So you’ve started your apartment search in a specific neighborhood and you start noticing some pretty wild price swings between similarly sized apartments. While there are numerous factors that can obviously influence this, one of the primary drivers behind apartment pricing revolves around building type. On a price per square foot basis, condos are generally more expensive than co-ops. On the surface, you might be confused about why this is the case, but rest assured, just like everything related to the world of New York City real estate, the fact that condos trade at a significant premium to co-ops can be explained below.
1. Co-op supply is high. Condo supply is low.
Did you know that 75 percent of Manhattan’s privately owned apartments are co-ops, while only 25 percent are condos? Most people likely don’t know this because for-sale apartments are often just referred to as condos. The majority of buildings developed or converted prior to the 1980s are co-ops, while the ones that came later are condos. Condo development is approaching a feverish pace in the city, but co-ops will still continue to dominate the supply in the decades to come.
2. Condo demand extends beyond the local market.
While co-ops are highly sought-after by local buyers, condos have been able to extend their demand to the international markets. Their international demand comes from the fact that they act as an investment vehicle for foreign buyers to move and protect their cash from the volatility associated with their respective currencies, markets and governments. Foreign buyers have been flooding the condo market over the past decade and have been known to come to the table with all-cash. But why do foreign buyers choose condos over co-ops? See my next point.
3. Co-ops have strict subletting policies.
The majority of co-ops won’t let owners rent out their apartments unless they’ve actually lived in them for a minimum period of time, usually two years at a minimum. Additionally, co-ops will have limits imposed on how long an owner is able to rent out their apartment within a 5-year time frame. In simple terms, given their bylaws, co-ops are often not very investor-friendly. That’s not to say that they aren’t a great investment for a primary home buyer. It just means that for someone looking for an investment property they plan on renting out, a co-op is likely not the right product offering.
4. Condos are generally either newer building conversions or newer buildings altogether.
Prospective buyers are willing to pay a premium for new development. With luxury towers coming to market every quarter, the price per square foot keeps on being pushed upward. Co-op values have also increased with the rising tide of new condo conversions and new construction, but on average, they will never surpass the pricing of condos. It’s important to note that just because something is new doesn’t mean that it’s better. There are many co-ops that outshine and out-charm newer condos, so don’t simply judge a property by its age.
5. Condos have more liquidity than co-ops.
Fundamentally, co-ops tend to impose greater restrictions on being able to transact in them. Restrictions can run from the amount of financing you’re able to receive all the way to how your character is judged during the board interview. You can be rejected for the smallest of deviations from what is expected of you. Of course, all co-ops are different. Many are actually trying to behave much more like condos to improve their liquidity and ultimately their resale values. Condo boards only have the right of first refusal when an application for purchase is received. This means the condo either has to buy your property at the contract price, or it must sign a waiver, which provides a release that enables you to sell it.
So between condos and co-ops, which is better? It really is a personal decision based on the items above. Just remember that condos will generally be more expensive than their co-op counterparts.