Critical differences between condos, co-ops, and single family houses

Three homes are for sale, each for $250,000. A fee simple house has only 2 bedrooms and is outdated. A Condo is newer with a swimming pool and an extra study room. A co-op was built just last year and has 4 bedrooms with a bevy of amenities (pool, sauna, workout room, and clubhouse). Which one should you choose?

That depends entirely on the rights that are being conveyed, tempered by individual and market preferences. People often make the mistake of comparing the physical attributes of property before taking full consideration of the property rights, leading to sometimes unfortunate and expensive mistakes.

Technically speaking, condo owners own a fee simple estate for the air lot or space between the walls and floor of their unit and have in undivided interest in the common area with tenancy in common rights. In a co-op, owners hold stock in the corporation and are leased property. They do not hold a fee simple interest and therefore can be imposed under more restrictive policies than in a condo.

By comparison, owners of a fee simple house are restricted only by the police powers of the government and taxes. In a co-op, in order to purchase, sell or rent your interest, you will need to be approved by the corporation. This can be extremely restrictive, which is why prices for co-ops are considerably lower.

The perceived degree of these limitations determines the amount of discount that is appropriate. When comparing properties with different rights being sold, it is critical that you adjust accordingly. In important thing to remember, a co-op even with extremely relaxed rules, can always change its policies as determined by its board.

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