Recently we published a post on the pros and cons of living in a condominium, townhouse, or other small space. These types of properties can be more affordable than single family homes or provide a great option for downsizing your life. But what is the difference between townhouse and a condo? The terminology can get confusing with so many options outside of the single family home (we aren’t even considering co-ops in this article!). Don’t worry–you’re not the only one who is confused. Both home buyers and sellers often get it wrong. In fact, even the home listing may show both condo AND townhouse in the description. So which is it?
Typically we that something that looks like this is a condominium:
and this as a townhouse:
What most people don’t realize is that a condominium, in addition to looking like apartment homes, can also look like a townhouse.
The difference between them is not necessarily physical. It all comes down to the FORM of ownership. Here’s a quick overview of each type of ownership and how that affects your rights and your pocketbook.
Related Reading: Tips for Downsizing
|Ownership||Owners only own the airspace between the walls.||Individual unit on a piece of land, attached at least on one side to another unit.|
|Style||Condos may look like an individual unit (townhome).||Townhome attached home.|
|HOA cost||Cost are usually higher ($300 to $600+).||Cost may range from $100 to $350+ , depending on community.|
|HOA Amenities||All communal areas are owned and maintained by the HOA, including the land it sits on. Offers more amenities like pool and gym.||Usually fewer amenities, depending on the community.|
|HOA Services||HOA offers maintenance of all communal areas, exterior and roof maintenance, and possibly utilities like water, electricity and waste removal.||HOA offers insurance, maintenance of communal area, maybe exterior and roof maintenance and insurance. Sometimes waste removal might be included but owners utilities are separately charged.|
|Financing||Might not qualify for all loan products.||Generally qualifies for most loan products.|
|Home Value||Generally the last to increase in value.||Home values increase more slowly than single family detached homes, but quicker than condos.|
A condominium is a single or community of buildings in which there is separate and distinct ownership of individual units and joint ownership of common areas. As an owner, you have a title to a unit of real property in the condo complex, which is ownership in the airspace the property occupies.
This means that you own a common tenancy with the other unit owners. Shared areas and the building exterior, such as driveways, recreation and landscape areas, parking spots, sidewalks, roofs, hallways, and elevators are managed and maintained by the condo community. They take care of shared areas, as well as services like trash removal, lawn care and snow removal. This home owners association (HOA) is a conduit for all the homeowners to pay for various expenses of operating the property. Since all condo owners share the costs of common areas, they tend to have higher home owner association fees.
- Lower insurance rates
- Extra amenities
- Access to land that otherwise would be either out of reach or at a much higher expense
Important to Consider:
When you purchase a condominium there are three basic instruments involved: A deed to the unit; a declaration of condominium; and the bylaws of the association. It is important to carefully read the entirety of the declaration and bylaws before making a purchase. As a joint owner in common areas, you will be responsible for your portion of expenses. For example, your wallet might be hit should there be a unusual situation such as legal fees, settlements, expenses outside of insurance coverage, etc. Make sure you are fully aware of all the possibilities. Since you share the responsibility in the case of any such expenses it will be split between all other owners. Under Colorado law, however, you will never owe more than your share, in the case of non-payment by other tenant-owners.
Related Reading: Steps to Buy a Home
A townhouse is an attached, privately-owned single-family home which is part of, and adjacent to, other individually owned single-family units. The units are separate, yet they share walls that have no doors or windows (prevent passage or visibility).
A townhome can be part of a Planned Unit Development (PUD). Townhome owners are responsible for the entire single-family unit: the inside, possibly exterior walls and roof (depending on set up of HOA), but definitely the land it sits on. A condo owner, by contrast, does NOT own the land that it sits on or the exterior. A townhouse owner is responsible for payment of all real estate taxes, maintenance and repairs of the property. In this way, it is a similar living experience to a single-family home.
- Generally lower HOA fees
- Own the land the property sits on
- Value generally increases faster than condos
Townhomes may or may-not have common areas with joint ownership. Townhouses are generally part of an owner’s association, especially if it is a maintenance-free community or offers other amenities. Generally, the monthly HOA fees are lower for a townhouse. Since the type of community varies wildly, this can affect your resale value. While monthly fees might be higher in condos, the extra care given to the shared living space and community areas can pay off when it comes to selling your home.
It’s The Legal Structure, Not the Physical Structure
It can often be challenging to understand the difference between a townhouse and a condo. Both are commonplace in Colorado, especially in more urban areas. Ultimately, determining which to purchase comes down to what is on paper. If you are looking to purchase a condo or townhouse these differences can seem insignificant, yet you will need to understand your responsibilities when you are faced with an issue such as hail or water damage. We suggest finding communities you like and then taking a look at their legal structure and the “fine print” in the declarations. Also, be sure to look at which has higher HOA fees and research homeowner’s insurance rates. A good resource for the state of Colorado is here: Colorado Homeowners Association Law.
Financing a Condo or Townhome
Condos can be especially tricky with some loan products. Financing can become an issue if a condominium community is not registered with the US Department of Housing and Urban Development (HUD). If you are considering buying or selling a condominium unit, search the condo in the HUD database. This will help you determine if that particular condo might qualify for an FHA loan. Keep in mind that it could still qualify for an FHA loan even if it’s not listed. Contact your local lender to discuss these options. While a VA loan is not quite as strict for condos or townhomes, there are requirements for FHA as well as VA to not exceed a certain percentage of rental homes in the neighborhood.
Related Reading: Tips for Choosing a Lender
Study the HOA documents for Condos and Townhomes
Studying the HOA documents (and covenants) is not fun. But this is not just about possibly studying lifestyle and usage restrictions, but educating yourself about what services and maintenance are included in the fees you are paying, insurance you will need, and which items are not insured with your community’s master policy.
Insurance for Condos and Townhomes
You will need dwelling insurance at a minimum. Some townhomes/condos will cover interior walls as well as anything attached to it. Review your community’s insurance policy. Liability insurance and personal property insurance is also necessary.
HO-6 insurance with loss assessment rider is a fairly inexpensive insurance but carries great value. If your community has to repair damage of an unforeseen event, but does not have the necessary reserves to pay for it, a loss assessment may be placed on the unit’s owner. The highest assessment I have seen so far was $21,000. Ideally, get a low deductible and a high loss assessment value. Speak with your insurance agent to ensure that you are completely and comprehensively covered. The humongous hailstorms of 2018 hit many home owners unexpectedly.
Before you place an offer on a condo, make sure to talk to your real estate professional. They will explain the benefits and challenges of each and connect you with your loan officer to explore financing.
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Make sure to read our blog post on the Pros & Cons of condo living!