Here in NYC, navigating the housing market can be a challenge. If your goal is to become a homeowner, finding out what fees you’re going to have to pay every month is just as important as the overall price. After all, you’ll need to know if you can afford to keep it, once you buy it. And although the term HOA, which stands for Homeowners Association, is rarely used in New York, maintenance fees or common charges are paid to the same type of association. We’re going to take an in-depth look at the HOA, and why it’s important to know how it works in the place you live or choose to live – particularly in NYC.
The HOA is a board of directors who manage a community of apartments (or subdivisions of houses, in most states). It’s typically run by the residents, who either elect board members or ask that residents take turns. It has its own rules set up to achieve specific goals of the building, property grounds, and community. If you buy an apartment or property where an HOA (or the equivalent) exists, which is just about everywhere, you become an automatic member. As a member of an HOA, it is mandatory to pay a certain fee each month – there’s no option. In addition, every building will have its own set of rules and regulations for residents to follow, and some can be quite restrictive, so it’s important to know what they are before committing to make a purchase. Depending on multiple factors, the fees can also vary greatly, which we will talk further about later in the article. Condos generally call them “common charges” and co-ops generally call them “maintenance fees.”
HOAs exists in most states and counties and have specific laws in place concerning them. However, the reason you don’t usually hear the term HOA in New York is because we don’t have a specified statute governing them and due to the nature of the New York real estate market. Instead, most residential buildings are set up as unincorporated, nonprofit associations, and as such, are governed by the New York Nonprofit Corporation Law, or NPCL. There are additional laws important to these associations, such as the Real Property Law (RPL) and the New York Condominium Act. But for the sake of most NYC dwellers, there are two main types of home purchases: condos and co-ops.
Condos in NYC
Probably the most common purchases here in New York City are for condos. These are sometimes called COAs, for Condominium Owners’ Association. As we said, most of the condos in this state are unincorporated associations, formed under the New York Condominium Act. Let’s talk about the differences in the structure of a condo versus a coop, so you can understand the differences in the fees. A condo is an apartment – or a certain amount of space, that you own, within a building. The way they’re structured is if you buy one, you also own a percentage of the common areas of the building. As the owner of a condo, you will have your own individual mortgage payments in addition to the common charges, each month.
What Do You Get By Paying Common Charges?
Common charges are a monthly cost that contributes to the maintenance and upkeep of the building you live in. They also go towards providing any amenities that are offered to residents. So, while you might really enjoy a rooftop garden or an indoor lap pool, just keep in mind the fact that you’ll be paying for it! Now with condos, the monthly common charges are typically less than for a coop – but the initial overall price of a condo is typically more, and vice-versa. Keep in mind that for either, though, you will have periodic assessments. These assessments may discover necessary repairs that are going to be more expensive than usual. The cost is distributed to residents over several months, during which the costs can be significantly higher than what you normally pay.
Co-ops are structured differently, so they have their own laws, and they call their HOA costs “maintenance fees”. Co-ops must adhere to at least some provisions in the Business Corporation Law, as well as the New York Cooperative Corporations Law. The way a co-op works is, instead of purchasing your unit, you’re actually buying stock in the building itself – with a permanent lease, allowing you to occupy that unit. The number of shares you hold depends on the size, location and value of your unit, and the fees you’re charged are calculated according to the number of shares you hold. The other residents are co-owners with you. Because everyone who lives there has a stake in the entire building, co-ops often have a much more difficult application process beforehand, as well as typically far more restrictions and rules afterwards. Be sure you know what you’re getting into.
What Do Maintenance Fees Cover?
In a co-op, there’s a good chance there’s a mortgage on the property, in which case your monthly maintenance fees will reflect this. So co-ops are typically lower in purchase price, with higher monthly maintenance (or HOA) fees – and often, much higher. The reason co-ops tend to have higher monthly maintenance fees is because they roll all the expenses into one bill:
- Property taxes (aka: real estate taxes)
- Mortgage payments (if any)
- Building maintenance costs, including minor repairs (major repairs also will be reflected here when your building has an assessment)
- Landscape maintenance costs, if any
- Other fees
You should get a complete breakdown of all the charges each month. The co-op works exactly like the shared asset it is. If you own 2% of the building, you pay 2% of the electric bill – doesn’t matter if you were out of town most of the month, these are shared expenses. This goes for property taxes and everything else, as well.
In a co-op, the rules often specify no subletting, and sometimes have other “contrary” rules that you will definitely want to know. Some co-op boards are notoriously restrictive, some even requiring applicants to pay all cash outright for their unit, or have other outrageous financial and other requirements. Others may have stipulations that are a perfect fit for you, like no pets allowed (maybe you’re allergic), or no guests in common areas after midnight. You may have to do some searching, but there’ll be something out there for you!
Other Important Differences
There are other major differences between the two that could impact which kind of purchase you should pursue. For example, with condos, since you personally own the space, you can pretty much do whatever you want to the interior. This might be dictated somewhat further by the HOA general rules or CC&Rs (see below). Of course this also means you’re responsible for any repairs that become necessary. Often ownership ends at the interior walls or the front door, but it’s important to know the boundaries. The roof is usually covered by the HOA. The contract will specify the borders.
With a co-op, you are restricted to what you can do to the interior of your space. The plus side is, repairs should be made by the co-op and its maintenance staff. And another big difference lies in financing a co-op, as well as taxing it. To finance a co-op, you won’t be eligible for a traditional mortgage loan. Instead, you’ll take out a co-op loan, also known as a share loan. One advantage to this is that the lender will inspect the co-op’s financial condition and how it’s historically been run, for you. Hopefully, you’ll find a co-op that has a preexisting relationship with a lender, perhaps if the building was mortgaged or refinanced.
Are My HOA Fees Too High?
Now here’s where it gets really interesting. Especially in NYC, since the overwhelming majority of home sales are either condos or co-ops, which have been created as nonprofits, these associations are inherently unable to charge more than actual costs – they are legally bound not to make a profit! Therefore, the only responsibility you have related to these costs is to thoroughly read every word in the rules and guidelines for the building you’re interested in, and determine whether you can afford the costs. Now that we’ve made that clear, let’s talk about what that document is that governs the different associations, so you’ll know what to ask for. Owners are not always immediately forthcoming with these documents.
The Declaration of CC&Rs
One of these documents is called the Declaration of CC&Rs – Covenants, Conditions and Restrictions. This is one of the important documents to review extra carefully, and since you may have to ask for it (which can be extremely uncomfortable – especially in a co-op), save it for the end. If everything else about the place is a fit, then ask your broker to (please?) get you a copy. This is where you’ll find all the quirks, too, if any exist – on paper, anyway. All the rules and restrictions are described fully in the Declaration of CC&Rs for each particular enclave.
You see, the difference in ownership here, is that instead of buying a house, which except in the city is often on a parcel of land that comes with the house, with an HOA (or equivalent in NYC), you’re buying into the community, as well. And even with the purchase of a typical house elsewhere, in the majority of U.S. suburbs, there will be an established HOA. The benefits usually outweigh the disadvantages. And besides, these fees are not up for debate; as previously stated, they are required and there is no alternative.
Differences in Selling
Another thing to keep in mind is in the future selling capability you will have, if there is an HOA. (For all intents and purposes, we are using the term HOA interchangeably with similar associations here in NYC.) If, for instance, you own a co-op, the board of directors often has control of the price you can set for selling – and of who you can sell it to! A condo is much easier to both buy and sell. If you do attempt the purchase of a co-op, plan to be there for a while. Make sure you get along with all the people in the building around you, as this type of purchase is hard to get into – and often, even harder to get out of.
Taxes are also different between a condo, to which you have a Deed, and a co-op, to which you don’t. That’s because condos are considered “real property”, but with co-ops, you own shares in a building. But you still have to pay property taxes on the co-op, so how is that accomplished? Easy: maintenance fees. Your taxes are figured out for you, according to shares, and are part of the itemization included in your monthly bill. Incidentally, the portion of the fees you pay towards “real estate taxes” each month is tax-deductible.
Because HOA rules (or CC&Rs) are designed to help preserve and maintain a community’s aesthetics and amenities, as well as (in apartments and co-ops) the building itself, there are some common areas that are typically targeted. Still, there may be some that come as a surprise. To give you an idea, here are some examples:
- Color of paint used for exterior of condo or in a co-op, the interior colors are often predetermined
- Requirements for landscaping and outdoor décor you can have
- Rules for you and any guests you may have for using any communal areas or amenities
- Restrictions on guests and/or pets
- Types of window coverings you can have, including the color(s) you can use
- Whether you can display holiday décor or not, and to what degree
- Whether you can rent out all or any part of the home (condo and co-ops both) or not
- What type of outdoor lighting is or is not acceptable
- What type of outdoor antenna, satellite dish or exterior fixture of any kind you can have
- How many screws can be used in exterior walls, or in a co-op this could be nails in interior walls
These are just examples, but certainly not extraordinary ones. Keep in mind that sometimes rules can be seemingly arbitrary, and community or board members can be extremely petty. You will likely not be able to change that. If the opportunity arises, meet your neighbors prior to your purchase. This can be vital in determining whether your experience is positive or negative overall. Be sure to read the CC&Rs or House Rules completely, and ask as many questions as possible.
No matter where you live or what type of home purchase you’re making, knowing the role and meaning of the COA, HOA or appropriate association is vital. Hopefully, if you started out reading this article with questions like, what is an HOA? Or, what does an HOA do? You now have a much better grasp of it. Regardless of where you live or what type of real estate purchase you’re thinking of making, continuing to educate yourself on topics of homeownership is the wisest thing you can do. In fact, reading content specifically designed to accommodate real estate topics is a great way to do that. It’s what we do here at RealtyHop, for our part in helping you make better, more educated decisions. Happy house hunting!