- The Washington Times - Wednesday, February 23, 2005

In many markets across the country where housing prices are escalating — some would say out of control — the condominium purchase has become very popular again.

In the Washington region, condos have risen to the introductory purchase for many first-time home buyers — the median price of housing having reached $371,000.

As soon as you mention the word “condo,” however, most people imagine an apartment-like dwelling. In reality, a condominium is actually talking about the form of ownership, rather than the type of structure. There are town-house-style condominiums, for example.

But don’t confuse condominiums with cooperatives. Although the two forms of housing might appear to be similar, the style of ownership is somewhat different.

The National Association of Housing Cooperatives (NAHC) explains the cooperative form of ownership quite well.

“A housing cooperative is formed when people join with each other on a democratic basis to own or control the housing and/or related community facilities in which they live,” the NAHC says on its Web site (www.coophousing.org). “Usually they do this by forming a not-for-profit cooperative corporation. Each month, they simply pay an amount that covers their share of the operating expenses of their cooperative corporation. Personal income tax deductions, lower turnover rates, lower real estate tax assessments (in some local areas), controlled maintenance costs, and resident participation and control are some of the benefits of choosing cooperative homeownership.”

The NAHC’s Web site says the first housing cooperative in the nation was organized in the 19th century in New York City.

The United States now has more than 1.5 million units in cooperative housing communities — many of them in large metropolitan areas such as New York, Washington, Chicago, Miami, Minneapolis, Detroit, Atlanta and San Francisco. The style of housing ownership allows for affordable living in an escalated market.

The concept of the “co-op” stems from a business model created nearly 200 years ago in Europe, where businesspeople would join forces to increase their buying power. All purchases and sales were derived from the group of their product, with the sharing of expenses and, of course, profits. In real estate, the co-op is an extension of that model.

Here are the differences between condos and co-ops:

With a condominium, the homeowner actually buys a part of a building and its land — the unit of the building goes up for sale and an individual can purchase it. Usually, the highest bidder with the best credit wins. The contract is up for review by the owners of the unit and a final decision is made.

A co-op works differently. The purchaser is actually buying an interest in the cooperative, which entitles the co-op member to a unit of residence. It could be a 1-, 2-, or 3-bedroom dwelling. In essence, no one owns his individual unit, rather they all have joined in to own the property, the buildings, the improvements and all the real property within it. The contract is more like an application for membership, which is reviewed by the board of directors for approval.

Many of the co-ops I’ve seen do not allow investors, which is a strength as far as financing and upkeep of the property is concerned.

However, because of the form of ownership, the co-op can trail the rest of the real estate market when it comes to comparable values with condos.

For instance, I recently saw a 3-bedroom co-op in a Washington suburb that was listed at $185,000; a similar-sized condo in the area was going for $250,000 and rising in value. Although lower in price, the co-op was newer and in better condition than many of its counterparts.

A similarity between the two forms of ownership is the presence of a per-unit monthly fee — a condo fee or co-op fee.

The condo fee usually covers common grounds maintenance, trash and snow removal, and various utility bills. The upkeep of the unit is all up to the individual owner.

If you seek out a co-op, don’t be surprised at a much higher monthly co-op fee. Many times, though, these fees cover items that probably would never be included in a condo fee. Items such as appliances, air conditioners and furnaces are often included in the coverage. If it breaks, the co-op takes care of it. So the co-op fee could be a lot higher than its condo counterpart, but it provides sort of a forced savings plan for future breakdowns.

If you decide to purchase a co-op, then financing is not going to be as readily available. Many lenders do not offer co-op financing, since you’re purchasing a share of ownership rather than a complete unit.

However, start with the mortgage company of your choice and get a referral if they don’t offer it.

For a list of mortgage companies, visit www.coophousing.org.

M. Anthony Carr is the author of “Real Estate Investing Made Simple.” Post questions or comments at his Web log (https://commonsenserealestate.blogspot.com).

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