Ultimate guide of Buying a NYC Co-op in 2025

March 22, 2025 by Georges Benoliel

Many people, particularly those living outside New York City, only vaguely understand a co-op building. While they may know it involves some apartment type, the specifics are often unclear. NestApple offers everything you need to know before buying a co-op in NYC!

What is a co-op in New York City?

A co-op, short for “cooperative,” is a way to own an apartment. Instead of buying the apartment directly, you buy shares in a company that owns the building. This might sound unusual, as co-op listings typically advertise specific apartments, but technically, buyers are acquiring shares. Just as you can buy 100 shares of Apple, you can buy 100 in the 123 Main Street Corporation.

This differs from condominiums (condos), where you buy ownership of a specific unit, or houses, where you acquire the entire property. Condos and houses are both classified as “real property.” Co-ops are seen as “personal property” because you buy shares, not the actual real estate.

Rest assured, if you buy a co-op, your fellow shareholders cannot access your apartment! Each owner receives the right to occupy a specific apartment through what is known as a “proprietary lease.” Think of the proprietary lease and your shares as a complete board package. You get shares in the building and the right to live in the apartment you “bought.”

If you are searching for apartments, keep this in mind. Co-ops account for about 75% of the apartment buildings in New York City. This is important to know, especially if you are not only interested in condos.

Is it worth buying a co-op in NYC?

Many people in NYC have a negative perception of co-ops. If you search for “co-op horror stories,” you’ll find numerous entertaining anecdotes. However, it’s essential to understand that each co-op establishes its rules.

Some co-ops are laid-back, while others may deserve the criticism they receive. Therefore, while general guidelines exist, it is crucial to ask questions about any building you are considering.

Disadvantages of buying a co-op

There are several notable drawbacks associated with co-ops, including:

Board Approval Process

When buying a co-op, be ready for an extensive approval process. The board can request almost anything, and you have no choice but to comply. There is no room for negotiation with a co-op board.

We will discuss some standard components of a board application later. Still, it’s important to note that co-op applications are more complicated and take longer to process than condo applications.

Limited Subletting (Ability to Rent)

The ability to sublet (rent) a co-op is generally quite limited. You must adhere to the building’s sublet policy and obtain board approval for each sublet. Some buildings may outright forbid subletting, while others may impose no restrictions; it varies by building.

Typically, co-ops require shareholders to reside in the unit for a certain period before subletting it, and they may also set limits on how frequently a unit can be sublet. A standard sublet policy states that a shareholder must live in the unit for two years before being allowed to sublet it for a maximum of two years within five years.

Flip Tax

A flip tax is a fee for the building when you sell your apartment. This fee cannot be avoided like the transfer taxes in New York City and New York State. While flip taxes can sometimes be found in condominiums, they are much more common in cooperative apartments (co-ops).

A flip tax isn’t necessarily a negative aspect. It can be beneficial if you plan to own your apartment for a long time. Whenever someone sells their unit and pays the flip tax, that money is deposited into the building’s bank account. Consequently, buildings with a flip tax tend to have lower maintenance fees.

The most common flip tax is 2% of the sales price, and most co-ops impose this fee.

Smaller Buyer Pool

Because of strict financial requirements and restrictions on foreign buyers, fewer people qualify to purchase a co-op. This decrease in potential buyers leads to lower prices. While this situation is neutral—it means you can buy for less and sell for less—it’s an essential factor to consider.

Advantages of buying a co-op

Co-ops Cost Less

Because of various disadvantages, co-ops generally cost 20% to 30% less than condos. This price difference is the primary reason buyers choose co-ops over condos.

Lower Closing Costs

Closing costs for co-ops are typically much lower than those for traditional real estate purchases because you are buying personal property—specifically, shares in the co-op and a proprietary lease. This unique structure allows you to avoid paying the mortgage recording tax.

Additionally, co-ops do not require title insurance, as co-op management maintains accurate ownership records for each unit.

Security

Once you gain admission to a co-op, the application process is advantageous. Co-ops typically conduct background checks, while condos do not, so you can be confident that your co-op neighbors will likely have clean records.

Stability

Co-ops typically have stricter financial requirements than banks. For instance, they usually require a 20% down payment, and buyers must maintain a debt-to-income ratio below 30% and often below 25%.

These higher financial standards are partly why New York City didn’t experience as severe a housing crisis 2008 as the rest of the country. Co-ops effectively prevented banks from issuing aggressive, problematic loans.

This is a significant advantage, as the last thing you want is a forced seller within your building. When someone needs to sell, especially in a downturn, they often have to do so at a lower price, which can drag down the overall property values in the building. Future buyers tend to use such transactions as comparables, negatively impacting the market for all units.

What does a co-op’s maintenance fee cover?

A co-op’s maintenance fee combines property taxes and common charges into a monthly payment. In contrast, condominiums issue separate bills for each. Typically, maintenance fees are divided evenly, with about 50% allocated to property taxes and 50% to common charges. At the end of each year, co-op owners receive a statement from management outlining their share of the building’s property taxes.

Common charges cover the essential expenses for operating the building, such as paying the doormen, cleaning the hallways, and taking out the garbage.

Maintenance fees may also fund planned capital improvements, like repainting the hallways or renovating the lobby.

What is an assessment?

All co-ops maintain a reserve fund, which can be likened to the building’s checking account. This fund is used to cover day-to-day expenses and also contains some extra money for unexpected expenses. However, there are times when the reserve fund may not have sufficient funds.

For instance, if the roof starts leaking, it requires immediate repair, and roofing work can be expensive. If the reserve fund lacks enough money for such repairs, most co-ops will implement an “assessment.” An assessment adds an amount to each shareholder’s maintenance bill, usually for a specific reason (like repairing the roof) and with a precise end date. Once the expense is settled, the assessment will end.

Assessments may also be used for discretionary projects like renovating the hallways.

What is the co-op board approval process?

Getting approved by the co-op’s board of directors has three components –

Meet the co-op’s financial requirements 

Most co-op buildings require a minimum down payment of at least 20%. Some go further by only allowing cash purchases.

Even if you have sufficient cash, you must demonstrate an acceptable debt-to-income ratio (DTI) to the board to show you can manage your monthly payments. Typically, your monthly payment will consist of your mortgage plus the maintenance fee, but any other debts you have, such as student loans or car loans, will also be considered.

The target DTI for a co-op is usually around 25%, although it can sometimes increase to 30%. We calculate this ratio as a percentage of your pre-tax income.

Co-op boards also carefully examine post-closing liquidity, which refers to how many months of mortgage payments you can cover with cash, stocks, and other liquid assets after the purchase is finalized. Assets not readily convertible to cash, like retirement savings or real estate, generally won’t be considered in this evaluation. Most boards prefer to see 12 to 24 months’ worth of post-closing liquidity.

These stringent financial requirements are in place to prevent forced sales. If a buyer stretches their finances to purchase the most expensive apartment possible and then loses their job immediately after closing, they may be forced to sell. This situation is undesirable for everyone involved, including the buyer, other shareholders, and the board.

Complete the co-op’s purchase application.

For a detailed overview of co-op applications, refer to the NYC Apartment Purchase Application Guide. Most co-op applications require the following:

• A completed purchase application that includes details of the transaction and the involved parties.
• A copy of the signed sales contract.
• A comprehensive financial statement, including the most recent statements for each account.
• At least two personal reference letters.
• At least two professional reference letters.
• A letter of reference from your landlord.
• An employment verification letter.
• The last two years of your complete federal income tax returns.
• Authorization to conduct a credit and background check.
• An acknowledgment of the house rules.
• Disclosures regarding lead paint, bed bugs, and sprinklers.
• If financing is involved, include the loan application, commitment letter, and recognition agreements.
• Checks for the application fee, move-in deposit, and other relevant fees.

Be sure to collect the necessary documents to facilitate a smooth application process!

Once the board of directors reviews your application, they have three options: they can ask questions, invite you for an interview, or reject your application. If your application is likely to be rejected, it usually happens at this stage.

Pass the co-op board interview.

Co-op board interviews often have a negative reputation but are not as daunting as they seem. While you should be ready for a thorough, job-like interview, the board of directors typically wants to welcome you to the building.

They may ask about your background or your application, but if there were any significant concerns, those would likely have been addressed before the interview was scheduled. Board members do not want to waste their time, so being invited to the board interview is encouraging.

How do I make an offer on a co-op in NYC?

When making an offer on a co-op, the listing agent needs to be confident that you will meet the board’s financial requirements. Therefore, you must provide more information beyond the offer and mortgage pre-approval. This includes submitting a REBNY financial statement, which offers a brief overview of your financial situation.

If the listing agent or seller has questions about your finances, you must address them. They want reassurance that the board will approve any offer they accept.

When a listing agent inquired about their high-income but limited assets, we once had a frustrated client. We understood both perspectives: the client felt the question was intrusive, while the listing agent recognized that the board would likely ask the same question. In short, the co-op application process may not be suitable for everyone.

Remember, any information requested at this stage will also be included in the board application, which the listing agent will review.

Why are co-op buyers typically rejected?

When a board rejects an applicant, it is not required to provide any reasoning; typically, it does not explain to the seller. While we lack specific data to support this, our experience suggests that most rejections are due to financial reasons.

For instance, if a board requires a debt-to-income (DTI) ratio of 30%, a buyer with a DTI of 32% might still make a firm offer. The seller may decide to gamble and hope the buyer gets approved. Alternatively, a buyer’s DTI may average below 30% but fluctuate year to year, which the board might consider too risky.

Boards also expect strong reference letters—both personal and professional. If any part of a reference letter raises concerns, the board may hesitate to approve the application. For example, an agent recounted a situation where a buyer was rejected mainly because a personal reference letter mentioned the buyer’s passion for cooking a particularly pungent cuisine.

Sometimes, a board may reject an applicant simply because they are getting too good of a deal. If the seller isn’t concerned about the price and wants merely to conclude the process—common in New York City—they might offer the apartment to a friend or neighbor at a significantly reduced cost. Since this impacts the building’s comparable sales, the board often rejects these “below market value” transactions.

The bottom line: should I use a real estate agent to buy a co-op in NYC?

Many buyers believe they can save money by not using a buyer’s real estate broker. While this is a reasonable assumption, the seller pays the same commission regardless. Most listing agreements involve the seller paying the broker a 5% or 6% fee.

If the buyer has a broker, that commission is usually split 50/50. Listing brokers often prefer to work with unrepresented buyers because they earn a larger commission.

For this reason, it’s advisable to hire a broker when purchasing a property. Having a dedicated broker means someone advocating for your best interests and negotiating on your behalf. Even better, you can use a buyer’s broker offering commission rebates, such as NestApple.

With a commission rebate, your broker returns part of their commission to you at closing. NestApple clients typically receive a rebate of two-thirds of the total commission, which often amounts to around 2% of the purchase price—enough to cover many co-op closing costs!

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