Condos, Co-ops and Townhomes What's the Difference

By
Home Builder with Retired

 

Condominiums, Co-ops and Townhouses

What’s the Difference?

I'll be meeting with a new referred buyer this Saturday and he said on the phone that he is looking for a condominium or a townhome on Capaitol Hill. It occurred to me that he may not know the important differences.

Although the terms are often confused, knowing the difference before you buy is an important discovery step before you make an offer on a home.

A CondominiumCondominium is a legal term and most states have laws governing how they must be set up and certain special requirements for how property transfers take place. It is a term of legal ownership.

A condominium may be formed as new construction or in a conversion from an apartment building or other building in to units which are sold and legally described separately. In each unit there is physical space and a certain extent of the property which is owned by individuals and there is also certain space and property owned by the community. Condos are generally managed by a Home Owners Association.  Members of the board are elected by the owners and they decided on the budgetary operation and other rules of the group of owners. Each individual owner pays dues to support the common areas and expenses of the group.

Condominium units may be flats, two or three stories, or other. They may be stand alone or homes with common walls.

Condominiums are relatively easy to finance. Depending on the market, Fannie Mae and Freddie Mac require that 60-80% of the units be owner occupied, that the buyer put 10% or more down and for new construction, a certain percentage of the units (60%) are already sold before closing on any of them can occur. FHA loans are okay for approved condominiums.

Condominiums enjoy all of the tax benefits of home ownership.

_________________________________________________________________________

A Co-op

 

Co-ops are buildings owned by an entity. To live in a co-op an individual must buy stock in the entity and that entitles one to live in a certain place in the building.  The building is governed by an elected board and dues are collected for the expenses of the building.

Co-ops enjoy the tax breaks of home ownership.

Financing is usually through special lenders or by owners.

_________________________________________________________________________

TownhomesTownhouses are officially called Zero Lot Line Homes in the northwest. Each person generally owns the land under and often, some adjoining land. Townhomes often have one or more shared walls with other units. Zero Lot Line Homes started popping up here in the early 1990’s and took off in a big way between 2000 and now.  There are no home owner dues and there is no board to make rules. Each unit is separately and wholly owned by the person who is responsible for all upkeep, taxes and insurance.

 

There are often easements that allow for access to garage areas and for foot traffic.

Zero Lot Line Homes enjoy all of the benefits of home ownership and are as easy to finance as stand alone homes.

I'd be happy to spend some time with you to determine what style of home ownership best suits your needs.

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Glenn Roberts
Retired

 

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Topic:
Real Estate General Information
Location:
Washington King County Seattle
Groups:
Local Expert
M.A.N.C.R.O.W
Seattle Real Estate
Seattle Homes For Sale
Tags:
condos
coops
townhomes

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Rainer
122,829
Cory Barbee
San Diego, CA
Broker (760) 563-4022

Nice post and very good explanation of the differences...

Feb 17, 2011 04:42 AM #17
Rainmaker
313,378
Glenn Roberts
Retired - Seattle, WA

Sally - The finance and like like single family homes. Zoning has created some ugly looking developments , and others are pretty attractive.

Cory - Thank you.

Feb 17, 2011 05:42 AM #18
Ambassador
656,798
Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Glenn: Thanks! I have a realtor who has a listing on a coop right now. From what I understand these are becoming increasingly prevalent up here. Congratulations on another feature! This is very informative!

Feb 17, 2011 06:26 AM #19
Rainmaker
313,378
Glenn Roberts
Retired - Seattle, WA

Paul - Does the Legacy Group have a process to finance coops?

Feb 17, 2011 06:54 AM #20
Ambassador
670,037
Rene Fabre
First American Title - Seattle, WA
Marketing in the Digital Age

Glenn: Nicely done. Many people don't understand the differences between these property types.

Feb 17, 2011 06:58 AM #21
Rainer
4,748
Marco LaPadura
Charles Rutenberg Realty Inc. TeamMD - Whitestone, NY

Glen

great article here in NY we deal with co-ops everyday. The one thing is although they enjoy some of the benefits of home ownership the tax deductions are not as strong. The mortgage interest and common charges are only deductible by the percentage as deemed in the original offering plan. Also a Co-op board does not have to give a reason to reject a prospective buyer. This law recently has come under attack and may be amended sometime in the future. The real hidden surprise in co-ops is what is known as a flip tax, this is where each share is taxed a dollar or percentage amount when transferred. All in all co-ops and condominiums supply varying degrees of ownership Town House or Row Houses they are real property some neighborhoods in the five boroughs consist mainly of these homes. Ranging in price from 400k- 1M dollars.

Feb 17, 2011 08:56 AM #22
Rainer
26,764
Chris Butaud
Chris Butaud, CPA, MS Taxation Guild Mortgage Company - Kirkland, WA
CPA, MS Taxation,Guild Mortgage Company NMLS #3274

Thanks Glenn.  Great article. In what I hope does not belie the sincerity of what I just stated, I am going to quibble ever so slightly regarding the "relatively easy to finance" comment regarding condominiums.  Both conventional and government lending guidelines have significant underwriting requirements that represent additional angst at its best and failure at its worst.  Insurance requirements alone have become a sore point (do most underwriters really know what "walls-in coverage" really looks like on a master insurance policy?)  Loan to value limits for condominiums are often less favorable than single family homes (which is what townhomes are classified as for underwriting purposes).  Obviously, this does not make condo purchasing a bad idea, but, if you are writing offers, I would recommend that you make sure that your buyer is working with a lender as knowledgeable as you are and that you allow a little extra time for the loan processing.

Feb 17, 2011 09:10 AM #23
Rainmaker
313,378
Glenn Roberts
Retired - Seattle, WA

René - especially the average buyer just getting out of the apartment for the first time.

Marco - Thanks for the input from someone in the world capitol of coops, NYC. Here is Seattle the board can also interview and reject certain applicants, though you rarely see it happen.

Chris - Relative to single family homes condos are a difficult and messy can of worms to finance. I totally agree. Relative to Coops, one does not have so many choices as only a few lenders handle them. I know Eagle Mortgage does and I think they broker them to the National Coop something or other. Does Guild have a process to handle coops?

Feb 17, 2011 09:20 AM #24
Rainmaker
1,931,221
Andrew Mooers | 207.532.6573
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

Good educational post, making the distinctions to help others like me, your buyer who are not as skilled, well versed on your local turf.

Feb 17, 2011 10:12 AM #25
Rainer
115,631
Shari Song
Berkshire Hathaway Home Services - Federal Way, WA

Thanks for your post Glenn. I'm sure many people will appreciate your well-written definitions. Some agents and buyers in the Seattle area, I find, are not familiar with Co-ops since there are not many here. Good luck with your buyer.

-Shari

Feb 17, 2011 10:30 AM #26
Rainmaker
313,378
Glenn Roberts
Retired - Seattle, WA

Andy - Continuing education is a must, for brokers, agents and the public.

Shari - You're welcome. A quick check of the MLS in Seattle I see there are 71 coops for sale or sold in the past 180 days with 31 buildings represented. So making a guess, I'd sat there are about 50 building is Seattle that are designated as cooperatives. I'm not even going to guess at the number of units.

Feb 17, 2011 10:43 AM #27
Rainmaker
563,737
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi Glenn -- Great topic and you are so right, it is not well understood.  I have only run across a co-op once, they aren't very common in my area (at least that I know of).

Feb 17, 2011 01:00 PM #28
Rainmaker
313,378
Glenn Roberts
Retired - Seattle, WA

Chris - I'll bet there are some in Cleveland you never expected.

Feb 17, 2011 01:31 PM #29
Rainmaker
1,056,166
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

Your post will be shared with many future buyers!

Feb 17, 2011 04:50 PM #30
Rainmaker
809,839
Evelyn Kennedy
Alain Pinel Realtors - Alameda, CA
Alameda, Real Estate, Alameda, CA

Glenn:

Nice explanation. 

Feb 17, 2011 04:55 PM #31
Rainmaker
313,378
Glenn Roberts
Retired - Seattle, WA

Sharon - Tha's nice to hear. (I hope one or two are mine)

Evelyn - Thank you.

Feb 18, 2011 12:55 AM #32
Rainer
240,903
Jesse Skolkin
Independent New York State Certified Real Estate Appraiser - Fresh Meadows, NY

Condos involve fee simple ownership of an individual unit along with an undivided interest in the common areas of the developement.  Owners generally have to pay monthly common charges for maintenance, and such charges may include things such as utilities, services, parking, etc.

Coops are ownership of shares in a corporation which owns a development or apartment building(s), along with a leasehold interest of an individual unit.  Owners generally have to pay monthly common charges for taxes and maintenance, and such charges may include things such as utilities, services, parking, etc.

Townhouses are a style of property and do not necessarily describe a form of ownership.  In the areas that I cover, townhouses could be PUDs (planned unit developments with fee simple, single family home ownership), HOAs (Homeowner Associations, with fee simple, single family home ownership), Condos, or Coops.

Feb 19, 2011 12:10 AM #33
Rainmaker
313,378
Glenn Roberts
Retired - Seattle, WA

Jesse - Perfect definitions and very concise, but most of my first time buyers aren't real estate attorneys and wouldn't understand half of that.

Feb 19, 2011 01:24 AM #34
Rainmaker
3,028,863
Kristin Johnston - REALTOR®
RE/MAX Realty Center - Waukesha, WI
Giving Back With Each Home Sold!

Howdy, I found you from ROger Mucci's blog and had to stop by and say Hello...if he likes you, I like you!  LOL

Mar 22, 2011 02:20 AM #35
Rainmaker
313,378
Glenn Roberts
Retired - Seattle, WA

Kristin - Nice to see you. What'd I say!?

Mar 22, 2011 02:51 AM #36
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