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The Difference Between Condos and Co-Ops: The Ultimate Guide

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Ever wonder about the difference between condos and co-ops?

Both options are typically multi-unit, and you can find in-unit laundry, a doorman, and pet-friendly policies no matter the category of the home you choose. Both co-ops and condos have boards, and you’re going to pay fees no matter where you move. So, the two are basically the same thing…right?

Nope! The differences between condos and co-ops can actually have a big impact on what your new home will be like. But don’t worry. With this comprehensive guide in hand, you’ll be fully informed and ready to choose whether a condo or a co-op is right for you.

So first things first, some definitions.

What exactly is a co-op?

Co-op is short for a housing cooperative. In cooperative housing, you own shares in a corporation instead of a specific unit. You do not possess any real estate when you hold shares in a co-op. However, co-ops may be treated as real property for tax purposes.

Purchasing co-op shares gives you a big say in decisions relating to the building. Whether it’s decorations for the roof or allowing a new neighbor to move in, you get a voice. The downside is, however, that as part owner, you have to help pay for those new rooftop decorations. Co-op members also split the cost of other expenses, whether it’s air conditioning repairs or a new elevator.

In large co-ops, the residents elect board members from amongst themselves. Board members are responsible for collecting fees, enforcing rules, and handling some building decisions, like which plumber to hire. Larger co-ops usually hire a management company to address the day-to-day obligations of building maintenance and collection of maintenance fees. These management companies are typically selected and approved by the board.

In smaller co-ops, the building may be entirely self-managed. This means that residents shovel snow, rotate turns taking out the trash, and even handle tasks such as arranging for boiler repairs or refinancing the building mortgage.

What exactly is a condo?

Unlike buying shares in a co-op, when you buy a condo, you purchase a real property: the space within the four walls of your home, as well as part of the shared community amenities.

Condos and co-ops get confused sometimes because, like co-op shareholders, condo owners are also required to contribute to building expenses. Think elevator repairs, landscaping (even the grass in front of your unit), and pool maintenance. Condo owners pay fees in the form of dues to a homeowners association (HOA). Members of this HOA are elected from among the condo’s residents and are often collectively referred to as a condo board.

The condo board enforces community rules and manages the upkeep of the condo’s shared amenities. Many condo boards choose to hire a property management company to handle these tasks and other day-to-day responsibilities.

differences between condos and co-ops

So what’s the difference between condos and co-ops?

At first glance, condos and co-ops may appear similar. In both cases, residents pay fees for the maintenance and repair of shared amenities. However, there are some significant differences that can impact which option is right for you. Before purchasing either a condo or a co-op, make sure you are crystal clear on the distinctions.

What you own

This difference between condos and co-ops is straightforward but important.

For co-ops: In a co-op, you own shares in a corporation. This means that you do not own the specific unit you’re living in (or any piece of real estate, period).

For condos: When it comes to condos, you actually own a specific piece of real estate — your condo and the space within its four walls, plus a portion of the shared amenities.

How you get to live there

Unlike renting an apartment, the process of purchasing condos and co-ops can get complicated fast, and we don’t just mean financially.

For co-ops: If you’re in a rush to find a new home, a co-op probably isn’t for you. In order to purchase shares, the co-op board has to approve you. This can take some time because the stakes are high. Co-op shareholders take on financial responsibility for the whole building. For these reasons, co-ops may also require more money upfront (such as limiting the percent of the purchase price you can mortgage) than condos.

For condos: Though you may still need the board’s approval, condos are generally easier to secure than co-ops. Because condo owners are only responsible for their individual units, a condo board is not likely to worry about every specific resident’s financial situation. In contrast, co-op shareholders take on responsibility for the entire building, so the board must ensure prospective buyers are financially secure. This often makes the approval process for co-ops longer. You also pay hire interests and might face delays if you’re looking for a mortgage.

Regardless of your financial standing, you’ll have to jump through some hoops to purchase either kind of home. The main difference in the buying process is that a co-op board has more at stake when considering who to let in, so prospective buyers will have to jump through a few more hoops than condo owners.

What you pay for

When offered the choice, many movers choose co-ops for the cheaper sticker price. However, when making this big decision, make sure you’re taking downpayment, monthly fees, and other potential charges into account.

For co-ops: Beyond the cost of shares, co-op owners are required to pay a monthly co-op fee, called a maintenance fee. In most cases, a large part of this fee will go toward the co-op’s underlying mortgage payments. Property taxes for a co-op, also included in the monthly fee, are divided among all residents according to how many shares they have. Finally, the monthly fee covers building operating costs, which usually include amenities, utility, and other maintenance fees. A percentage of these fees, depending on how many shares you own, is tax-deductible.

You also have to pay a share of the maintenance cost and repairs, which could even include fixing your neighbor’s window. As a co-op shareholder, you technically have an interest in the upkeep of the entire building and thus pay for that upkeep. You could also be required to cover the cost of unexpected large payments called special assessments.

For condos: Condo owners also pay monthly fees, broken down a little differently from the co-op maintenance fee. Instead of splitting the cost of property taxes for the whole building, condo owners pay property taxes on their individual units. Owners also usually pay for their own utilities and unit repairs rather than having some of these costs covered by a monthly fee.

Condo monthly fees are called common charges or HOA fees. Like the co-op maintenance fee, this fee covers the community buildings’ operating costs, amenity upkeep, and building repairs. The common charge can increase month-to-month if the condo board decides so. Condo fees are not tax-deductible except in specific circumstances like if the condo board takes a mortgage out for a repair and the interest is added to your fee or if you use your condo as a home office. Make sure to discuss with your accountant before purchasing to get the most benefit possible! Like co-op shareholders, condo owners can also be charged for special assessments.

In the end, the sticker price for a condo will almost always be higher than that of a co-op equivalent in size, location, and amenities, but a co-op might ask for a higher down payment. The co-op fee also tends to be higher. On the other hand, a condo HOA might demand title insurance.

difference between condos and co-ops

Who Makes the Rules for Co-ops and Condos?

If you’re a rebel at heart, you’re probably not going to love being a condo or a co-op owner, so make sure you know what you’re getting into before signing on any dotted line. Both kinds of housing options have similar arrangements for governance– you will be held accountable to your fellow residents. However, when it comes to who makes the rules, there are a few important differences between condos and co-ops.

For co-ops: When it comes to co-op housing, you are part of the managing body of your building. In a small co-op, you have a bigger say in most decisions. You’re also held accountable to other residents for paying your fees and, often, doing building chores.

In a large co-op, you elect a co-op board to enforce rules and represent you in most matters. However, even if you’re not on the board, you would still get to vote on the most important matters relating to the building, including the annual budget.

In any co-op, you will also be subject to the underlying proprietary lease for your unit, as well as the rules and regulations of the cooperative building.

For condos: As a condo owner, you have a say in community matters because you’re a partial owner of shared amenities. Decision-making is primarily in the hands of the elected condo board. However, if they want to take a major action, such as installing a new pool, the condo board will usually need approval from the rest of the owners.

An HOA creates a lot of rules that govern everyday life. The condo board often has a lot of power, but what the group can legally do varies by the state and the condo.

In either case, the HOA or board limits whether you can alter your space through rules and board approvals. So, make sure to ask lots of questions and read over every document you’re given before deciding on your new home.

difference between condos and co-ops

Can you rent or sell your condo or co-op?

If you plan on letting your house to a tenant at any point, neither condos nor co-ops are feasible options.

For co-ops: Renting is altogether not allowed in co-ops. A co-op board could turn down a buyer for any given reason. This could increase the selling price disproportionately. After all, the board needs to maintain a certain value for the co-op.

For condos: You can sublet your condo, technically. However, there is a limit to the portion of space you can let. Condos are also easier to sell off of two as there are no unnecessary procedures to be followed. As you may recall, co-ops have an interview process for new occupants.

In that case, do you have a chance to buy one?

Co-op housing that emerged majorly by the mid-1970s still makes for the majority of co-ops out there. You might find these in Philadelphia, New York, Seattle, and other metro areas.

Condos are available for sale in every major city in the US and are still coming up in smaller towns.

The problem is that there has been a slowdown in the financing for either form of housing. Incidents such as the Surfside Tower Collapse call the safety of these houses to question, slowing down loan approvals.

What To Ask Yourself Before Choosing Between a Condo or a Co-op

Especially in large cities, you might not have much of a choice between a condo and a co-op. Many areas have a high concentration of one type of housing. For example, in New York City, the majority of buildings are co-ops. However, if you are presented with a few home options that you really love but aren’t sure if a co-op or a condo is the best fit, ask yourself these questions.

How fast do you need to find a place?

In most cases, you can close on a condo more quickly than a co-op.

How involved do you want to be in the way the building is run?

If you want to be super involved in every decision, a co-op is for you. If you only want to vote on big-ticket issues, then go with a condo. However, remember that either way, you can be as involved or uninvolved as you want.

Do you mind following rules others have made, or do you want to be a part of the decision-making process?

In either situation, you’ll be moving into an environment with many rules already in place, but you will have more voice about changing or adding rules if you live in a co-op. Either way, make sure you pay attention to the culture of the specific building you’re moving into before making a decision.

Are you willing to trade upfront costs for a smaller “closing cost”?

When you buy a condo or a co-op, it is usually with the intention to take up residence there. In which case, you might want to make renovations such as redoing the interior. That’ll take up a chunk of your budget. What’s more, there might be unexpected expenses to moving, such as moving insurance or moving larger or fragile items.

If you are comfortable shelling out a good portion of the cost upfront, you should definitely go ahead and buy that co-op. However, for most, a condo would be a better option.

It is also easier to get a loan on a condo than a co-op as you end up owning actual real estate and not just shares in a corporation that might be difficult for the lender to move.

Do you intend to resell the house or buying for investment purposes?

Neither option would work well for you. Both co-ops and condos are difficult to move, and co-ops actually have an elaborate process to find an occupant, involving strict background checks and interviews.

If you must, then go for a condo, as it will be less tricky to resell or rent.

What can you afford?

Is it wise for you financially to take on not only your own mortgage but a co-op’s mortgage, as well? Or should you go with a slightly pricier condo with lower fees and no double mortgage? Pay attention to all financial aspects of your new home before making a decision.

Make an informed decision

To ensure you’re fully prepared before making a decision, we recommend making an appointment to review board minutes and financial reports. This will allow you to familiarize yourself with the financial condition of the cooperative corporation or HOA (i.e., outstanding debts, reserves, annual revenues/expenses) and the frequency of assessments. Proper board minutes will also disclose issues at the premises, such as infestations (such as bedbugs, cockroaches, and rodents), the condition of improvements, and how quickly applicants are considered and approved.

We hope you now feel equipped with everything you ever needed to know about the differences between condos and co-ops (and if you’re curious about the difference between a townhouse and a condo, we’ve got a guide for that, too). Remember, no matter what you choose, Updater is here to help you manage the dozens of moving parts that come with well, moving. Now go out and find your dream home!

Moving soon? Get organized with our free moving checklist.

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