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Condo vs. Co-op: What’s the difference?

Will Tveit | MBA - Broker Associate - Realtor, Dream Town Realty

Condo vs. Co-op: What’s the difference?

In searching for an apartment, you might find some described as “condos” or “condominiums” and others as “coops” or “cooperatives.” 

While it is true that many (but not all) coop apartments are located in classically designed pre-War buildings, the term “co-op” does not describe the style of the building but rather the ownership terms of the apartments.

With a condominium (or condo), you are buying a physical apartment (as defined by legal description) as well as a share in the common elements of the building. A condo association, led by a board of directors, manages the building’s exterior and common elements, including landscaping, while the unit owners maintain the interiors of their individual apartments.

When you purchase in a co-operative (or co-op), you are technically not buying real estate. Instead, you are purchasing shares of stock in a legal entity (usually a corporation) that owns real estate. Your shares of stock entitle you to occupy a specific apartment, as defined in the Proprietary Lease you receive with your stock certificate. So in the end, you have the same thing (a place to live), but how you achieve this is a bit different.

History of Co-op Apartments

Some of the finest pre-War and Art Deco buildings in Chicago’s Gold Coast, Lincoln Park, Lakeview, and Hyde Park neighborhoods are coops. Coops predated condominiums as the earliest form of apartment ownership in Chicago.

In the beginning, coops were popular among Chicago’s leading families. Each building had admission requirements, much like private country clubs. Their criteria included financial capacity and social stature. Because they were corporations, coops were exempt from fair housing rules and were able to discriminate. Bank financing was not available; purchasers paid for their shares of stock in cash.

In the late 1980s, banks started getting more creative, offering opportunities for co-op purchasers to discretely obtain financing. However, as coop financing was not allowed, shares of stock could not be openly pledged as collateral. Thus, the earliest coop loans were unsecured lines of credit. As shareholders could not sell their apartments without first retrieving these certificates, they needed to remain on good terms with the bank.

By 1994, some co-op buildings had started to openly permit shareholders to pledge their stock as collateral and obtain financing. This shift in policy made sense, as home mortgage interest deductions were (and still are) a valuable write-off against income taxes. As co-ops began to allow financing, it was with carefully designed rules that included:

• Limits on the percentage of the purchase price (or appraised value for existing co-op owners) that could be financed.
• The requirement that the lender executes a “recognition agreement” acknowledging the co-op's rights, especially with respect to approving future sales.

Today, there are only a few co-ops left in Chicago that require purchasers to pay 100% cash. The rest allow purchasers to obtain loans for anywhere from 55% to 90% of their purchase price depending on the building. Another major shift is that co-ops can no longer reject a potential buyer for reasons other than their ability to afford the home. Consequently, the make-up of coop residents is more diverse than in the past.

Maintenance Fees and Real Estate Taxes
Buyers new to co-ops are often surprised by the fact that the monthly fees for co-ops are higher than for condos. However, this is usually because co-op fees include two additional areas of expense that condo owners pay separately.

In both condos and co-ops, fees are collected from homeowners/shareholders to pay for building maintenance and insurance. In both cases, residents carry separate insurance for the interior components of their apartments including everything from the walls in.

But two other expenses are not handled the same way:

Real Estate Taxes

Both condo and co-op owners pay real estate taxes. But how they receive and pay their bills varies.

• In condo buildings, each homeowner receives a tax bill directly from Cook County.
• In co-ops, shareholders do not receive individual real estate tax bills. Instead, Cook County issues a single tax bill to the corporation. Shareholders pay a proportional share of the total bill based on the number of shares of stock they own. In most coop buildings, real taxes are included in the monthly assessments, similar to the way some condo or single-family homeowners may pay their real estate taxes each month into an escrow along with their mortgage payments.

Real estate taxes paid for condos and co-ops are tax-deductible and qualify for both homeowner’s and senior citizen exemptions.

Capital Projects

In all buildings (condos and co-ops), capital improvements are needed from time to time. These projects vary depending on the age and condition of the building and may include the need for tuckpointing, a new roof, new elevators, upgrades to the building’s electrical service, replacement plumbing risers, a new boiler, or new windows. While most buildings are diligent about maintaining a reserve fund for capital projects, there can be a gap between reserve fund balances and capital requirements, resulting in the need to collect additional funds from homeowners.

The way that condos and co-ops customarily fund capital improvements can be another distinguishing feature.

• Condo buildings typically utilize “special assessments” to pay for capital improvements. They can be structured as a one-time payment or as a series of payments over months or even years.
• Co-ops, on the other hand, can pledge the building as collateral and obtain a mortgage (or line of credit) that can be used to pay for capital improvements over a longer period of time. In such a case, shareholders pay their pro-rata share of the building’s monthly mortgage payment along with their regular maintenance fees. Obtaining a loan to pay for capital projects can be viewed as preferential over a special assessment, as the cost of the improvement is less burdensome. Any interest shareholders pay on the coop’s mortgage is tax-deductible, just like interest on their home loans.

Board Approval / Admission Requirements
In condo buildings, homeowners have virtually no say in who moves into the building. Some condo associations (mostly older ones) have a provision in their by-laws that gives them the “right of first refusal.” This provision was designed to provide a back-stop to prevent someone from dumping their apartment at an excessively low price, injuring values in the building. However, the hurdles involved in exercising a right of first refusal (including the requirement that the association buys the unit from the seller at their price) make it nearly impossible.

Still, under the right of first refusal provision, condo associations may request copies of sales contracts, applications and/or credit reports. 

Co-ops have a more involved application process. The main reason that co-ops still “approve” buyers in this day and age is to confirm the buyers’ ability to afford their homes, including association fees, real estate taxes and potential future capital improvements. If someone buys a co-op and stops paying their monthly assessments, neighbors would be on the hook for more than just their maintenance fees.

Consequently, co-op purchasers are usually required to provide the following: an application, a detailed balance sheet, and several personal and professional letters of reference. Some co-ops also ask to see tax returns. After the coop board has received and reviewed the buyer’s application, an interview is scheduled, and then the buyer is officially approved.

Most coops discourage flipping or buying purely for investment. For that reason, rentals are rarely allowed except under extenuating circumstances, and then, only with board approval.

Financing

Condo associations do not get involved in how purchasers finance their apartment. That is between the lender and the buyer. As noted earlier, most coops do have restrictions in this area, primarily as it relates to the amount a coop purchaser can borrow as a percentage of their purchase price. Most coops now allow buyers to borrow around 75% of their purchase price, some more and some less. However, a few buildings including 209 E. Lake Shore Drive, 1500 N. Lake Shore Drive, and 2430 N. Lakeview still require buyers to pay for their entire purchase in cash.

The good news is that the portfolio of loan products available to coop borrowers is relatively diverse and competitive with condo financing options.

Conclusion

In the last few decades, buyers have shifted away from co-ops.

• A large number of new condominium buildings came online with amenities like private outdoor space and deeded, onsite garage parking--perks that are not often available in pre-War buildings. 
• The sky was the limit on what banks would lend condo owners, so many took advantage of this. Some people obtained highly leveraged loans, borrowing more than their purchase price.
• Many felt the co-op application process invaded their privacy, and they wanted to avoid it altogether.

Ironically, as over-leveraged condo owners and investors in certain buildings have failed to meet their obligations resulting in a drop in home values building-wide, the benefits of buying in a coop are making a comeback. While the coop approval process, caps on financing, and restrictions against buying for investment do not guarantee financial immunity for shareholders, they are a good hedge.

Will Tveit | MBA - Broker - Realtor

Dream Town Realty | Chicago & North Shore

1567 Maple Avenue, Evanston, Illinois  60201

www.willtveit.com | www.1640mapleevanston.com

mobile: 312.498.8348 | email: will@dreamtown.com

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Will Tveit - Real Estate | My Blog - Market Conditions | willtveit.com - dreamtown

Recently, I've been asked by friends, prospects, and acquaintances, as well as former and current clients about our current market, specifically what's going on?  Well, folks, we seem to be entering a buyer's market. To better understand this market, let's first look at the current real estate conditions: 1. Prices at all-time highs For the past several years, home prices grew at twice the rate of inflation and faster than incomes. Not surprisingly, we are now at record price levels. However, price growth has definitely been slowing over the past several months. And we're even seeing some softness in the market, with an increasing number of price cuts. 2. Mortgage rates rising The current 30-year fixed mortgage rate stands at 4.63%. That's almost a 1% increase over just a year ago and the highest level we've seen since 2011. 3. Dropping affordability and demand Combined with current high prices, the rise in mortgage rates is causing a decrease in affordability. Earlier in the year, affordability was estimated to be at a 10-year low. Not surprisingly, this is having an effect on demand, with mortgage applications down 16% over last year. When these factors are viewed together, there appears to be a fundamental shift in the market. Home price growth is slowing, and home prices might eventually start to decrease. Mortgage rates are expected to continue to grow. And if that happens, we will slowly but surely enter a market where buyers, not sellers, have the final say. So what does this mean for you? Well, if you're looking to sell, it means the time to act is now. Around Chicago, I still see a lot of demand for homes. However, over the next several months, it's likely that national trends will catch up with us here in the Chicago area as well. The good news is, you have an opportunity to act before this happens. If you decide to list your home this winter, you might benefit from the current high prices as well as the solid demand around Chicago. In other words, you could sell quickly and for top value. In case you’re considering it, you can get more info on what your home is currently worth by filling out this home evaluation form: Enter your home address here to find out what your home is currently worth And if you are ready to get the process rolling while this opportune moment still lasts, give me a call. I'm here to help. Have a great day, Will Tveit | MBA - Broker - Realtor Dream Town Realty | Chicago & North Shore

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Evanston Condo | Church Street Station | Will Tveit - Dream Town Realty

Church Street Station Condominiums | North Shore

1640 Maple Avenue, Unit 707, Evanston

2-bed | 2-bath | 2-garage spaces

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	open house
1640 MAPLE AVE #707 Church Street Station Condominiums
SUNDAY, JUNE 3   |   12:00PM - 2:00PM
SEE MORE PHOTOS & INFORMATION ABOUT ALL LISTINGS
2 BEDROOM 🏠  2 BATHROOM  DOWNTOWN EVANSTON Bright and beautiful corner unit condo with fantastic city views. Large living room overlooks downtown Evanston, Lake Michigan and Chicago's skyline. Kitchen features maple cabinets and stainless steel appliances, granite countertops and separate eating area. Berber carpeting throughout living areas and bedrooms, in-unit w/d, master bedroom en-suite with large professionally organized walk-in closet, 6-panel doors, private balcony and storage and 2 garage spaces, all included within a luxurious full-amenity building that includes a fitness room, indoor pool & party room. More info: www.1640mapleevanston.com Full-Amenity Highrise in Heart of Evanston Bright Open Floor Plan Skyline & Lake Views Swimming Pool, Sun Deck, Fitness Room Steps from Trains, Restaurants, Movie-Theatres, Cafes, Shops, Lake, Parks, Northwestern & more!	WILL tveiT Broker | Realtor 312.498.8348 will@dreamtown.com  www.willtveit.com www.1640mapleevanston.com
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Just Listed - Downtown Evanston - 2-bed 2-bath 2-pkg spaces | willtveit - dreamtown

	just listed
1640 MAPLE AVENUE #707 www.1640mapleevanston.com
2 BEDROOM   ·   2 BATHROOM   ·   EVANSTON
SEE MORE PHOTOS & INFORMATION ABOUT ALL LISTINGS
2-BEDROOM 🏠 2-BATHROOM EVANSTON Bright and beautiful corner unit condo with fantastic city views. Large living room overlooks downtown Evanston, Lake Michigan and Chicago's skyline. Kitchen features maple cabinets and stainless steel appliances, granite countertops and separate eating area. Berber carpeting throughout living areas and bedrooms, in-unit w/d, master bedroom en-suite with large professionally organized walk-in closet, 6-panel doors, private balcony and storage and 2 garage spaces, all included within a luxurious full-amenity building that includes a fitness room, indoor pool, and party room. More info at: www.1640mapleevanston.com Full-Amenity Luxury Highrise Bright Open Floorplan Large Windows with Incredible Views Swimming Pool, Fitness Room & More! Best Place to Live in Heart of Downtown Evanston!	WILL TVEIT Broker | Realtor 312.498.8348 will@dreamtown.com  http://willtveit.com http://1640mapleevanston.com
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Coming Soon to Downtown Evanston | Church Street Station Condos | willtveit.com - dreamtown

Coming Soon to Downtown Evanston

Church Street Station Condominiums

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Church Street Station Condominiums | 1640 Maple Ave, Unit 707, Evanston, IL 60201

2-bedroom, 2-bathroom, 2-garage spaces in a full-amenity luxury building ⟰

Bright & open corner unit condo with fantastic city views. Large living room overlooks downtown Evanston, Lake Michigan and Chicago's skyline. Kitchen features maple cabinets and stainless steel appliances, granite countertops and separate eating area. Berber carpeting throughout living areas and bedrooms, in-unit w/d, master bedroom en-suite with large professionally organized walk-in closet, 6-panel doors, private balcony and storage and 2 garage spaces, all included within a luxurious full-amenity building that includes a fitness room, indoor pool, and party room.

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Open House & Brokers Open | 4615 Elm Terrace, Skokie | willtveit.com - Dream Town Realty

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4615 Elm Terrace, Skokie OPEN HOUSE | SUNDAY, MAY 6, 12:00PM - 2:00PM BROKERS OPEN | TUESDAY, MAY 8,  9:30AM - 12:30PM
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4 BED   |   3.5 BATH SKOKIE  | $485,000 Beautifully updated home on a quiet street. Newer white kitchen with stainless steel appliances, marble countertops, and tile backsplash. Pretty four season sunroom overlooking the private yard. Gleaming hardwood floors throughout, recently renovated bathrooms, spacious bedrooms, and great flow. Wonderfully generous family room with fireplace and built-in bar, perfect for entertaining. Heated 2-car attached garage. Move-in ready, a lovely home with several amenities on a coveted street. Lovely Mid-Century Split-Level Updated Kitchen & Baths Refinished Hardwood Floors Spacious Bedrooms Attached Heated Garage WILL TVEIT Residential Specialist 312.498.8348 will@dreamtown.com http://willtveit.com
© 2018 Dream Town Realty Inc. All information subject to errors, omissions, prior sale, or withdrawal without notice ⌂

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Property For Sale $485,000 - 4615 Elm , SKOKIE, IL 60076 www.willtveit.com Get more information about the property 4615 Elm , SKOKIE, IL 60076 listed at $485,000

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Home - Will Tveit www.willtveit.com So, are you looking for an extravagant condominium with  elegant terraces; or an awesome loft in an industrial building  with exposed brick walls; maybe a bungalow with a front  porch and a backyard; or a single room studio with a view?