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What Is a Co-Op Apartment?

Tricia Christensen
By
Updated May 16, 2024
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A co-op apartment is a unit of housing that a person is allowed to occupy after purchasing shares in the corporation that owns the cooperative. Instead of actually buying the property, the resident only buys into a corporation — in the US, usually a Limited Liability Corporation (LLC) — that owns the building. There are both advantages and disadvantages to this type of living arrangement, but many co-ops are considered highly desirable properties, particularly those in affluent neighborhoods. Though often compared to condos, co-ops differ greatly in the method of ownership and in the residency application process.

How It Works

A co-op apartment building is owned by a not-for-profit corporation. People can buy shares of the corporation, which entitles them the right to live in a specific unit of the building and a vote in matters concerning the cooperative as a whole. Generally speaking, the larger the apartment, the more votes the owner has. Cooperatives generally elect or have every member participate in a board of representatives, which handles issues and enforces the bylaws of the co-op. Residents must also pay a monthly fee, which goes towards paying the mortgage for the co-op building and covers maintenance fees, insurance, real estate taxes, some utilities, and the salaries of any building staff.

Advantages

Many people like the living environment of co-ops, since they tend to have a low turnover of neighbors, all the maintenance and repairs are taken care of by the corporation, and they have a say in many aspects of the building. Additionally, having so many people working together can make it easier to get new services from local governments, or to get discounts on things like utilities or cleaning services. This type of arrangement also eliminates the need for an outside landlord, which can expedite matters like repairs or evictions. Co-op apartments may provide services not found in other living arrangements, like credit unions, food buying clubs, and planned activities. Generally speaking, co-ops are more secure than other types of housing, and have fewer instances of vandalism.

Transferring the membership of a co-op apartment can be easier than selling another type of housing, since, as long as the board approves the sale, the resident just needs to transfer a stock certificate to the new resident. This eliminates the need for paperwork like deeds. Also, some of the monthly fees are tax-deductible in some regions, and because the corporation is usually not-for-profit, the fees don't usually go up unless it's necessary to keep or maintain the building.

Disadvantages

One of the primary disadvantages of this type of living arrangement is the process involved in buying into one. All potential members of a co-op apartment must be approved by the board of directors, and the vetting process is usually extensive. It typically includes things like the applicant's credit history, personal background, whether the applicant owns pets or other properties, and whether the applicant would be compatible with existing residents. If you have an emotional support animal and are worried it might disqualify you from the vetting process of your application to a co-op, make sure you produce a legitimate ESA letter to support your case. Boards for co-ops in exclusive areas can be extremely selective. Also, the board has the power to evict residents if they do not comply with the rules of the building, and often does so very quickly if any rules are broken or monthly fees are not paid.

There are also several financial disadvantages to co-ops. Generally speaking, the down payments for shares are higher than other types of housing, and banks may be hesitant to finance loans for shares, since they're not as stable as actual property. This is particularly true in the case of land-lease co-ops, in which the corporation owning the co-op leases, but doesn't own, the physical land that the building is built on. This situation is risky for residents as well, as the co-op and all the residents could have to move if the landowner decides not to renew the lease. Additionally, the monthly fees may be higher in some co-ops than in some condos.

Selling or subletting may be an issue as well. Many boards do not allow residents to sublet their apartments at all, and those that do usually require that the board pre-approves the subletter. In addition, some co-ops control how much apartments can sell for. All of this can make co-ops less attractive as an investment property. On the other hand, many co-ops do not accept applications from people who will not be living in the apartment full-time, so this may not be an issue for owners.

As Compared to Condos

The main difference between a co-op apartment and a condo is the buying process and the ownership. People who want to buy a condo don't have to be approved by a board, and residents there actually own the physical property and space inside the condo, as opposed to shares in a corporation. This means that they can sublease or sell it at will. A condo owner may also have to pay fees to a Homeowners Association (HOA) to take care of maintenance charges and staff salaries, but the HOA is usually not as directly involved with all residents as a co-op's board of directors is. Residents of a condo tend to have less control over what happens in the building, like when common areas get new flooring, or what service is hired to care for the lawn.

Financially speaking, it's usually easier to get a loan or financing to buy a condo than it is for a co-op, since condos are physical property, and thus more stable than co-op shares. Also, there is usually no limitation on how much the owner can sell the property for, making them a better choice for investors than a co-op. Real estate taxes, however, are assessed for each individual unit of a condo, rather than for the whole building as in co-op, which can be costly.

HomeQuestionsAnswered is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Tricia Christensen
By Tricia Christensen
With a Literature degree from Sonoma State University and years of experience as a HomeQuestionsAnswered contributor, Tricia Christensen is based in Northern California and brings a wealth of knowledge and passion to her writing. Her wide-ranging interests include reading, writing, medicine, art, film, history, politics, ethics, and religion, all of which she incorporates into her informative articles. Tricia is currently working on her first novel.
Discussion Comments
By anon991192 — On Jun 02, 2015

There is a lot of hysteria here about co-ops. I have lived in a NYC co-op for over twenty years. We have a well run building with a great staff and the board is very professional and is stable. You could rent in a nice building that is a living hell. It's all a crap shoot if you don't do your homework.

In NYC now, it is dicey to buy a condo. People are buying them as investments and plan to rent them out a' la Air BnB. How nice to have new neighbors every few days, some of whom don't care anything about being clean or quiet. By the way, the reason it's supposedly harder to get a bank loan to buy into a co-op is because there is no physical property to seize if you default on the mortgage. In practice, this is not a problem for anyone who has reasonable financials.

By anon965738 — On Aug 14, 2014

Don't ever - ever - buy a co-op! You will be so sorry. They are nothing but a scheme -- you own nothing and are at the mercy of the (possibly incompetent) management and egos on the board.

Really, co-ops should be illegal, and yes, it is that bad. My life savings are on the verge of being lost due to bad management by the building I purchased into. I am trying to sell to an all cash buyer with perfect references and qualifications and they are still stalling. I can't move ahead with my life while much of my equity in the apartment is going into legal fees, brokers, apartment stagers, etc.

In the meantime, I am in such a financial mess I literally have no money for food and my water is about to be turned off where I am living now. I am seriously concerned as to whether or not I will survive this. Even if I do survive, unless a huge miracle happens I will be poor for the rest of my life -- and all because I was foolish enough to buy a co-op thirty some years ago. Forewarned is forearmed -- there are other ways to get a home, even in New York City. Don't buy a co-op.

By anon334840 — On May 16, 2013

Nice information you have shared about co-op apartments. I like your post. There is a lot about this topic.

By anon318706 — On Feb 08, 2013

Where can I find definitive answers to questions concerning responsibility of shareholders in Hamilton, Ontario, Canada? I am concerned about maintenance of closed-in balconies.

By subway11 — On Jul 01, 2010

@Sunny27 - Good point. The other risk involves the fact that the board has to approve all potential buyers. If you own a co-op but need to sell, the stress dramatically increases because the board has to approve all potential buyers. A real estate agent can provide you with the perfect buyer, but if the board for some reason rejects the buyer the sale won’t happen. Selling real estate is difficult enough but the added stress of a co-op board makes it even harder. But according to Trulia, over 70% of all apartments for sale are co-ops in the New York City market. So, New Yorkers, at least, do not seem to have much of a choice.

By Sunny27 — On Jul 01, 2010

Thanks for the great article. Another thing to keep in mind is that co-ops require a much higher down payment than traditional properties. Required down payments of 40 to 50% are common in many markets. Also maintenance fees are also substantially higher. The members of the co-op share in any repairs or expenses required for the entire building. So even if a co-op owner pays his maintenance fees, but others don’t the rest of the co-op owners face additional assessments as a result.

Tricia Christensen
Tricia Christensen
With a Literature degree from Sonoma State University and years of experience as a HomeQuestionsAnswered contributor,...
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