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What is the Difference between a Condo and a Co-Op?

While condominiums are the most common type of property for homebuyers in Boston, you will sometimes see cooperative home (or "co-op") listings on the market.  What are they? While there are many differences and nuances, here are a few of the main differences between co-ops and condos:

- Main distinction between a condominium and a co-op is the form of ownership. When you buy a condo, you own that individual unit. In a co-op, a company/corporation owns the building and units, and you are buying shares from that company that allow you to live in that unit and be a part of that community.

- With co-ops, you are buying shares of stock, not real estate, so real estate investments in co-ops may have different tax implications (check with your lender and tax professional).

- Condo buildings have an HOA (Home Owner Association); co-op buildings have committees or boards.

- In terms of financing, condo buyers undergo a fairly standard mortgage approval process through a lender or financial institution. Bank financing is often more limited for co-op buyers; there are stricter requirements and not all loan programs may apply. Furthermore, co-op buyers likely require approval by the co-op board members and must meet financial requirements of the building. The board may deny a buyer based on their financing.

- Due to rigorous approval process to become a shareholder in the building, leasing/subletting your apartment in a co-op is often not allowed. Also, co-ops may require that the co-op unit be their primary residence, which would prevent investors and second home buyers from buying into the building.

- Rules and regulations for condos and co-ops are also different, with co-ops often being stricter. Owners of condo units are free to make changes to their individual units at their discretion, such as by making renovations (as long as they comply with the condo docs). However, in co-ops, any changes generally must be approved by the board, since it is shared ownership of all units. 

- Both condos and co-ops have monthly fees to cover maintenance, common areas, etc. In co-op buildings, the building pays all of the property's real estate taxes, which are distributed among the owners and collected in the monthly fee. In condos, the monthly fee does not include real estate taxes - unit owners pay taxes directly to the municipality.

- When getting insurance, condo insurance typically covers "walls-in". Co-op insurance is more similar to renters’ insurance and generally only covers personal possessions, since responsibility for repairs to units’ walls is shared by the co-op.

- When selling a co-op unit, the board generally has to approve the sale price to ensure it does not negatively impact values for other shareholders.

- While condominiums often allow more individual freedom for owners, co-op buildings offer a tightly-knit community and control over who your neighbors are. 

Whether buying a condominium or shares in a co-op, be sure you throughly familiarize yourself with the building’s rules and regulations. It is always wise to have your real estate attorney review these documents with you as well. 


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