Congratulations! You’ve started your search for a new apartment in New York City, but during your search you’ve noticed some pretty big price differences between similar sized apartments. There are various reasons why an apartment could be priced the way it is, but one of the more significant factors comes down to the type of building. In most cases, condo units are about 20-25% more expensive than co-op units, in terms of prices per square foot, even if they are located on the same block. So why are condos more expensive than co-ops? Let me explain.
THE SUPPLY OF CO-OPS IN NYC ARE HIGHER THAN CONDOS
74% of the privately owned apartments in New York are co-ops, whereas condos represent 26% of privately owned apartments. Before the 1980’s, almost all new construction were co-ops, and buildings developed since the 1980’s have been primarily condos. Although there have been many new development projects over the last 10 years, co-ops are likely to maintain their dominance in inventory for years to come.
THE DEMAND FOR CONDOMINIUMS GOES BEYOND THE LOCAL MARKET
International buyers almost always lean towards condominiums because they view condos as a great investment tool, and as an excellent means of protecting cash from the volatility linked with transitioning governments, markets, and currencies. In the last ten years, the condo market has been flooded by foreign buyers with cash deals because of their views of it being a safe investment and the because of unlimited subletting. Which leads me to my next point…
CO-OPS HAVE STRICT SUBLETTING RULES
Most co-ops do not permit owners to sublet their apartments unless they have lived in them for at least two years as their primary residence. Some are even more strict than that. A lot of co-ops also have restrictions on the duration homeowners can lease their apartment within a five year period, i.e. sublet 2 years, live there for 3 years. This limits a landlord investor’s ability to make money subletting the unit and also makes investors think co-ops are not an investment friendly asset. However, from a primary residence standpoint, co-ops can be a good investment.
MOST CONDOMINIUMS ARE NEWER CONSTRUCTION
In a lot of cases, buyers will pay a premium for new condominiums because they are new and offer lots of amenities. With the arrival of new luxury towers flowing into the market each quarter, the asking price per square foot has been steadily increasing over the last few years. However, just because a home is newer doesn’t necessarily mean it’s better than some pre-war co-ops. Buyers will pay a premium to live in a 5th avenue co-op vs. a 3rd avenue new construction condo.
CONDOMINIUMS HAVE MORE LIQUIDITY THAN CO-OPS
Co-ops have some of the toughest approval processes in the country. The process involves being financial qualified, putting together a board package, and being interview and approved by the board members. These limits influence the amount of financing that a buyer can get, and even extend to the verdict of the purchaser’s character during the co-op board interview. It’s important to note that all co-ops are different, and some are easier than others.
Condo boards only have the right of first refusal when a purchase application is received. What this means is that the condo has two options; the first is to purchase the for-sale property at the contract price or the second is to sign a waiver to ensure the transaction is processed. A condominium approval process is easier and less strenuous vs a co-op approval process.
Which one of these is better for your situation: Condos or co-ops? It is a decision that must be considered carefully based on the factors above. While a condo may be a newer apartment with easier approvals, a lot of co-ops may be cheaper for the same amount of space and may fit your needs/wants more. Make sure to review your finances, speak with a real estate agent, and find out if you’re qualified to purchase in a condo or co-op!