Townhomes and Condos ... Which Are You Viewing? Do You Know and Understand the Differences?

     Townhome .... or Condo?  As an agent, do you know what type of property you are showing your client?  As a client, do you know what you are being shown?  Do you know and understand the differences between the two and what those differences can mean to you now ... and in the future?

     I have recently experienced a number of my pre-approved buyers out searching for properties, clearly confused about the type of property they are viewing or expressing interest in purchasing.  Many have thought they were looking at a townhome, when in reality they were looking at a condo. 

     Establishing the form of ownership is vital when moving forward with lending, so it is one of the first issues I address when speaking to a client pursuing property of this kind.  Each type of property, condo or townhome, poses different lending scenarios to consider.  I also believe that prospective buyers should be aware of the issues that they may face when it comes time for them to sell this property.  Condos are currently facing some pretty daunting challenges and the future isn't looking much brighter.

     As a former appraiser, I always do my own research regarding the property my clients are purchasing, especially when a condo or townhome.  There have been too many times where the property has been incorrectly represented to me during a lending inquiry, so rather than supply incorrect or useless information, I have learned to put my old appraising hat back on and do my own research. 

     The information I use to determine the correct property scenario follows. I thought this information would come in handy for those considering a condo or townhome purchase ... and for their agents. 

     I'll start with the #1 defining difference between the two properties:  This is an OWNERSHIP ISSUE, not a style, design, or physical characteristic comparison. 

FREQUENTLY ASKED QUESTIONS

1.  How do I apply "the Test"?      2.  What documents do I need to secure from the Seller?     3.  Do Condominium Projects need Approvals for Financing?     4.  What Tools/Resources can I go to for clarification?

1.  As a Listing Agent - Request the Seller provide copies of their Tax Bill, Survey (if one exists), Declarations/Bi-Laws, Management Company and a Contact Name/Contact Information, Homeowners Association Name, Legal Description (from Title Policy, Mortgage, or other Closing Documents).

2.  As a Buyer's Agent - Review the Listing Agreement for the usual indicators: Property Type, HOA Dues, PIN.  Ask the Listing Agent to provide clarifications as listed above in Answer #1.

3.  Conventional financing requires Fannie Mae approval or "warrantable" status.  All lenders require a Survey or Questionnaire Form completed by the Association or Management Company, whichever applies, in the case of Condominiums. 

      FHA financing requires prior HUD approval, or a Direct Endorsement Lender to review the Condominium Complex Declarations/Bi-Laws and Survey for "acceptable" status and ability to lend.  (See: hud.gov).

     VA financing requires prior approval by the Veterans Administration  (See: va.gov).

     NOTE:   Townhomes/PUD's do NOT require prior approval and do NOT have Project Reviews (as of this writing, March 29, 2010).

4.  Use your local MLS, Recorder's and Treasurer's websites, preferred Lender, FHA and VA websites, to determine type and eligibility for varying financing options BEFORE you show properties, and most definitely BEFORE you write a contract. 

5.  In each and every case, ask the Owner of the property to provide the Legal Documents from their last closing.  Read the Legal Description.  If it refers to Condominium in the language of the document, it will 99.9% of the time, be a CONDO.  If it refers to PUD, (Planned Unit Development), Townhouse Association, etc ... you have a property NOT considered to be a CONDO, but rather a Townhouse.

SUMMARY

     In a world of ever-changing financing guidelines, especially for Condominiums, you can't afford to guess, when seeking lending information for the property you hope to buy  ... or when providing professional real estate services.

     When in doubt, contact those you trust and that are "in the know" about the legal classifications of these properties ... your preferrred mortgage lender, management companies, Homeowner Associations, and public websites.  Doing the homework upfront will save time and frustration moving forward in your transaction. 

     Know the differences between Townhomes and Condos ...