A co-op is different—and maybe it’s perfect for you. But if you opt to live in a co-op, will you hold the title to your home? Here’s how it works.
The Default Rule for Co-Ops: The Purchaser as Stockholder
A co-op is a corporation that bands together to own a building and its surrounding property. Rather than receiving deeds, buyers hold stock certificates.
Stock certificates are personal property. In this case, they grant each shareholder a proprietary lease on one living space in a building.
If you buy into a co-op, your share will entitle you to live in the unit you select. So, do you own real estate or not? Generally not. But the answer is nuanced and evolving, so read on.
A Co-Op vs. Real Property: The Control Panels
At first glance, going with a traditional home or condo purchase has advantages. A home or condo buyer owns real property, and has the recorded deed to prove it.
This puts the owner in control when it’s time to sell.
In contrast, selling a co-op unit hinges on the co-op board’s green-lighting the hopeful buyer. Co-op boards may say no to a prospective buyer—as long as they stay on the good side of relevant anti-discrimination laws.
Once the purchasers are in, they might be barred from subleasing their units. This keeps investor buyers out of the picture.
On the other side of the coin, co-op shareholders are in charge of the property management. Most co-op buyers want a hands-on role within their chosen community. All co-op members are vetted by the community they join because each member is given direct input into the group’s decisions, and a say on improvements that impact the community.
Special Considerations for Financing and Insuring Co-Op Shares
The whole co-op property has one deed; individual units do not. A co-op purchaser must work with a mortgage specialist who offers access to share loans. Share loans are not obtainable through FHA or VA mortgages.
The share loan simply supports the price of buying into the cooperative. It is separate from the mortgage on the co-op’s property, which residents pay off through monthly dues.
Buyers can find listings, submit offers, and negotiate prices for co-op properties. Yet because they must be vetted by the co-op’s board, and because a lender will wait until the board approves the purchaser before ordering an appraisal, co-op purchases can take months. Granted, the process can move quickly in major cities where co-ops make up a significant part of the market. Consider the Seattle co-op. It will spend 44 days on the market—just two weeks longer than the time it takes to sell a condo.
A co-op buyer can have a lien search done to look for liens filed against the co-op or against the seller’s proprietary lease. This process resembles its counterpart in real estate purchases: liens must be resolved before closing. And while co-op buyers typically don’t buy title insurance, they can buy co-op leasehold insurance as a shield against title defects.
Condo Versus Co-Op: Which Is Cheaper?
Co-op owners pay substantial monthly corporation dues, as they share responsibility for the building’s mortgage, its taxes, and community utilities and maintenance costs. Note that some co-ops require a hefty share price down payment—in some cases it’s half the unit’s value—and cash reserves beyond the closing costs.
Most buyers, though, will find co-ops at lower prices than condos, especially if they’re looking in big cities. In 2018, New York City co-ops were fetching $1,077 per square foot—$700 less per square foot than the average NYC condo.
For investors, condos are the better buys. Over a recent 15-year period, CityRealty.com reports, New York co-ops ascended 127% in price, while condo values skyrocketed 179%.
Innovations in Titling Co-Op Units
New York has embraced an innovation in its Estates, Powers & Trusts Law. Under this provision, marriage partners are deemed to own a New York co-op apartment as tenants by the entirety unless the interest is expressly declared a joint tenancy or a tenancy in common.
The provision went into effect in the 1990s, and made cooperative apartment ownership tantamount to owning real estate. Each tenant by the entirety owns an undivided, whole interest that cannot be reduced or sold by the other. When one co-owner dies, the survivor obtains full title to the shares and the proprietary lease.
Any liens attached to one spouse’s interest survives as long as that individual does; the surviving spouse’s interest is not encumbered. Should the marriage be dissolved, the proprietary lease, by operation of law, becomes a joint tenancy.
Trends and Amenities
New York City’s housing market is, as its law suggests, a key co-op market. More than 2,500 cooperatively owned apartments exist in Manhattan alone. Compared to the apartment market, cooperative living offers a greater range of amenities and features, including design aspects more typical of the average house than a city apartment.
Today’s cutting-edge co-ops embrace coworking. Many offer a schedule of presentations courtesy of local authors and experts.
Sustainability concerns bring many people to cooperative housing. Mt. Airy Nexus in Philadelphia, for example, partners with the nonprofit group Sustainability Nexus to provide a home for sustainability and entrepreneurship communities, plus like-minded retirees.
Indeed, senior co-ops are on the rise, as a growing population of baby boomers takes senior living into its own hands. Fitness rooms and trainers, community kitchens and laundry rooms, event halls, swimming pools, gardens and parks are all desirable features. So is the plan to age in a mutually supportive community.
Buying a Co-op: Key Takeaways
Buy a co-op, and you’ll likely get shares rather than a real property deed. Given the special mission of your chosen co-op, it will likely take extra time to sell down the road.
Nevertheless, for rich and varied reasons, co-ops are desirable primary residences. And if you enjoy sharing decisions and living as part of a community, co-op living may be just the fit for your lifestyle.