When buyers purchase cooperative housing, they're not buying real estate as most homeowners understand it. Instead, co-op buyers become shareholders in a corporation that owns the building in which they live. This unique form of ownership makes some co-ops prestigious and quite exclusive. The Dakota, where John Lennon and Yoko Ono once lived in New York City, is one such example.
Co-ops offer shareholders several ownership features that are unlike any other real estate experience. Many co-ops don't permit shareholders to secure mortgages – and that's OK, because many banks won't lend to them anyway. That's because the success or failure of a co-op falls squarely on the shoulders of its shareholders who should remain solvent at all times. Cooperative housing boards, comprised of shareholder volunteers, vote on whether or not to allow shareholder transfers and they vet applicants' finances (and reputations) vigorously.
Because co-ops are considered personal property, ownership transfers aren't recorded (unless the entire building is sold). Celebrities and other high-net worth buyers who have privacy concerns appreciate this arrangement. Because a cooperative building is taxed as one entity instead of several smaller units, this frequently results in lower property taxes for its residents, in addition to reduced purchase costs.
On a day-to-day basis, living in a co-op is just like living in any other apartment. Residents share common areas and amenities ranging from the basic to the luxurious. They pay maintenance fees that cover indoor and outdoor maintenance, staff salaries (including doormen and superintendents) and major upgrades and repairs. It may also include utilities such as water, television, and waste management as well as insurance.
The corporation that owns the building usually operates as a nonprofit or not-for-profit organization. The board may use excess funds toward improvements or maintenance or it may give those funds back to its shareholders.
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