What’s a Co-op?

So you’ve been looking and looking for that perfect condominium in Chicago, and you’ve finally found it. It’s got everything you ever wanted — a great location, beautiful view, spacious bedrooms, a new kitchen. . .But wait, it’s not a condo. It’s a co-op. A what? A co-op? What’s a co-op?

In some parts of the country (New York City, for example), co-ops are fairly common. But in Chicago, most residential buildings consist of either apartments or condominiums. Co-ops are few, and sometimes, far between. Don’t be surprised by the terminology. If your dream home happens to be a co-op, here’s what you need to know to get you started:

Co-op is short for “cooperative”; in this case, it’s specifically a “housing cooperative”. A housing cooperative is essentially a corporation (or other entity) formed to to own the building. In some ways, it is a corporation like any other. The people who own the corporation own stock. If you own a unit in a co-op, you don’t technically own the unit. Rather, you own shares in the corporation, and the amount of the shares you own correspond to the value of your unit relative to the other units in your building.

Since you are a shareholder in a corporation, your right to vote, and the value of your votes, is usually tied to the value of your shares (although occasionally you might come across a co-op where each unit gets one vote regardless of the shares it represents). Since any new shareholder (i.e. someone purchasing a unit in the co-op) would essentially be a co-shareholder with you, you can vote against the sale of a unit to a particular buyer. Indeed, if enough co-op owners band together, they can stop the sale of a unit.

Don’t be surprised if you find a co-op you love, and the next thing you know, your real estate attorney or real estate agent is requesting copies of your tax returns and pay stubs to give to the board of directors of the co-op. It is not unusual for co-ops to request such documentation from potential buyers as part of their screening process. If you are not comfortable with your neighbors having so much information about you, a co-op may not be the way to go.

A typical co-op closing doesn’t even take place at a title company. After all, since you are not buying real estate, there is no title insurance. You are buying stock, not land.

Of course, there are many differences between co-ops and other business corporations. There is one key difference, however — co-ops are not typically profit centers. Their goal is usually to collect enough money to go about their business, and not much more.

Sure, it’s unusual to own a co-op in Chicago. In other parts of the country, however, co-ops have proven to be a viable form of ownership. If you do find a unit you’re interested in and it happens to be a co-op, don’t worry. Make sure you investigate thoroughly before deciding whether or not to proceed!