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Originally published Friday, June 25, 2010 at 10:00 PM

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More buyers celebrating life in a co-op

Co-ops are gaining in popularity because of their affordability, but financing can be tricky because you don't actually own any property.

Special to The Seattle Times

Co-op basics

What: A housing co-op is people who together own or control the building(s) in which they live. Instead of buying "real" property as with a condo, you buy stock, or a membership in a cooperative corporation, which owns the building, land and any common areas.

How many: There are more than 1.2 million co-op units in the United States.

Where: Co-ops are popular in major metropolitan areas such as Seattle, Atlanta, Boston, Chicago, Detroit, Miami, Minneapolis, New York City, San Francisco and Washington, D.C.

Source: National Co-op Bank

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Jeff Duffresne spent two months looking at condos in the summer of 2004 when he stumbled on a cooperative housing unit on Capitol Hill.

He toured the fourth-floor unit in Melrose Terrace with his real-estate agent and immediately fell in love with the view — and the price. The place was listed for just $120,000.

"It's beautiful. You can see all of downtown from here," said Duffresne, a 39-year-old contractor. "My real-estate agent brought me over here and I bought it that day."

Duffresne, as the owner of what's commonly called a co-op — well-known in New York City and other major cities is part of a growing number of people in the Seattle area choosing co-ops as an affordable alternative to condos. Plus co-op residents say they have more control over where they live.

There is a significant difference between a co-op and condo. Duffresne doesn't actually own any real estate. Instead, he took out a loan to buy shares in the corporation that owns Melrose Terrace, and they in turn give him exclusive rights to live in his unit.

He doesn't have a mortgage, and the financing for a co-op can be tricky.

There are few banks that will finance what is called a share loan for a co-op, and the down payment tends to be 10 percent, as opposed to the standard FHA loan of 3.5 percent down for a condo.

Being harder to finance suppresses the market rates of a co-op. In short, you get more for your money by buying into a co-op.

But it's a deal that many home shoppers don't consider or even know much about, real-estate professionals say.

"In my 20 years experience I've never had a single client come to me and say 'I'd like to buy a co-op,' " said Dennis Brown, the president of the Seattle-King County Association of Realtors.

"Because of the history of difficulty getting financing, co-ops tend to be lower priced because they're a little harder to purchase and, consequently, a little harder to sell," Brown said.

"It keeps the prices lower than a comparable condominium."

According to the Northwest Multiple Listing Service, recently there were 33 active co-op listings on the Seattle market.

They ranged in price from $109,500 to $429,000, with an average price of $214,900 and a median of $199,500.

Compare that to condos in the same area: There were significantly more condos for sale (435), but their price was significantly higher. They started at $115,000 and went up to $3.5 million; the median was just shy of $300,000.

Tracking the statistics on the number of co-ops in Seattle, or anywhere for that matter, can be difficult because they often are lumped together with condos.

Nationwide, there are more than 1.2 million co-op units, according to the National Association of Housing Cooperatives.

Housing cooperatives started in New York City in the late 1800s, according to the National Co-op Bank (NCB), which is one of the primary sources of co-op share loans and the financial backer of at least 40 co-op buildings in Seattle.

In Seattle, most co-op units are concentrated on Capitol Hill and Queen Anne Hill with a smattering of others around the city.

Seattle is considered a medium-sized market for co-ops, said Chris Goettke, the managing director of consumer lending for New York-based NCB.

"It's a healthy and vibrant market," he said of Seattle.

Donna Walsh, a longtime real-estate agent with Lake & Co. Real Estate in Seattle, has not only sold co-ops, but lived in one, too.

She started selling co-ops after she bought into Melrose Terrace, a unit she owned for eight years. The Melrose Terrace building opened in 1961 as one of Seattle's first co-ops, Walsh said. Most of the others came later and are in older buildings converted from apartments, she said.

"For the purchaser, it's just like living in a condo," Walsh said.

"You just get so much more for your money. You get the views, you get the secure building, parking, amenities like a rooftop deck, guest parking, workshop, party room," she said.

While the financing is the key difference between a co-op and a condo, there are other things to consider.

For example, before buying a co-op, a potential buyer must meet with the co-op board and be approved. But, Walsh said, that's more to make sure the buyer knows what a co-op is and the rules of the association.

And like a condo, a co-op has a board of residents elected by the membership to oversee the operation, hire a manager and OK such projects as a remodel of an individual unit, Walsh said.

Owners of co-ops can deduct the interest paid for their share loans the same way a condo owner can deduct interest on a mortgage.

They can also deduct their property taxes, thanks to laws passed, in part, because of lobbying from the National Association of Housing Cooperatives.

Linda Brockway, the treasurer of that organization and considered a national expert on co-ops, said they're currently working to get a law passed that would allow reverse mortgages for people who own a share loan.

Brockway said a lot of potential buyers aren't familiar with co-op financing.

"When you're trying to move forward with financing, it's a learning curve," Brockway said. "You have to start from fresh because people don't understand. It's like buying shares in Pepsi. The only the difference is when you buy a share of Pepsi, you don't live at Pepsi. You don't own any brick and mortar, but [in a co-op] you have a proprietary right to stay in your unit."

Seattle co-op owner Marc Lawrence said he and Liz Filep bought their 780-square-foot unit on Capitol Hill in 2006 for $198,000, after also considering a condo.

Lawrence, a graphic designer who owns Argon Design, and Filep, an elementary-school teacher, enjoy their ground-floor unit near downtown with picture windows that look out on trees and shrubs, and a nearby public stairwell that becomes a popular viewing spot for Fourth of July fireworks at Lake Union.

"We make our own decisions here and there is a better sense of community than you would get in a condominium.," Lawrence said. "There is no outside management system telling us what to do. It's very democratic and it's working."

Seattle Times desk editor Bill Kossen contributed to this report.

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