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April 2006

March 2006

Dude, what's a co-op?

1060686_img_1So recently I was helping one of my clients to sell his co-op in Capitol Hill. I received tons of phone calls during the first few days it was on the market. The same question keeps coming up. What is the difference between purchasing a co-op and a condo? Well, when someone purchases a condo/house, they are actually buying specific property. As for a co-op, you are buying shares in the cooperative corporation which owns the building and the land on which the apartment is located.  Instead of a deed you receive when you buy a house/condo, with a co-op you get a stock certificate and a proprietary lease or occupancy agreement.

Does this mean that you won’t have the freedom to change the unit like repainting it? No, it doesn’t.  You can easily make simple changes like repainting or installing shelves. As a cooperative owner, you have freedom to decorate and change the unit provided the change is not a major remodeling (of the kitchen or bathroom etc..); that would require the approval of the homeowner association similar to the approval required for a condo.

When you get a mortgage to buy a condo or house, the property is collateral for the mortgage. As for a co-op, since you are not buying a real property, you are not getting a regular type of mortgage. You will be getting a loan to buy the shares and a proprietary lease to live in the co-op unit. Your shares and proprietary lease are the collateral for the mortgage. The State of Washington does not consider buying a co-op a real estate transaction and therefore there is no excise tax levy when you are selling it.

A co-op is a very different type of home purchase. Most co-ops require interviewing the applicant. The homeowners will then decide if the applicant is a good match with the co-op. This can viewed as good or bad for someone buying a co-op.  The intention for the interview is to screen out any undesirable tenants for the building. In a co-op where pets are allowed in the building, the home owner’s association sometimes will interview the pet as well. The co-op does have the right to reject an applicant if they feel that it is not a good match.

Banks view co-ops as higher risk loans because they can’t be sold or disposed of as easily as a house/condo. The co-op’s board of directors may put conditions on the sale of its shares. So why do some home buyer still consider co-op as a home purchase? Here are the advantages and disadvantages for buyer, seller and lender.

Homeowner Advantages         
*  Most co-ops will interview applicant to screen out undesirable tenants. Most of them do not allow renting of the unit. This will preserve the condition of the building better.

Homeowner Disadvantages   
* Appeals to a smaller pool of buyers.

Buyer Advantages         
*  Tax inclusive in dues, usually lower tax compared to condos

*  No exercise tax when selling the shares.

Buyer Disadvantages    
*  Fewer lender options

*  Sometimes investors can’t buy it as a cash flow investment

*  Usually involves more procedures than condo purchase

* Own share of the building rather than ownership of  unit.

Financial Disadvantages    
*  Lender may have difficulty to sell because of the first right of refusal.

* More restrictions and thus higher risks for the lender.

At the end of the day, you need to ask yourself a few questions: are you looking for a home that has strong community living that has the old world charm and the condition is well preserved to call it a home or are you looking for a property that is easier to market to a bigger group of home buyers.

(NOTE: This is a blog, not legal advice and I am not a lawyer.  The posts on this weblog are provided "AS IS" with no warranties, and confer no rights.  Consult your attorney if making decisions based on the legal implications of condos and co-ops.)

-Wendy

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What's going on in South Lake Union?

Slu South Lake Union has been the talk of the town ever since the announcement of Paul Allen’s plan to develop the 60 acres of land he owns. Is South Lake Union going to be the next Belltown or something bigger than that? With the current construction of the gateway project, 2200 Westlake, Pan Pacific Hotel and condominium, it has created quite a stir in the market when 95 percent of the 261 condominium homes sold within the first month of opening to the public. The excitement is building and some home buyers couldn’t wait to see what else is in store for this neighborhood.

I decided to make a trip to their sales center to get an update on their latest development. The sale center is definitely the most impressive one that I have ever seen. I was greeted by the friendly sale representative and ushered into a mini theater to watch a 5 min presentation on Vulcan’s plan for South Lake Union. The video presentation was really informative and gives you a very good idea of Paul Allen’s vision for South Lake Union over the next 10-20 years.

Vulcan latest projects are Enso, The Martin, Veer Loft and Rollin St which will start construction this year.

Enso
This is going to be a 450,000-square-foot, mixed-use development with residential unit occupying from 6 to 18 story in the south tower. It is going to be right across 2200 Westlake on 9th and Denny Way. Vulcan is designing the development as a high performance "green" building and it will feature more natural daylight than traditional buildings, energy and water saving fixtures and the use of environmentally sensitive building materials. It will also feature a garden terrace, an exercise facility and an entry atrium.

Veer Loft
This project is targeting at first time home buyer. It will include 94 homes featuring a mix of mezzanine and full height lofts. Veer Loft is geared towards Manhattan loft style with exposed beam ceiling, concrete floor and open layout.

The Martin
Right behind the Cinerama will be the location for The Martin. This 24 story development will include 170 condominium unit and 4,000 square feet of retail space.Homes feature open and efficient floor plans with gas fireplace and expansive windows. Multi-level roof deck terrace with outdoor kitchen, grilling area and outdoor fire place. This project will appeal to yuppies who work in the downtown area. There is possibly a dog walk area for this condo. It is about time for developer to start including pet friendly amenities in their project.

Rollin St
Rollin St is going to be a 11 story project which will feature 208 Soho style lofts and 25,000 square feet of retail space. This 414,000 square feet development will be located at the northeast corner of Westlake Ave North and Denny Way. This eco-friendly project will start construction in fall 2006. Rollin St homes will include features like high ceilings and large open spaces that can be sectioned off with stylish room dividers and sliding doors. Walls of floor-to-ceiling windows, gourmet kitchens, hardwood floors, roomy decks and fireplaces. Environmentally conscious buyer will like this project.

Vulcan is planning another 10-15 new projects for the next few years. If demand continues, they will start their third round of project.

This is no doubt Seattle's largest neighborhood development.

With all this new construction going on, the City of Seattle is working on an integrated transportation plan for South Lake Union. A two-way Mercer Boulevard and a narrowed Valley Street will be designed to reconnect Capitol Hill and South Lake Union to Queen Anne/Uptown and downtown Seattle. 

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