Janis Peterson, GRI, ABR, CSP Realtor®
The Philadelphia Main Line Real Estate and Homes
Montgomery, Delaware, and Chester Counties
Relocation Specialist

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Subject: A Condo or A Co-op?

I took an informal survey this week. Of the 10 people I asked to tell me the difference between a condominium and a cooperative, commonly referred to as condo and co-op respectively, only two respondents came close. And their definitions were sketchy at best.

But if you're in the market to purchase a condo or co-op, you need to know just what you're getting. It's the best way to ensure fewer surprises and hassles later on.

Let's get down to the basics. Condominiums are generally found in low-rise or high-rise complexes, with as few as two units to more than 200. Although buying a condo involves a real estate transaction, buyers actually own nothing more than air—more specifically, the air between the walls, floors and ceilings of the unit—and a share of the common areas, such as the grounds, health club and parking lot. Homeowner association fees go toward maintaining everything beyond the unit's walls. Similar to owning a single home, a condo owner holds a mortgage and pays property taxes directly to the government.

Co-ops are invariably found in areas where housing is expensive and difficult to find. Contrary to popular thought, co-op owners do not own a piece of real estate. Rather, they purchase shares in a corporation that holds the title to the property and the mortgage. This transaction grants shareholders a proprietary lease for a specific unit. A co-op owner does not hold a mortgage in the traditional sense, as a condo owner does. Instead, monthly co-op fees go toward property taxes and the mortgage on the entire property. In a sense, each owner is responsible for a share of the mortgage—a major difference between a condo and a co-op. This can be a drawback. If co-op owners fall behind in paying monthly fees, it can leave the corporation open to financial problems. Ultimately, the property may have to be sold. If a condo owner, on the other hand, was forced into foreclosure, this would not impact other unit owners or the homeowners' association.

How to finance? Because a condo purchase is a straight real estate transaction, buyers can apply for financing at any mortgage-lending institution. Co-op financing can be a little trickier. Banks in areas where co-ops are plentiful, such as New York, Florida and California, have developed a form of financing for its co-op customers. With co-op financing, the bank secures the borrower's stock shares in the corporation. In areas outside those with a high percentage of co-ops, financing may be difficult, so check with your real estate agent.

Rule or be ruled? For both condos and co-ops, a governing board of elected owners decides the fate of all residents, at least in relation to their domicile. Condo boards generally wield less power than co-op boards and often allow pets and rentals. Although both boards usually require approval of major structural or mechanical changes, co-op boards have been known to establish stringent rules regarding buyer qualifications, apartment upkeep, pets and subletting. In fact, co-op boards in New York are notorious for passing on certain celebrities. The New York Post recently ran an item about how a co-op board "blocked" Mariah Carey from purchasing Barbara Streisand's $8 million digs. Some by-laws even go so far as to stipulate noise levels for parties and require residents to notify the superintendent of overnight guests.

What can owners do to change the rules? Vote in new board members who might be more sympathetic to specific issues or run for election.

The following items are worth considering as you investigate your options regarding condos and co-ops:

  • A high percentage of rentals in a complex may indicate poor maintenance. Absentee owners may not be as inclined to check on upkeep or vote for an increase in monthly fees or improvements.

  • Upper floors and end units, where it can be less noisy, generally sell for more. Units directly next to access routes to parking lots, pools and elevators can result in high traffic.

  • The financial health of the board can directly impact your financial health. Do not sign on until you and your real estate attorney have examined all documents pertaining to the property. These may include a master deed, by-laws, and the current operating budget along with current and proposed assessments. A special assessment for a major repair could cost owners dearly. Co-ops, in particular, need to have a healthy reserve fund in the event a couple of owners default on their monthly fees.

  • Review the house rules carefully. Make sure you can live with them.

  • Do your homework. Take the time to gather pertinent documents, talk to potential neighbors, and seek wise counsel. A seasoned real estate agent can guide you through the home-finding process.

    "Real Service in Real Estate." For a personal consultation on buying or selling real estate, Janis Peterson, GRI, ABR, CSP Realtor® can be reached at (610) 642-3744, e-mail: jp4re@pahomes.com. Prudential Fox & Roach Realtors® is an independently owned and operated member of The Prudential Real Estate Affiliates, Inc.

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