1800s, so it's easy to see why there are far fewer condos than co-ops.
• More Affordable – Generally speaking, it's 15% to 20% cheaper to buy a co-op than a condo. This is partly because co-ops are usually in older buildings like brownstones and pre-war buildings, so the underlying property is cheaper. Additionally, it's cheaper to close on a co-op since you're not dealing with physical property and therefore don't have title insurance, taxes and other fees to manage.
• Financially Stable – Although people complain about the strict standards of co-op boards, those very standards help ensure the building's financial stability. To buy in, you must be very qualified.
• More Leverage – With a condo, you have limited recourse when having a dispute with a neighbor or experience other problems. With a co-op, you can appeal to the board for assistance, which provides great peace of mind.
• Community Feel – Unlike condo buildings, co-ops tend to have a more personalized feel to them. Residents tend to stick around for the long haul, so they get to know each other and look out for one another.

Downsides of Buying a Co-Op

Co-op life isn't for everyone. Some of the drawbacks of buying a co-op include:

• Intense Vetting Process – You can expect the co-op board to dig into every area of your financial life. Many people find the process to be too invasive.
• Less Flexibility – Co-ops usually have strict rules about what you can do with your living space, which can hinder plans to, say, rent out your unit right away.
• Longer Closing Times – Due to the vetting process and other factors, it can take anywhere from three to five months to close on a co-op. On average, it takes around two months to close on a condo.
• Older Construction – Most co-ops are located in older buildings, which means that they may not have the same amenities and features as condos.

In conclusion, co-ops are a great option for buying an apartment in New York City. They are more affordable, financially stable, and offer more leverage than condos. However, they come with their own set of drawbacks, like a longer closing time and a more intensive vetting process. Ultimately, the decision to buy a co-op or a condo is a personal one that depends on your priorities and lifestyle. If you need more help deciding, BCP Real Estate Group is here to guide you through the process.