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If you're looking to buy an apartment in NYC, you've probably noticed that condos are more expensive than co-ops. But we were amazed to read in the most recent Manhattan market reports that the median price of a co-op at end of 2015 was $749,000, whereas the median price or a condo was over $1.7 million.
But condos aren't actually twice the price of co-ops, says Jonathan Miller, appraiser and author of the Douglas Elliman market report. "It's like comparing apples to grapefruits," he says. That's because those medians represent highly different properties. The condo number is skewed by high-end new developments, Miller says, and "the average condo is in the neighborhood of 300 square feet larger than the average co-op." The reason: Many of the rentals that were converted to co-ops in the 1980s were studios and one-bedrooms, and these days new apartments (all condos) are getting larger.
So, if everything else is identical (like location, apartment size, amenities), a condo is, on average, actually about 10 percent more than a co-op, give or take a few percentage points.
The reason is partly because of supply and demand. Condos are much less common in NYC, and therefore garner a premium price. In fact, according to Miller, the breakdown of co-ops and condos in Manhattan is about 75/25 (though rentals still make up about 75 percent of the housing market). Across the city, co-ops represent 70 percent of the sales market.
So, is it worth it to pay that extra "condo premium"? Maybe.
The upsides to buying a condo (in other words, why they might be worth the extra 10 percent):
"If you know that you're going to rent your apartment out eventually or you're buying it purely as an investment property, you need to buy a condo," says Patrick Lilly, an agent with Core. Co-op boards have restrictions on the length of time you can sublet for (usually two years tops) and renters have to be approved by the co-op board. In other words, in a condo, you're paying for a flexible subletting policy and an easier, and quicker, road to renting out your place.
In a condo, you also get the "freedom to have things like four dogs," says Rachel Altschuler, an agent with Douglas Elliman. The reason: The lack of an (often picky) co-op board.
"It's always case by case," says Altschuler, "but for the most part, condos are pet friendly." Some, though, may have a restriction on weight, breeds and number of pets.
Condos also, for the mot part, don't put restrictions on pied a terres, parents buying for kids and foreign buyers, Altschuler adds.
"In a condo, you're paying for your privacy to some extent," says Lilly. Because there's no co-op board looking into you finances and personal information -- and no board interview -- you can keep keep your private life more private.
This is one of the reasons celebrities seem to prefer to go the condo route.
Condo boards "don't really care who you are. Co-ops do," says Lilly
MORE FINANCIAL WIGGLE ROOM
"For those who don’t have debt-to-income ratio or liquidity for a co-op," says Altschuler, "a condo can be a good option." Co-ops usually require one to two years' worth of monthly expenses in the bank post-closing and generally want a 25 to 28 percent ratio, meaning that no more than this much of a buyer's monthly gross income goes toward paying off debts.
If you're buying a co-op for, say, $1 million, putting 20 percent down, and the maintenance is around $1,300 a month, you'll need to have up to $130,000 in the bank after closing (that's 24 times the $5,400 monthly expenses). With a condo you don't have that requirement.
Many new developments—all of which are condos—have 421-a tax abatements, which mean that you pay very low monthly taxes (think, as little as under $100) for sometimes up to 25 years.
(Conversely, some co-ops have special assessments in place in order to keep building reserves healthy and to pay for upcoming capital improvements.)
POTENTIALLY QUICKER RESALE—AND A LARGER BUYER POOL
While you're likely to fetch a higher price for a condo, you've also probably paid more for it in the first place, so there's no real benefit there. But a true benefit when it comes to resale is the time it'll take to sell your apartment. Since you're not beholden to a co-op board's approval of the seller, the process is likely to be quicker. And your pool of buyers is usually larger, since those aforementioned foreigners are usually A-OK.
LOWER DOWN PAYMENTS
Most co-op boards require at least 20 percent down—in Manhattan, the average co-op down payment is closer to 35 percent, Miller says. Condos don't have the same rules, and as long as the bank allows it (assuming you're taking out a mortgage and aren't paying cash, as many condo buyers do), you can put just 10 percent down and save the rest of your money for other investments—to grow in the stock market perhaps?
The downsides of buying a condo (ie.why you may want to stick with a less expensive co-op after all)
HIGHER CLOSING COSTS
Closing costs are higher in condos than they are in co-ops (check out a breakdown here). Expect to pay about 1 to 2 percent more (for a total of three to four percent of the cost of the apartment) in closing costs compared to a co-op. Additional closing costs for condos include a mortgage recording tax and title insurance. Co-ops don’t require these things since technically there’s no transfer of title for real property, since you’re buying shares in a corporation.
"One of the reasons New York City was so unaffected by the subprime mortgage crisis was because of the financial stability—and prevalence—of our co-ops," says Altschuler. Because the owners of co-ops are vetted so strictly, have put down up to 50 percent on their apartments and have a certain amount of post-closing liquidity left, they're much less likely to foreclose on their properties.
And even in a case of default, co-ops are in better shape. "Co-ops are in the first position of receiving distressed or foreclosed funds; the bank receives what is left over. In condos, banks are in the first position and condo boards receive what is left, if anything," says Lilly. "That loss of past carrying costs due to the board must then be shouldered by the owners."
A TRANSIENT VIBE
"In general, hallways and lobbies are in better shape in co-ops because the owners are actually living there," says Lilly. (Also, they own part of those common areas in a co-op.)
And, says Peggy Dahan, an agent with Siderow, because of condos' flexible subletting policies, "you don’t always really know who your neighbors are. You can have four apartments on your floor but be the only one actually living on the floor."
Considering that 75 percent of the Manhattan sales market is made up of co-ops (and just under 70 percent across the city), limiting yourself just to condos might shrink the pool of possibilities.