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Condo vs. co-op: What’s the difference? And how to know which to buy in Boston.
Unlike New York City, where co-ops are the norm, most of the multifamily market in Boston is made up of condominiums.
Planning to buy an apartment? One of the first decisions you’ll have to make (after choosing the basics like neighborhood and number of bedrooms) is whether to purchase a condominium or a cooperative unit — a co-op.
Sure, the two types of apartments may look identical as you open the entry door. But they are very different real estate offerings, and the form of ownership, method for financing a purchase, and application process vary substantially between the two.
Unlike New York City, where co-ops are the norm and condos are more rare, most of the multifamily for-sale market in Greater Boston is made up of condominiums, according to Ryan J. Glass, vice president of Gibson Sotheby’s International Realty in Boston. “Many buyers are confused by the difference since co-ops are less common here,” he said.
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Here are some of the main differences to weigh.
Legal structure
When you purchase a condominium, you receive a deed, and while you own the interior of your unit individually, you share ownership of the building and its amenities with the other unit owners. With a co-op, however, the building is owned by a cooperative corporation, and purchasers receive stock in that entity, as well as a proprietary lease that gives them the right to live in their unit.
Financing your purchase
Condominium purchases are financed by mortgages, just like single-family homes. The unit itself serves as collateral for the promissory note. When financing a co-op, the owner pledges his or her lease and shares to the lender, and a document called a UCC-1 Financing Statement is publicly filed to secure that lien. Glass said that only “a handful” of banks will finance co-ops and that they typically require a higher down payment than a condominium loan.
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The application process
Condominium buyers usually aren’t required to interview with the board of directors as a step in the closing process. Co-op buyers, on the other hand, can expect a rigorous application and approval process. After completing an application and providing a host of documents to the cooperative board — from tax returns to personal and business character references — a prospective co-op buyer meets with board members for a personal interview and receives their OK before the purchase can move forward.
“It’s one way that a co-op ensures that only buyers who can truly afford the unit purchase in the building,” said Glass. “But condos do not have this type of financial scrutiny, which can lead to hardship for the condo association if an owner were to be delinquent on their association fees.”
This approval process, which buyers can find intimidating and invasive, is one reason why some may shy away from purchasing a co-op.
“When buyers hear that a unit is a co-op, they tend to not be interested anymore,” said Morgan Franklin, an agent with Coldwell Banker Realty in Boston. “They have other options in Boston since there are so many condos, and they don’t want to put themselves through that.”
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Any type of purchase requires due diligence. Review the governing documents, especially the rules and regulations that will oversee your use of the property. Check the association’s budget and reserve schedule to ensure it has sufficient funds for planned repairs, and review the board minutes to see if there have been any conversations about impending repairs that could trigger a special assessment.
“Reviewing … meeting minutes will also give you a sense of what is important to the community,” said Hillery Dorner, a real estate attorney with Dorner Law & Title Services PC in Concord. “Did they have a discussion about holiday decorations or the need for more unit owners to volunteer their time? Having this information will give you a better understanding of what it might be like to live in that building.”
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