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6 Reasons Why Condos are More Expensive Than Co-Ops

If you have been considering home ownership in New York City, you have probably stumbled across the terms condo and co-op in your various stages of research. You may be wondering what is best for you, or simply wondering what the difference between these two types of properties is?

In its most simple form, condo ownership represents true ownership in real property while co-op ownership represents ownership of shares in a corporation. Condos have become widely popular in the New York City market, with transactions on condos far exceeding those of co-ops.

So the question begs, why are condos more expensive than co-ops?

1. Supply & Demand

The story of condo and co-op pricing is one of pure economics. Many are surprised to know that co-ops make up 75% of the New York residential market because many properties that were built or converted prior to 1980 are co-ops, thus the supply of co-ops exceeds that of condos. Additionally, the demand for condos has rapidly increased compared to demand for co-ops. Thus we have an excess of co-op supply with less demand for them while we have less condo inventory and more demand for condos. 

2. Investor Interest

For investors looking to buy a property and rent out, whether these be foreign or domestic buyers, co-ops can be quite challenging. Co-ops often impose strict rules about owners renting their units outs, making it difficult for an investor to generate positive cashflow on the property. If they do allow owners to rent their units, restricting rules are still often enforced regarding length of lease, how often you can rent out the unit in a certain time period, and eligibility for renting out your unit. Based on this aspect of co-ops, it virtually eliminates foreign buyer interest in co-ops as they often purchase New York real estate as an investment. 

3. New Development

The overwhelming majority of new development projects in the city are condos. Buyers have shown that they are willing to pay a premium for these new projects that are luxurious and filled with an array of amenities. It is important to note that, yes, co-ops prices have increased, but not to the extent of condo prices.

4. Estate Planning

If you are accumulating wealth in real estate that you plan to pass along to beneficiaries, ownership type is something to consider. Condo ownership, being real property ownership, transfers to the beneficiary as any piece of real property would upon death or divorce. Co-ops, on the other hand, can be much more complicated as ownership is in shares of the cooperative corporation with a lease for your specific unit. With that being said, the board is responsible for the transfer of share ownership to a new individual as outlined in the co-op's proprietary lease.  This means that the beneficiary may be subjected to the same stringent board approval process to which any buyer in the co-op would be subjected. Remember, the co-op board is not required to disclose why it makes an approval or denial decision. When it comes to questions of estate planning, it is always important to speak with a qualified estate attorney.

5. Financing Policies

For all-cash buyers, financing policies are not a concern. However, for buyers financing their purchase, financing policies are very important, and can vary substantially from condo to co-op. Most condos in New York require 10-25% down on a purchase, with the remainder of the purchase price eligible to be financed. Co-ops can be very strict in regards to buyers financing the purchase. Some co-ops may allow no financing, while others may impose high down payment requirements in excess of 50%. As a result, these strict policies can price out buyers financing their purchase from co-op units that are priced the same as a condo unit because of the down payment (cash) requirement. This further amplifies demand for condos. 

6. Board Policies

Co-ops are renowned for having strict board policies, and for some co-ops strict is even an understatement! Condos, compared to co-ops, generally have less strict board policies from everything to board approval to rules that govern the building. These rules can be a very important part of a buyers decision, especially when it comes to things like pets. Many co-ops boards to do not allow pets, so buyers with pets will not even consider co-op properties. Additionally, some co-op boards have created a "club" in which they only accept certain individual that meets their criteria, which they are not required to disclose. Frankly, this type of atmosphere does not appeal to all buyers, and for those that find this unappealing, they are attracted to condos.