Can I get a witness? Does anyone even know the difference?
Now, were not talking about Co-Ops in the crunchy sense like a kibbutz or an ashram, which by the way do represent in the spiritual feeding department. We are talking about two separate and distinct forms of equitable ownership in Chicago real estate that are as different as apples and oranges.
Let’s take a closer look:
Characteristics of Co-Op Buildings:
1) Owners own shares of stock in the corporation that owns the building. There is no fee simple interest in the real estate. You will own a pro-rata percentage of the entire corporation based upon the number of square feet your unit represents.
2) Owners must be approved by the co-op board. There is no pay-to-play in co-op land. Prepare for a fairly rigorous application and background investigation. This may be more intrusive than you expected.
3) The co-op board determines your down payment. Usually a minimum of 20% is required as a down payment, which may render this form of ownership out of reach for first-time or even move-up buyers.
4) Financing is hard to come by. Co-op financing is definitely a specialty and is offered by only a handful of banks. The good news is that because of the high down payment requirement, a buyer will not have PMI to deal with.
Characteristics of Condo buildings:
1) Owners own a fee-simple interest in their condo. Basically, you will own everything within the 4 walls of your unit and your parking space. The other unit owners, collectively via the Homeowners’ Association (HOA) own the remainder of the common and limited common elements of the development (roof, exterior walls, hallways, landscaping, parking garage, etc.)
2) There is no board approval. Well, in most cases there is no board approval process. There are older buildings out there who still have relics of discriminatory policy on their books. In their misguided attempt to restrict ownership of condominium units, some early condo boards elected to follow the lead of their cooperative brethren and require board approval. In today’s funky market, this is frowned upon by the agencies FNMA & FHLMC and the FHA and, in fact, in order to get their developments approved for FHA financing, some boards have elected to expunge the offending language/policy from their documents. Welcome to the 21st century!
3) Your personal creditworthiness determines your down payment. To a large extent, financing, although not as easy as in the past, is currently very attractive interest rate-wise. The only limiting factor determining your required down payment is your ability to make a down payment and your desired loan program. For qualifying developments, you can put as little as 3.5% down! Can I get an amen?
4) Financing options abound. Any one of the large national or regional banks offer a full array of loan programs from which to choose and to a lesser extent, certain mortgage banking companies should be able to provide your financing.
What You May Not Have Known (or didn’t want to know) About Co-Ops:
Co-op buildings, although more closely associated with the greater New York metropolitan area, (think: The San Remo, The Dakota & The Majestic along Central Park) do exist in the Chicago real estate market. Two notable buildings are: 999 N. Lake Shore Drive and The Edgewater Beach Apartments. Typically, co-ops are grand vintage buildings from the 1920’s that are an architecture junkie’s nocturnal emission. Giant birthday cakes of carved limestone and terra cotta topped with clay tile or oxidized copper icing. Mmm-Mmm-Good!
Not so fast. Despite the visual treat, this form of ownership has very dark (and seldom discussed) roots. Due to the inherently restrictive nature of the board approval process and the somewhat onerous down payment required by the corporation, co-op buildings were tacitly able to perpetrate outright racial discrimination. But I digress. That’s a sermon for another day.
Can I get an amen? …Thank you!
If you’d like to talk more about how I can help you buy, sell or rent Chicago real estate… and keep you out of trouble in the process, call or text me at 773-968-1110 or shoot me an email at scott@scottmsiegel.com
You See. You Like? You Buy!™