Saturday, February 26, 2005

Condos, Co-ops Have Distinct Differences

In many markets across the country where housing prices are escalating (some would say out of control), the condominium purchase has become very popular once again. In the Washington, D.C., region, condos have arisen to the introductory purchase for many first-time home buyers -- the median price of housing having reached $371,000.

As soon as you mention "condo", however, most people imagine an apartment-like dwelling, when in reality a condominium is actually talking about the form of ownership, rather than the style of the structure. Nevertheless, for our purposes here, we'll keep with the apartment-type description.

The National Association of Housing Cooperatives (

NAHC's web site says the first housing cooperative in the U.S. was formed in the 19th century and was organized in New York City. The U.S. now has more than 1.5 units in cooperative housing communities -- many of them in large metropolitan areas, such as New York City, Washington, D.C., Chicago, Miami, Minneapolis, Detroit, Atlanta, and San Francisco. The style of housing ownership allows for affordable living in an escalated market.

The concept of the "co-op" stems from the business model formed nearly 200 years ago in Europe, where a group of business people would join forces to increase their buying power. All purchases and sales were derived from the group of their product, with the sharing of expenses and, of course, profits. In real estate, the co-op is an extension of that model.

With a condominium, the homeowner actually buys a part of a building and its land -- the unit of the building goes up for sale and an individual can purchase it. Usually, the highest bidder with the best credit wins. The contract is up for review by the owners of the unit and a final decision is made.

A co-op works quite differently. The purchaser is actually buying an interest in the cooperative -- which entitles the co-op member to a unit (which could be a 1, 2, or 3-bedroom dwelling. In essence, no one owns their individual unit, rather they all have joined in to own the property, the buildings, the improvements, and all the real property within it. The contract is more like an application for membership, which is reviewed by the board of directors for approval.

Many of the co-ops I've seen do not allow investors -- which is a strength as far as financing and upkeep of the property is concerned. However, because of the form of ownership, the co-op can trail the real estate market when it comes to comparable values with condos. For instance, I recently saw a 3 bedroom co-op in a Washington suburb that was listed at $185,000 -- whereas a similar size condo in the area was going for $250,000 and rising in value. The co-op was even newer and in better condition than many of its counterparts.

Another similarity is the presence of a per unit monthly fee -- condo fee or co-op fee. The condo fee usually covers common grounds maintenance, trash/snow removal, and various utility bills. The upkeep of the unit is all up to the individual owner. If you seek out a co-op, don't be surprised at a much higher monthly co-op fee -- however, many times these fees cover items that will probably never be included in a condo fee. Items, such as all appliances, air conditioners/furnaces, etc., are often times included in the coverage. If it breaks -- the co-op takes care of it. Thus the co-op fee may be a lot higher than its condo counterpart, but it provides a forced savings plan for any future breakdowns.

If you decide to purchase a co-op, then financing is not going to be as readily available. Many lenders do not offer co-op financing since you're purchasing a share of ownership rather than a complete unit. However, start with the mortgage company of your choice and get a referral if they don't offer it. For a list of mortgage companies, visit

Published: February 25, 2005

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