Disadvantages of Condos and Co-Ops

For all their benefits, condominiums and cooperatives also have many disadvantages. Potential home buyers should weigh their decisions carefully.

Condo vs. Co-op: The Pros and Cons

Condos are like housing cooperatives, except that owners own their units directly. Homeownership is different in co-ops. Co-op residents live in units owned by a corporation. Each occupant is a co-op shareholder, and their co-op shares grant them ownership in the real estate. Residents in a co-op are shareholders and have a "proprietary lease" from the corporation.

Unlike single-family homes, condos and co-ops are more common in high-density urban areas. Co-ops are more prevalent in New York City (NYC) and Manhattan. These types of housing bring about a sense of community in homeownership but at the cost of some independence. Co-op and condo homeowners must answer to co-op boards and condo associations (HOAs). Because of the required upkeep in common areas, a homeowners association or co-op's board will charge monthly fees.

Ongoing Costs

A condominium or co-op owner must pay a monthly mortgage, property tax, and maintenance fee. HOA fees can run into thousands of dollars over a year in an expensive unit. Granted, some of that is tax deductible. The money goes for maintenance and other standard costs. Still, some people see the combination mortgage/maintenance fee as paying double rent. So, an older couple who wants to trade their large house for a small co-op should be careful. They might find the costs prohibitively expensive when added together.

Many condominium and co-op buildings are older, converted apartment houses. Maintenance and repair costs can be quite high. For the condominium owner, this means higher repair costs within their unit. For the co-op owner, this means higher monthly fees for repairs throughout the building.

Restrictions

The extent of restrictions in condominiums depends on the layout of the development. Residents may have a fair amount of leeway in landscaping if the development consists of free-standing homes or townhouses. The restrictions will probably be more comprehensive and carefully enforced for buildings.

Restrictions in co-ops are far more all-encompassing. Co-op residents may wish to sell their units or their shares. They may find that the co-op bylaws are extremely strict about to whom they can sell. People who fail to meet a minimum income may be ineligible to live in a particular co-op. This is true even if they have enough money to make the purchase. Co-op apartments in wealthy neighborhoods will sometimes refuse to sell to celebrities. This comes from a fear that the presence of a celebrity will draw too many fans and other celebrities to the building.

Co-op subletting is also subject to significant restrictions. Some co-ops only allow a set number of subleases per year. So, a person transferred to another state will need to seek board approval to sell the co-op or sublet it. Such approval may not happen.

Particularly in co-ops, the board of directors wields considerable power. Often, the only way to gain some influence within the development is to join the board. The politics involved in decision-making comes home to co-op residents. Many do not enjoy the experience. Condo associations can restrict the number of renters and even renovations allowed by homeowners. Gaining influence in these decisions means involving oneself in the politics of HOAs, which can be stressful.

Because many people are unwilling to tolerate the restrictions found in condominium and co-op communities, it can be much harder to find buyers. Condominiums and co-ops do not rise in value the same way houses do. While they preserve equity, they build less equity than a private home would.

A Lawyer Can Help

Home buyers can face many challenges when dealing with real properties like condos or co-ops. The process of negotiating a purchase price is only the beginning. More expenses follow after going through the financing approval process and paying closing costs. Besides paying off lenders and title insurance expenses, owners must deal with HOA fees and maintenance costs. If you've been experiencing problems with your condo or co-op board, a real estate attorney can help.