A housing cooperative forms when people come together to own and control the buildings in which they live. They form a co-op corporation and pay a monthly amount (called carrying charges) that covers operating expenses. It is the cooperative that owns the building, land, and any common areas and the members buy shares in the co-op.
How is a cooperative different from a condo?
WIth a cooperative, each resident purchases a share in the cooperative, becoming part owner of the building and the property it sits on. This share also gives them the right to occupy a unit in the building. There are more common space areas in a cooperative building, which are considered extensions of the members’ homes. There is staff on site, including a manager and maintenance person, who handle the day-to-day business of the co-operative, provide concierge type services and help the Board of Directors and member committees manage the budget and plan events. As in a condo, there is a monthly fee that covers general operating expenses, but general maintenance and repair of all plumbing, heating and cooling are provided to the member at no additional cost.
In a condominium, the resident owns the space within the four walls of the unit, and pays an association fee to cover general operating covers. Residents are responsible for any repair and maintenance in their unit. Management is generally offsite and is not directly involved with the condo residents. It is not unusual for condominiums to assess their residents when major repairs or replacements such as windows siding and roof are needed.
Most cooperatives are called limited equity, but Gramercy Club at Burnhaven Drive is a market rate or full equity cooperative. What does that mean?
With limited equity cooperatives there is a master mortgage on the cooperative, and the term of that mortgage is usually 30-40 years. Each member pays a percentage of the value of the unit when they move in, and shares in the mortgage with other members. While this type of ownership does not require a member to go through all the paperwork of getting a mortgage on their own, it limits how much they can sell their unit for in the future. Generally, the equity increase per year is 2-3%. Also, they cannot refinance until the entire building refinances. So, if the cooperative took out a mortgage at 5%, the individual cannot refinance on their own to reduce their interest rate. When they sell the unit, their buyer must buy into the mortgage at that same interest rate. It should be noted that these master mortgages are insured by HUD, which has strict guidelines on when buildings can refinance and how they budget their expenses.
In contrast, a market rate co-operative does not have a master mortgage, so each member can finance as much or as little as they choose, and then refinance or even pay off their mortgage whenever they want. They can also sell their home for whatever the market suggests, and are not limited to a 2-3% increase.