California Condos and Coops

[moh malekpour]

There are some Co-Op here in Southern California but I have never appraised any. They are different from O-Y-O and different from condos. co-op similarity with condos is that both have by-law, board of directors, yearly election and members meetings, common areas and HOA fees. Their difference is in their ownership and the title. In Condos, you own the imporvement but the land and common area is owned by the association and you own the portion of the land and common area. In Co-Op, the land and the improvement are both owned by the CO-Op and you only own a share of the whole complex. Each member has an assigned unit but all units are owned by the Co-Op. buyers and sellers of Co-Op buy or sell a share of the complex instead of the ownership of a unit.
Market may see them the same because they have the same function but for appraiser they should be different.

 

[DTB]

Co ops are relatively common in Chicagoland, with definite downward pressure on values compared to condos. So much so that a guy I met recently has bought into smaller (4-6 unit) co ops and convinced the other owners to go condo, instant equity. He has done this multiple times and seems to have found quite a niche.

 

[Lost Cause]

Thanks again people. Lots of good stuff!

Let's see, so far it seems that in some markets people have been able to document a consistent price differential between the types. Also, financing can be more difficult due, it seems, to the unfamiliarity of coops in many markets.

Moh points out many differences between the two. A couple more critical differences are: !) HOA fees in coops include property taxes, whereas in condos taxes are independantly assessed to unit owners, and 2) Coops (the entire project, not just a single unit) can be mortgaged, so that there may be an underlying mortgage on the building. The most interesting thing about this last is that if the coop doesn't have rules limiting mortgage debt levels on both the whole property and the individual units, the overall property could easily approach nearly 200% LTV. Another interesting thing about underlying mortgages on coop projects is that should there be a default and foreclosure, the cooperative is dissloved and the shares (what unit owners actually own) become meaningless. Lenders have been afraid to foreclose on defaulted underlying coop mortgages because they are afraid of what the courts might have to say about it. I am assuming that these things are true outside of New York as well.

And Vernon, I know the Douglas Elliman quarterly report on the Manhattan coop and condo markets (compiled by top-notch appraisal firm, Miller-Samuel) includes a section covering the high end, and includes both coops and condos. However, my experience has been that buyers of ultra high-end apartments here do make a distinction between coops and condos. The exclusivity of coops holds strong appeal to some and generates a complete lack of interest in others.

Thanks to Caligirl for the website address and special thanks to John Hassler for the offer of data. Also, John, I love your signature line!

Disclaimer: Of course all kinds of property can be owned as a condominium or a cooperative. This discussion has been limited to coop and condo apartments, so it may appear that we are perpetuating the myth that these are only apartments or residences.
This disclaimer approved by Don Clark.

 

[Mike Boyd]

Funny, I'm from San Francisco, and know there are condos there, but never heard of a co-op there. They do tenants in common for smaller condo conversions (due to condo conversion laws) but I've NEVER heard of a co-op there. That seems to be a New York thing.

I don't do appraisals in downtown SF but have never heard of any co-ops there, either. While the MARKET may be similar for condos and co-ops, anywhere, I would not think ownership rights are at all similar which would then require some adjustments under appeal or maybe even functional depreciation.

 

[John Hassler]

I don't do appraisals in downtown SF but have never heard of any co-ops there, either. While the MARKET may be similar for condos and co-ops, anywhere, I would not think ownership rights are at all similar which would then require some adjustments under appeal or maybe even functional depreciation.

Mike, next time you are on BAREIS click the SFMLS link. SF most definitely has co-ops - I even did a few SF co-op appraisals in the BL (Before Licensing) days when I would still cross the bridge for a job. Heck, even Marin has one co-op development.

I would only considered mixing condo and co-ops in a report where there no practical alternative. In fact the report I mentioned is the only time I can recall doing so. I had two sales in 18 months in a market than was declining rapidly. The property was in the bottom 5% of home values for the area but was a research hog - I probably could have written up two luxury property reports in the time I spent.