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What Are Co-Ops?

A cooperative, commonly known as a co-op, is much more like living in an apartment or a condo than a single-family home. Many co-op buildings started as rental buildings but were later converted. Co-ops are more restrictive than condominiums and townhouses. But they also offer residents a greater say in decision-making and several aspects of property management.

Co-op apartments are a popular housing option for New York City (NYC) home buyers. Like all homeownership, co-op ownership has financial obligations like real estate taxes. Buying into a co-op or another type of property purchase is a major investment.

Ownership 'Shares' in a Co-op

Unlike a condo owner, an owner of a co-op does not own their unit. A non-profit corporation with a corporate board of directors owns co-op housing. The board functions like a condo association or HOA in other forms of multi-occupancy real property. Each resident is a "shareholder" in the corporation.

Co-op buyers do not sign a deed. Instead, they buy shares of the corporation, including a lease granting the use of a specific unit. The size of the unit can decide the number of shares owned. They correspond to each tenant's share of the property. In all types of co-ops, shareholders get voting rights on issues affecting the property, including:

  • Maintenance fees and upkeep
  • Common areas
  • Improvements
  • Approval processes and application processes for new homeowners, subletting, and leasing co-ops

There can be several advantages to living in a co-op. Residents enjoy representation and access through the National Association of Housing Cooperatives (NAHC). A co-op may be more affordable than a single-family home. Cooperatives are also a good alternative for people who no longer want to be renters. Renters may have to consider moving when their lease is up or risk higher rental rates. A co-op offers more stability compared with apartments.

Co-op Mortgage

The "mortgage" one gets when buying a co-op is not a mortgage in the classical sense of the word. Though like a mortgage, it is a loan to buy shares in the corporation. For the buyer, the loan to buy shares in a co-op functions like a mortgage. It might have an interest rate and closing costs like a traditional bank mortgage.

Some lenders do not offer co-op loans. Lenders that offer co-op loans may have more requirements for approval, including a higher minimum down payment. Before approving a loan, your lender may also audit the co-op board, financial disclosures, and co-op bylaws. If the co-op limits your ability to sell the shares, like a limited equity co-op, a lender may be less willing to approve a co-op loan.

Maintenance Fees in a Housing Cooperative

Besides the share sale price for a co-op, there may also be a monthly maintenance fee for the upkeep of the property. Monthly fees can include utilities, maintenance, repairs, and property taxes. This fee can range from a small amount to levels higher than mortgage payments. Parts of the maintenance fee may be tax-deductible.

Prospective buyers need to understand all the fees involved in a purchase, including the volatility of maintenance fees. If you are looking to buy, review the co-op's financial records to get a better idea of the corporation's financial condition.

Property Improvements and Additions

Because co-op owners own shares instead of their units, they are generally not allowed to do major construction inside their apartments beyond simple maintenance. A co-op owner may not install a new kitchen or tear down any walls. Some changes to the unit must go to a shareholder vote or a vote of the board of directors.

With limited property improvement options, co-op living is like living in an apartment building. The positive side is that residents are not responsible for making their own repairs. Generally, an on-site maintenance crew or superintendent handles regular repairs.

A Real Estate Lawyer Can Help

If you have questions about the terms of your co-op agreement, an experienced real estate attorney can answer them and review them. They can tell you about legal issues that a traditional real estate agent may not know.

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