CO-OP in Real Estate
A “CO-OP” (Cooperative) in real estate primarily refers to two concepts:
1. Cooperative Agreement Between Real Estate Agents
This arrangement results in splitting the commission between two real estate agents, generally involving one agent representing the seller and another representing the buyer.
Example:
- Agent Abel obtains a listing contract on a piece of property. Agent Baker agrees to find a buyer in exchange for a portion of the commission. Abel and Baker have arranged a co-op agreement.
2. Cooperative Housing
In this context, a CO-OP is a type of housing where each tenant owns shares in a corporation that owns the building. Residents do not own their units outright but rather own shares in the cooperative, which entitles them to occupy a unit.
Example:
- Upon moving to New York, Abel purchases shares in a co-op to obtain an apartment. This makes him a part-owner of the corporation that owns the building, giving him the right to occupy his specific apartment unit.
Frequently Asked Questions
Q1: How is a co-op different from a condo?
A1: In a co-op, residents own shares in a corporation that owns the building, whereas in a condo, residents own their individual units outright and share ownership of common areas.
Q2: Can I sell my co-op shares easily?
A2: Selling a co-op can be more complex than selling a condo or house. Potential buyers must be approved by the cooperative board, which can be a lengthy process.
Q3: What are the advantages of living in a co-op?
A3: Co-ops often have lower purchase prices, maintain strict screening for new buyers, and provide a sense of community among residents.
Q4: Are there different types of co-ops?
A4: Yes, most commonly there are market-rate co-ops, limited-equity co-ops, and leasing co-ops, each with different rules on buying, selling, and equity accumulation.
Q5: Do co-ops have monthly fees, and what do they cover?
A5: Co-ops often have maintenance fees that cover building expenses such as property taxes, utilities, maintenance, and insurance. These fees can vary widely based on the building’s amenities and services.
Condominium: A type of real estate divided into several units that are each separately owned, along with shared ownership of common areas.
Equity Share: The ownership interest held by shareholders in a co-op, reflecting their stake in the corporation.
Maintenance Fees: Monthly charges paid by co-op residents for the upkeep of common areas and services provided by the cooperative entity.
Housing Corporation: The legal entity that owns the cooperative property and in which residents hold shares.
Board of Directors: A committee elected by the shareholders of a co-op to make major decisions and enforce rules and regulations.
Online Resources
References
- “Real Estate Principles” by Charles F. Floyd and Marcus T. Allen
- “The Cooperative Solution: How the United States can tame recessions, reduce inequality, and protect the environment” by E.G. Nadeau
- “The New Neighborhood: Transforming Your Life Through Cooperative Housing” by T. Groom
Suggested Books for Further Studies
- “Principles of Real Estate Practice” by Stephen Mettling and David Cusic
- “Neighbor Power: Building Community the Seattle Way” by Jim Diers
- “Urban Cowboy: The New Face of America’s Housing Crisis” by Cindy Phan
- “The Art of Community: Building the New Age of Participation” by Charles Vogl
Real Estate Basics: CO-OP Fundamentals Quiz
### Does a co-op arrangement between agents always involve splitting the commission 50/50?
- [ ] Yes, always 50/50.
- [x] No, the commission split can vary based on the agreement.
- [ ] It’s usually a fixed 60/40 split.
- [ ] The commission must be decided by the agency.
> **Explanation:** The commission split in a co-op arrangement between agents is not fixed and can vary. It is determined by the agreement between the agents involved.
### Who owns the building in a cooperative housing arrangement?
- [ ] Each tenant owns their own unit.
- [ ] A landlord.
- [x] A corporation in which the tenants own shares.
- [ ] A real estate investment trust (REIT).
> **Explanation:** In cooperative housing, a corporation owns the building, and the tenants own shares in that corporation which entitle them to occupy their specific units.
### What do co-op shareholders own in a cooperative housing model?
- [x] Shares of the corporation owning the building.
- [ ] Individual deed to their apartment.
- [ ] The entire property jointly.
- [ ] Lease agreements for their units.
> **Explanation:** Co-op shareholders own shares in the corporation that owns the building, which gives them the right to occupy a specific unit within the property.
### How does one typically purchase a unit in a co-op?
- [ ] By signing a lease agreement.
- [ ] By obtaining a traditional mortgage for the unit.
- [x] By purchasing shares in the cooperative corporation.
- [ ] By directly purchasing land.
> **Explanation:** To obtain a unit in a co-op, one must purchase shares in the cooperative corporation, which provides the right to occupy a specific unit.
### What approval process is typically involved in selling co-op shares?
- [ ] A standard real estate transaction approval process.
- [ ] Immediate transfer to buyer with minimal paperwork.
- [x] Approval from the co-op board or management.
- [ ] No approval process is required.
> **Explanation:** The sale of co-op shares usually requires the approval of the cooperative board, which can involve a review process for potential buyers.
### What is the primary cost benefit that co-op ownership can have over condominium ownership?
- [x] Usually lower purchase prices.
- [ ] Higher tax liabilities.
- [ ] Increased homeowner’s insurance rates.
- [ ] Greater autonomy in property modifications.
> **Explanation:** Co-op ownership often comes with lower purchase prices compared to condominiums, due in part to the shared nature of property ownership and cooperative management structures.
### What term best describes the monthly payments co-op shareholders make for maintenance and property expenses?
- [ ] HOA Fees
- [ ] Rental Payments
- [x] Maintenance Fees
- [ ] Lease Payments
> **Explanation:** The monthly payments made by co-op shareholders for maintenance and property expenses are known as maintenance fees. These may cover utility costs, property upkeep, and even taxes.
### How can a cooperative board influence the lifestyle within a co-op housing environment?
- [x] By creating rules and regulations for residents.
- [ ] By serving eviction notices without cause.
- [ ] By total ownership transfer on resident’s behalf.
- [ ] By issuing bonds and shares arbitrarily.
> **Explanation:** A cooperative board significantly influences the lifestyle within a co-op housing environment by establishing and enforcing rules and regulations for the residents.
### What makes selling a co-op unit potentially more difficult than selling a condo or single-family home?
- [ ] The public perception of co-op living.
- [x] The requirement for board approval of buyers.
- [ ] Higher down payment requirements.
- [ ] The construction standards of co-op buildings.
> **Explanation:** The requirement for board approval of buyers in a co-op can make the selling process more difficult compared to that of a condo or single-family home, due to additional steps and potential for rejection.
### Which characteristic is generally not true for co-op housing?
- [x] Individual units are directly owned by residents.
- [ ] A corporation owns the building.
- [ ] Shareholders have voting rights in corporate decisions.
- [ ] Maintenance fees include property taxes and services.
> **Explanation:** Unlike in condo ownership, in co-ops individual units are not directly owned by residents; rather, they own shares in the corporation that owns the building, granting rights to occupy units.
