Condominium

The difference between a condominium and an apartment is purely legal: there is no way to know a condo from an apartment simply by looking at or visiting the building. What defines a condominium is the form of ownership. The same building developed as a condominium (and sold as individual units to different owners) could actually be built someplace else as an apartment building (the developers would retain ownership and rent individual units to different tenants).

Technically, a condominium is a collection of individual home units along with the land upon which they sit. Individual home ownership within a condominium is construed as ownership of only the air space confining the boundaries of the home (Anglo-Saxon law systems; different elsewhere). The boundaries of that space are specified by a legal document known as a Declaration, filed of record with the local governing authority. Typically these boundaries will include the drywall surrounding a room, allowing the homeowner to make some interior modifications without impacting the common area. Anything outside this boundary is held in an undivided ownership interest by a corporation established at the time of the condominium’s creation. The corporation holds this property in trust on behalf of the homeowners as a group–-it may not have ownership itself.

Difference between a cooperative and condominium

In a cooperative, the building containing the residential units or apartments is owned by a 'cooperative housing corporation.'

CONDOMINIUM VERSUS COOPERATIVE OWNERSHIP: A PRIMER

Almost limited entirely to Manhattan, cooperatives have been the traditional form of apartment ownership for close to a hundred years. Nearly 85% of all apartments available for purchase in New York City and almost 100% of the pre-war apartments are in cooperative buildings. As more and more new buildings are constructed, however, condominiums are fast gaining in number and popularity. Before deciding which form of apartment ownership is best for you, it is important to understand the differences between the two forms of apartment ownership. The following is a description of these differences:

Ownership – Actual form of ownership is the main difference between coops and condos. While both usually provide the same end result—ownership of a unit in a building—there are significant differences that may influence your purchasing decision. Buying a condo, though it may be a unit in an apartment building or a unit in a complex, is much like purchasing a house. Buying a coop on the other hand is very different and involves the purchase of shares in a hooding corporation that owns the units in a building.

A condo is “real property.” Each unit owner owns an individual apartment in perpetuity and owns an undivided interest in the common elements of the building including the exterior walls, the roof, and lobby. Ownership of a condo is more like a house and the owner will have a deed as evidence of that ownership.

Coop buildings are owned by a non-profit corporation. When one purchases a unit in a coop building, they are really purchasing shares in the corporation, which come with a “proprietary lease” to the unit. Technically, the shareholder does not actually own the apartment, but a piece of the corporation. The larger the apartment, the more shares of the corporation are owned. Buying a coop is generally thought to carry a higher degree of risk, because you are investing in a corporation. If the corporation is in poor financial condition, the shareholder could potentially lose the coop apartment. In other words, invest wisely. Many banks will not lend to a purchaser buying into a coop that consists of only a few units or if too few of the units have been sold. Purchasers should beware of coops that have large balloon payments coming due or tax abatements that will be ending.

Control on Transfer of Ownership – Condos are governed by a condominium association and coops have a board of directors (the “coop board”). Although many condo associations claim the right to either approve or disapprove the transfer of ownership, they generally have little power over the individual unit owner. Coops, on the other hand have the right to approve or deny the sale of shares on the basis, for example, of the buyer's perceived inability to make the payments. They may also block the sale to celebrities, who they believe may disturb the peace and quiet of other shareholders. While bound by federal fair housing laws that prohibit them from discriminating against buyers due to race, religion, sex, nationality, etc., coops can, and do, choose purchasers based on financial resources and criminal background.

Property Taxes – Since condos are owned individually and are real property, each unit appears in the property tax rolls as separate entities and, as a result, individual owners are taxed separately. Because the entire coop property is owned by the corporation, the building appears on the tax rolls as a single piece of property. The corporation pays the property taxes and passes along the cost to the shareholders, usually as part of the monthly maintenance fee, according to percentage interest in the corporation. Property taxes are generally lower in coops than in condos.
Since condos are resold individually, the appraisals and higher sales prices are recorded separately. This has the effect of producing higher assessed values and consequently, higher property taxes. Coops, as sales of stock, are not recorded at all and the only way a sale could be reflected in tax rolls is if the entire piece of property were sold, which is rare. As a result, the rising value of the coop property usually lags in terms of assessed value and corresponding tax bills.

Federal tax deductions –Each resident condo owner is able to deduct payments made for mortgage interest and property taxes and make further deductions for such things as depreciation and maintenance if the condo is used as a rental property. Other than deducting his proportionate share of the property taxes and interest on the underlying mortgage, the coop tenant-shareholder may have more difficulty deducting other expenses. If other monies were borrowed to finance the actual purchase of the tenant-shareholder rights, deductibility depends on several different factors and is not done as easily.

Restrictions on Use – Another major difference between coop and condo are the restrictions on use and occupancy placed in the proprietary lease of a coop unit. The proprietary lease may restrict the amount of financing one can obtain using the shares as collateral, it may restrict a shareholder from subletting their space, or from having a specified number of occupants, or from having pets, or whatever else the "board" deems to be appropriate. The proprietary lease also gives the board of directors the right to refuse any prospective buyers or sublets for any reason, or no reason. Most coops have a very formal application and interview process before the board reaches their decision. Condominiums on the other hand have virtually one restriction which is their "right of first refusal." The right of first refusal gives the condominium association first opportunity to buy an apartment from a selling owner at the same terms under contract with a prospective buyer. Condo associations rarely exercise this option.

Purchase Price – As a broad rule of thumb, coops tend to have lower purchase prices than condos.

Financing – For a condo, financing is much the same as financing for a single family house. The owner can mortgage his interest in the condo. In terms of qualifying for financing a condominium has no requirements other than the borrower’s ability to secure a mortgage, if applicable.
For a coop, financing is arranged by borrowing against the stock. Lending institutions often have different criteria for coop loans. The original, underlying mortgage on the entire coop building is signed by the corporation creating a lien on the entire parcel of real estate. In terms of financing, a coop board will generally require a 4 to 1 ratio for the prospective buyer--in other words, the prospective must show documented earnings of 4 times their monthly carrying costs, including mortgage, maintenance, and all revolving monthly debt (i.e. car loans, alimony, child support, student loans, credit card debt).

Maintenance Fees – As broad rule of thumb, condos are slightly less expensive to maintain over time. Owners of condominiums pay for the common elements (i.e.: management, staff, doormen, plumbing, roofing, common walls, etc.) through “common charges,” and they pay their taxes separately. Most condo owners are generally responsible for paying their own utility usage.

Coops on the other hand pay for these common elements and others including everything to upkeep the building, such as taxes and most often utility usage through “maintenance charges.” Another component of the maintenance fee that generally does not exist with a condominium is the cost associated with an underlying mortgage. Some coops and condos offer recreation, parking, storage and other facilities as a part of the common charges or maintenance, others require additional payments. Coops have an advantage when it comes to special, costly repair or capital improvement projects, because they can borrow funds, adding to the amount of the blanket mortgage. The shareholders then pay off the cost of the project in their monthly fees. Condos cannot borrow money as an entity and therefore unit owners often face large assessments for similar projects.

Settlement/Closing Costs – One of few benefits of coops not being considered real property is that when the apartment changes hands, state and local taxes paid at closing are far less burdensome. In addition, the closing costs for condominium mortgages are very expensive in relation to closing costs for coop financing. The major cost differences are due to mortgage requirements for a condo: mortgage tax, title insurance costs, recording fees, and tax escrows. These items are not required to close on a coop apartment loan.