One of the most discussed topics in our real estate classes at Garden State Real Estate Academy is the difference between condominiums and cooperatives.
“They look alike.”
A lot of people look at a high-rise residential building and say something like, “Look at those condos!”
Agents realize that “condominium” or “cooperative” are not words that describe the architectural style of a building; they define the type of ownership interest in the property. A condominium, for example, could be an apartment-type set of rooms, a townhouse, a retail shopping center, or an office building.
Condominiums and cooperatives are described as “multiple ownership” properties because they are shared by several—sometimes even hundreds—of co-owners. The only way a person could look at a building such as the one shown above and know what type of ownership its occupants had would be to check the public records.
Condominiums.
A condominium could be two units or 2,000 units. In New Jersey, new condominiums are regulated by The Condominiums Act. This requires a master deed to be issued covering the entire property, a board of directors to be elected from the individual unit owners, and Covenants, Conditions and Restrictions (CC&Rs) with which all unit owners must comply for the benefit of the overall condominium community.
When one buys a condo, one receives a deed for their specific unit and an indivisible interest in the “common elements.” The buyer has ownership of only the interior of their unit, from the walls in, the floor up, and the ceiling down. The parking lot, pool, lobby, elevators, hallways, roof, etc. are the “common elements” owned by the condominium association.
Thus, if there were 100 condominiums in the building and Jackie were to buy unit #68, she would receive a deed for her unit and a 1/100th share of the common elements. She would be responsible for paying her own mortgage and taxes on unit #68. If she defaulted, she could lose her unit to foreclosure or a tax sale, but that would theoretically have no impact on the other unit owners.
The condo association board must prepare a budget for the common areas maintenance and divide those costs among the co-owners in the form of monthly condo fees. A unit owner who fails to pay their condo fees can have a lien placed on their property.
If the roof suddenly needs a $100,000 repair and the condominium association does not have enough money to pay for it, it can assess the condo owners their proportional share of the expense.
Some people like the idea of owning a property where somebody else is responsible for such tedious tasks as snow removal and landscaping. Others resent the strict rules they are forced to obey in the CC&Rs.
Cooperatives.
A co-op building may look like a condo development, but a cooperative is owned by a non-profit corporation. When one wants to buy in a co-op, they negotiate with the seller as with any other real estate purchase, but after reaching a meeting of the minds, they must be approved by the co-op board of directors.
This can be a daunting and frustrating exercise as the board has almost total discretion as to whom they accept and whom they reject. They typically ask to review several years’ tax returns and want to see the bank and investment statements to determine the buyer’s available assets.
They cannot reject a person because they are in one of the Fair Housing Act protected classes. But they can reject them because:
- they have frequently change employment,
- they have a pet,
- if their co-op fees would exceed 25% of their income, or
- for “way of life” reasons.
These would include the applicant being a rock star who might attract groupies to the building, or an opera singer whom they might worry would rehearse in her coop. Richard Nixon was denied when he applied to buy a New York cooperative.
Once approved, the most significant difference from condos is that the buyer does not own any real estate. They own a share of stock in the corporation that owns the entire property. They then receive a proprietary lease that gives them the right to live in their property.
As with condominiums, the co-op board has strict rules all co-op owners must obey. The co-op board takes all common area maintenance area costs, including property taxes, and assesses them proportionally to each co-owner. These can be significant, with some co-ops in Manhattan topping $5,000 per month.
Financing.
Buyers of condominiums can obtain the same type of mortgage as for any other type of home purchase, from no-money-down VA or USDA loans to FHA and conventional mortgages.
Buyers of cooperatives can still obtain a loan to do so, but it is technically not a true mortgage; it is a loan to buy (and is secured by) the share in the corporation that owns the building the buyer will receive. Lenders usually have higher requirements for a buyer’s loan qualification, and often requiring a minimum of 10%-30% down.
Why?
The question is often asked, “Why would somebody go through the intrusive application process of buying a cooperative when they could own their own property by buying a condo?” There is a single answer: Price.
In 2024, the average price for a cooperative in New York was $1,265 per square foot. The average price for a condominium was $2,307 psf. For a 1,500 square foot home, that is $3,460,500 for a condo vs. $1,897,500 for a similar-sized cooperative.
If you are planning to take the New Jersey real estate licensing exam, we have our own best-selling exam-prep books to help, and most importantly, we hold a two-evening exam prep class once a month where our live instructor can walk you through everything you need to know to pass the state exam. If you are looking for a real estate school that offers both live real estate classes and online real estate classes, remember, Garden State Real Estate Academy is New Jersey’s top-rated real estate school.
Garden State Real Estate Academy has evening, daytime, in-classroom and online real estate classes that start every couple of weeks. For information on the real estate school’s upcoming New Jersey licensing classes, click here: https://www.gsreacademy.com/pre-licensing-courses/
