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The Difference between a Co-op and Condo

Right At Home Daily: Finding It: Making the Deal
The Differences Between A Co-op and Condo
By Barbara B. Buchholz for Right at Home Daily

A cooperative apartment (the official name for a co-op) and condominium have the same tax advantages as a single-family home or town house. But that's about the only similarity a co-op and condo share.

The purchase of a co-op includes shares of stock in a corporation that owns the entire building. The shares are a part of a lease that permits you to "rent" the apartment. Whereas the purchase of a condo means you actually buy the apartment, as well as a proportionate share of the property's common space.

In some cities one form of ownership may be more commonplace than another. For example, condos are more popular in San Francisco, while co-ops are more prevalent in New York City. This distinction will likely affect the difficulty or ease of selling to potential buyers, who may think one is a better investment because of its popularity.

Not all co-ops permit financing for the purchase. If that is the case, you will have to pay all cash and show that you have other assets equal to as much as two or three times the cost of the dwelling.

Though the assessments in many co-op buildings seem higher than those in comparable-sized condos, they may not be since they include real estate taxes.

Many of the grander cooperative buildings require an extensive application process. You will have to provide a detailed credit report, numerous letters of recommendation from business and social contacts (sometimes more than a dozen), and pass a live interview (everything from your conversation skills and handshake to your attire may be scrutinized).

No matter how unfair it seems a co-op board may reject you for any reason other than your race, sex, religion or a disability. For example, people of notoriety may be rejected (former President Richard Nixon was rejected, as are many celebrities) or your profession may disqualify you (traders are not always beloved because of the volatility of their earnings).

Buying a condominium is just like purchasing a single-family house or town home. You will need to provide a credit report, but, often, not as detailed as for a co-op. Rarely will you be required to interview or provide letters of recommendation. It is also easier to sell your unit because financing is allowed. A disadvantage to some, however, is that there's less control over who will be your neighbors.

Before you borrow consider the following:

1. Ask the board for a written history of assessments and special assessments, so you can detect a pattern of increases and know whether you have sufficient funds for extra costs. You may want to secure copies of board meeting minutes and correspondence to owners for such details and preferably over a 12- or 24-month period.

2. Ask about the history of capital improvements to learn what structural and design changes have been made and what will have to be done during your ownership (again, so you know if you have the funds). Capital improvements may include new windows and screens, new furnace, tuckpointing, and plumbing risers.

3. Ask about the building's reserves. Ideally, it will have money set aside for unexpected costs such as a leaky roof. Ask to see a financial statement.

4. Ask about parking and confirm that it is available without restriction, whether there's a garage on premises or not. Some buildings have a long waiting list and buying a unit doesn't guarantee you a space.

Find out what other people think about owning a condo in our forum.