Condos vs Co-ops
History and Ownership Structure
Co-ops have existed in Washington, DC, since 1920. There are approximately 120 co-ops in the DC area. A co-operative is a corporation formed for the purpose of provding housing for its members or owners. Some co-operatives own the building but lease the land, and some own the land as well. With a co-op, the "owner" (member) purchases shares in the corporation and in return is given the right to occupy a unit. With a condo, on the other hand, the owner purchases the unit itself, along with an undivided interest in the common elements (hallways, courtyards, lobbies, etc.)
Financing
One of the key differences between condos and co-ops is financing. With a condo, you can use virtually any bank, credit union, or other lender in the open market to finance the unit. A co-operative, however, requires you to use an approved lender, of which there are usually one or two. These lenders are the ONLY ones acceptable for use. Often, the rates for co-op loans are not as competitive as the broader market. Financing is the key reason that condos became, and remain, more popular. Until the 1979, bank financing was not even available to co-op owners--one had to either pay cash or the seller had to take back a note for part of teh cash requirement. This made co-ops very difficult to sell. In 1979, loans for up to 95% of the value of the co-op unit, less teh allcoated portion of the corporate mortgage, were allowed.
Board Approval
With a co-op, you will be required to present required information to the Board before your purchase is approved, even if the seller accepts your offer. They will likely ask for detailed financial statements, verification of income and employment, a credit report, and/or tax returns. Most co-ops also schedule an interview with the buyer. Similarly, when you sell, your purchaser will need to be approved using the same process.
Other Advantages and Disadvantages to Co-ops
- Purchase Price: As a general rule, co-ops are less expensive than comparable quality condos.
- Closing Costs: Because a co-op transaction is a purchase of stock, and not real property, closing costs are less expensive. Because you are not buying real property, there is no transfer or recordation tax, no real estate tax proration, and no title search or title insurance.
- Investment Properties/Renting Units: Co-ops usually restrict the percentage of rental units to maintain the owner/investor ratio.
- Monthly Fees: Monthly co-op fees are often higher than condo fees, because they may include an underlying mortgage payment or other borrowings by the corporation.
- Repairs and Maintenance: Co-ops have the ability, as corporations, to borrow money for large capital improvements, and place the building or land as collateral. A condo needing a large sum of money quickly may be forced to collect a special assessment.
- Leased land: Co-ops that are built on leased land, such as River Place in Rosslyn, have a limited life. At the end of the lease, the land and all its improvements (including your unit!) reverts to the land owner.
Source: Co-operatively Speaking, Edmund J. Flynn Company; Washington Post.