What are co-ops? Co-ops can comprise almost any type of housing, from high-rise apartment buildings to garden-style units, to town houses, single-family homes and even senior housing. A co-op looks like any other home to the naked eye, that’s because the uniqueness of the co-op is not in the physical structure itself but rather in the way that the properties are owned and governed.
Other types of housing co-ops include mobile-home park co-ops which own the land, utilities and community facilities, while members own the individual “mobile-homes.” For the most part, co-ops are incorporated and a board of directors governs the complex with the owner of each individual unit having one vote. The owner has no deed and instead holds stock and a proprietary lease that has a term of ten to fifty years, renewable automatically or at the discretion of the shareholders. Mortgage, property tax and maintenance fees are paid on a pro-rate basis which is proportionately according to the percentage of the overall size of the unit.
Co-ops are similar to condominiums but without the exclusive ownership rights and are particularly popular in areas of high density and high land values such as New York City. Instead of owning the three-dimensional space and the interest in the common elements of the condo project, you own shares of a corporation that owns the entire project. You are also a tenant of this corporation with respect to the unit you occupy within the project. Unlike a condominium where you can own a unit provided you have the money to do so, a co-op requires that new owners be voted upon and approved by the board of directors before being allowed to buy shares in the corporation. As a co-op buyer, you’ll likely be asked by the board of directors to provide a financial statement and references and to participate in an interview.
One of the drawbacks of co-op ownership is the fact that the bylaws and rules and regulations limit what you can or cannot physically change about the unit that you’re living in. Be prepared for restrictions on loud music, rental regulations and limitations on selling your shares before first making them available to the co-op itself for repurchase. The co-op can impose such limitations because the corporation or association owns the title to the real estate and residents simply purchase stock in the corporation which entitles them to occupy a unit in the building or property owned by the cooperative. While you don’t technically own your unit, you do have the absolute right to occupy that unit for as long as you own the stock.
Most people focus on location, size, amenities and price when purchasing a cooperative. This is understandable since those are the basic criteria that most home buyers use during the home search process. Be sure to find out what all the rules and regulations of the community are. Here are some sample questions to ask before making your investment:
