Co-Op and Condo Differences in New York City

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The global difference between condos and co-ops is simple: In a condo, you actually own your unit inside a multi-residence building, whereas in a co-op, you own a share of the corporation that owns the whole building, but your unit is actually leased to you by that corporation. The differences between condo and co-op ownership in New York City, however, is much more nuanced and is actively changing.

Property Inventory

Since the 1980s, co-ops have dominated the Manhattan real estate market. It's estimated that in the mid-1980s, co-ops constituted 85 percent of the market, but that percentage has dropped to about 75 percent in the current market. This percentage can be misleading, though, because co-ops are concentrated mainly in neighborhoods with older buildings. Neighborhoods with significant new construction may actually have more condos available than co-ops. So, when considering the differences between the two types of property, architecture is a significant factor. New construction will be sold mainly as condos, whereas pre-war buildings will most likely be sold as co-op shares.

Costs and Value

Condos are known to be more expensive in Manhattan, and this price difference goes beyond the sticker. The New York Times tells us that on the surface, condos can appear to be valued nearly 40 percent higher than co-ops -- but that in actuality, a condo is only about 9 percent more valuable than a co-op unit of the same size. This gap between expense and value is linked to the added costs that are inherent to buying and maintaining a condo. A condo will usually be larger than a co-op with the same number of bedrooms, so a buyer is paying for that added square footage. Condo buyers also have to pay higher closing costs and a mortgage recording tax, neither of which are involved in a co-op purchase. Finally, co-ops allow the owner to write up to 50 percent of her maintenance fees -- including insurance and property tax -- off of her personal taxes. Condo maintenance fees, by contrast, are money that the owner will never get back.

Getting Approved

The approval process to purchase a condo is very different than it is to purchase a share of a co-op. A qualified applicant for a condo cannot be rejected -- only precluded from buying the unit if the condo board chooses to purchase the unit first on the same terms. This is known as the condo board's "right of first refusal," and it rarely happens. When applying to purchase co-op property, by contrast, a buyer must not only be approved by the bank, but also the board. In New York City, these boards are notoriously rigorous -- even more rigorous than banks -- when approving someone for a mortgage, and require full disclosure of assets, credit and financial history. Although some condo buildings are beginning to require more financial disclosure from potential buyers, overall the approval process for condos affords the applicant much more privacy.

House Rules

Perhaps the biggest difference between co-ops and condos in Manhattan is the terms of ownership. Co-ops come with strict house rules -- the first of which usually prohibits subletting. Co-ops enforce these rules to protect the residents from transient occupants. While some buyers appreciate this protection and the higher quality of life it provides, others find it too restrictive, and want their property purchase to allow them all the freedoms of private ownership. Thus the appeal of a condo, which affords the owner the right to sublet at will, and thus have the option to earn income on her property investment.