The REAL Difference Between Condos & Co-ops

Performance Property Real Estate Question

Q: I’m thinking about buying a condo or a co-op, what’s the difference? Camilla, North Bergen, NJ

A: Condos and co-ops are similar to the extent that individual owners live in separate units and share common areas. Condos are run by condo associations whereas co-ops have a board of directors. The difference between a condo and a coop is that each entity has a different method of ownership. When you buy a condo, just like when you buy a single family home, you possess ‘fee simple’ ownership, which gives the owner control to use and transfer the property at will. Owning a co-op is more like owning stock in a company. If you have the money to buy a condo, you can, whereas co-ops control who’s allowed to buy, often requiring background checks, referrals and other personal information like tax returns from prospective buyers. By the same token, when you sell a co-op, the co-op board has to approve your new buyer. Also, co-ops often restrict the mortgage financing a buyer can use and some co-op boards won’t allow buyers to finance a purchase at all and require buyers to pay for the entire price in cash. Condo associations typically do not have a say in who is ‘allowed’ to buy or how they finance their purchase. As a result, mortgage lenders are more likely to issue loans for a condo than a co-op because if a borrower defaults on a condo loan, the lender can foreclosure and then have real property to deal with rather than co-op shares, which can be harder to sell. Co-op fees tend to be higher than condo fees because co-ops roll all the monthly expenses into one bill including gas, water and property tax whereas condo owners typically pay their utilities and tax bills separately. Thanks for your question, Camilla.

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