Co-Ops and Condos: What’s the Difference and Why You Should Care

By Peter Norden

You’ve probably heard of cooperative grocery stores: member-owned, mostly independent shops that specialize in natural, whole-ingredient foods.

The grocery co-op isn’t the only type of cooperative enterprise out there. It’s not even the most common. In some major cities, particularly in the eastern United States, cooperative housing accounts for a significant chunk of the owner-occupied multi-family segment. If you’re looking to buy in the heart of a major city, there’s a fair chance you’ll at least consider purchasing shares in a co-op.

What exactly does co-op ownership entail? Let’s take a look at some of the key differences between co-op housing and traditional condominiums.

What’s a Co-Op?

Is it fair to say that a co-op is a “home you don’t technically own,” as Realtor.com puts it? Perhaps. Co-op dwellers own shares in a business entity—a corporation—that in turns owns the co-op building or complex. Each share has equal value, with each owner’s equity determined by the number of shares he or she owns. Naturally, the occupant of a penthouse suite owns more shares than the person in the second-floor one-bedroom.

Co-op owners’ financial responsibilities are directly proportional to their shareholdings. Larger shareholders pay more for building and common-area maintenance, shared utilities and overhead expenses—and, naturally, have larger tax bills.

As corporations, co-ops have governing structures. Co-op boards exert significant influence over the day-to-day activities and finances of the co-op writ large. Individual shareholders can make their wishes known by exercising their voting rights, just as corporate shareholders do. However, unlike many corporations, co-ops typically don’t operate on the “one share, one vote” principle; instead, each shareholder has an equal say at the ballot box, regardless of the size of their ownership stake.

What’s a Condo?

A condominium isn’t exactly a single-family house inside a multi-family building or development; however, condos do lack the overarching governance structure that controls the activities of housing co-ops. Aside from monthly fees paid into a homeowners association account to cover shared maintenance, improvements and utilities, condo owners have little shared responsibility. And, unlike co-op owners, they actually own the deed to their unit—not shares in the corporation that owns the underlying real estate.

Why You’d Want To Live in a Co-Op

In some cities, you might not have much choice. According to the Huffington Post, co-op housing accounts for roughly three-quarters of the Manhattan housing market. That’s an extreme example, and there’s evidence that the tide is turning: Most new housing projects in New York City are condos.

Assuming you do have choice in the matter, co-ops are appropriate for homeowners willing to cede some control to a self-interested peer group willing and able to make rational decisions that uphold shareholders’ financial and personal interests.

Co-op boards are very particular about whom they allow into the fold, which cuts both ways: If you don’t make a good impression on the board, you might find your application denied in a hurry; if you do earn admission, you can exercise your right to choose your neighbors. You don’t have this freedom in condo buildings, as each individual owner is free to sell to whomever he or she wishes, provided they meet lenders’ underwriting criteria.

Why You’d Want To Live in a Condo

Generally speaking, condo life is lower-key than co-op life. You’re free to buy wherever you wish and sell to whomever you like, financial constraints notwithstanding. You’re also not beholden to a co-op board, though you’ll likely have to follow well-worn homeowners’ association bylaws that limit your agency.

Since condo owners don’t have as much skin in their community’s collective game, condo developments tend to be more individualistic. If you value anonymity and adhere to a live-and-let-live philosophy, condo living probably appeals to you. If you prefer to share more with your neighbors—or simply know your neighbors—you might struggle to find meaning here.

Need More Space?

If you’re looking to buy in a major city’s urban core, you’re more likely than not to settle on one of these two housing types. If you live in a less populous area, or you’re willing to endure a longer commute in exchange for lower per-square-foot costs and more space to spread out, chances are good that you won’t end up in a co-op or condo.

In small cities, suburbs and rural towns, single-family homes are much more common than multi-unit, owner-occupied developments. Single-family homes present a slew of advantages and challenges all their own, but that’s a topic for another day.

Bio: Peter Norden is CEO HomeBridge Financial Services, Inc., a New Jersey-based residential mortgage lender.