Condos vs. Co-ops
By Scott M. Siegel
Does anyone even know the difference?
Now, were not talking about Co-Ops in the crunchy sense like a kibbutz or an ashram, which by the way do ‘represent’ in the spiritual feeding department. We are talking about two separate and distinct forms of equitable ownership in Chicago real estate that are as different as apples and oranges.
Let’s take a closer look:
Characteristics of Co-Op Buildings:
1) Owners own shares of stock in the corporation that owns the building. There is no fee simple interest in the real estate. You will own a pro-rata percentage of the entire corporation based upon the number of square feet your unit represents.
2) Owners must be approved by the co-op board. There is no pay-to-play in co-op land. Prepare for a fairly rigorous application and background investigation. This may be more intrusive than you expected.
3) The co-op board determines your down payment. Usually a minimum of 20% is required as a down payment, which may render this form of ownership out of reach for first-time or even move-up buyers.
4) Financing is hard to come by. Co-op financing is definitely a specialty and is offered by only a handful of banks. The good news is that because of the high down payment requirement, a buyer will not have PMI (Private Mortgage Insurance) to deal with.
Characteristics of Condo buildings:
1) Owners own a fee-simple interest in their condo. Basically, you will own everything within the four walls of your unit and your parking space. The other unit owners, collectively via the Homeowners’ Association (HOA) own the remainder of the common and limited common elements of the development (roof, exterior walls, hallways, landscaping, parking garage, etc.)
2) There is no board approval. Well, in most cases there is no board approval process. There are older buildings out there which still have relics of discriminatory policy on their books. In their misguided attempt to restrict ownership of condominium units, some early condo boards elected to follow the lead of their cooperative brethren and require board approval. In today’s funky market, this is frowned upon by the agencies FNMA (Fannie Mae) and FHLMC (Freddie Mac)and the FHA (Federal Housing Authority) and, in fact, in order to get their developments approved for FHA financing, some boards have elected to expunge the offending language/policy from their documents. Welcome to the 21st century!
3) Your personal creditworthiness determines your down payment. To a large extent, financing, although not as easy as in the past, is currently very attractive interest rate-wise. The only limiting factor determining your required down payment is your ability to make a down payment and your desired loan program. For qualifying developments, you can put as little as 3.5% down!
4) Financing options abound. Any one of the large national or regional banks offer a full array of loan programs from which to choose and to a lesser extent, certain mortgage banking companies should be able to provide your financing.
What You May Not Have Known (or didn’t want to know) About Co-Ops:
Co-op buildings, although more closely associated with the greater New York metropolitan area, (think: The San Remo, The Dakota and The Majestic along Central Park) do exist in the Chicago real estate market. Two notable buildings are: 999 N. Lake Shore Drive and The Edgewater Beach Apartments. Typically, co-ops are grand vintage buildings from the 1920s that are an architechture junkie's fantasy--giant birthday cakes of carved limestone and terra cotta topped with clay tile or oxidized copper icing. Mmm, mmm, good!
Not so fast. Despite the visual treat, this form of ownership has very dark (and seldom discussed) roots. Due to the inherently restrictive nature of the board approval process and the somewhat onerous downpayment required by the corporation, some co-op buildings were tacitly able to perpetrate outright racial discrimination.
But I digress. That's a blog for another day.
If you'd like to learn more about how we make buyers happy, contact me at 1-866-696-2266 or scotts@ownacondo.com.
