Should I buy a condo or a townhome?

Real Estate Agent with Kaminsky Real Estate Group/Shorewood Realtors

Condos vs. Townhomes:  What’s the difference?

What really is a condominium (“condo”, for short)? Did you know that when you see the word “townhome” or “townhouse”, you are most likely buying a condo? Let’s take a minute to examine the Real Estate market as it related to condominiums located in Southern California including but not limited to Manhattan Beach, Redondo Beach, Hermosa Beach, the South Bay Cities, and the Westside of Los Angeles.

Legally, a condominium is the form of housing tenure and other real property where a specified part of a piece of real estate is individually owned while use of and access to common facilities such as hallways, elevators, laundry rooms, and exterior areas is executed under legal rights associated with the individual ownership and controlled by the association of owners that jointly represents ownership of the whole piece.

That’s a mouthful . . . in short you own the airspace within the walls that define your “unit” and share everything else, including the land, with your neighbors. You do not own the exact land under your specific unit but a percentage of all of the land. In some cases you do have exclusive rights to part of the land even though you share ownership.  The land that sits within the development is owned in common by all of the homeowners. If you read the fine print in your condo paperwork you will typically see something like this . . . in a 12 unit complex it will state that you “own 1/12th of all of the land”. In a 20 unit complex it will state you “own 1/20th of all of the land.”

If a townhouse is a condominium then why do you call it a townhome? Typically the definition of townhome refers to the design and style of the condominium. This style of home has deep historic roots in early European history, where a townhouse, or “house in the town” was the residence of a peer or member of the aristocracy in the capital or major city. Most owned one or more country houses where they resided for the better part of the year. During the social season, when major balls and theatrical events took place, and when parliament was in session, these high profile figures moved to live in their townhouse in the capital to ease the burden of excessive travel from the country. The style of these homes remains very much the same now, into the 21st century.

Most townhomes are either 2 or 3 stories tall and have an attached garage; usually no one lives above you or below you. When Real Estate sales people refer to condominiums specifically, they are usually referring to the one level style living similar to an apartment building. Condominiums, as referred to by agents, can have a shared hallway entrance similar to a hotel, or in some cases, a private entrance without the hallway. There are a few cases when private elevators will open directly into your unit though these are uncommon in the South Bay.

Whether you are buying a townhouse style condominium or a single level condo it is always a part of an association, also known as a Homeowners Association (HOA). The association is the legal organization that contains the rules and regulations of living within the development.  It is like its own city with an elected President, Vice-President, and a Treasurer (all homeowners). The HOA is in place for several reasons; to help maintain the development in proper condition, to address the concerns and needs of all of the homeowners within the development, and to manage the operating budget of the association.

Fees are collected monthly from each property owner. The fees are designed to pay for common area utilities, insurance, maintenance of the property, and to build savings for future improvements. In most condominium developments the association is responsible for the cost of exterior repairs like painting, roofing systems and landscaping. The Homeowner is typically responsible for anything within the walls of the property. In some cases when the cost of a repair exceeds the savings of the association the association will vote to assess each homeowner an equal amount to cover necessary repairs. These extra fees are referred to as “special assessments”. The savings account of a Homeowners Association is officially called its “reserves”. It is important to review the reserves when purchasing a condo because you want to purchase a home within a community that plans well for the future and tries to avoid special assessments.

You are legally allowed to review all of the information about the condo before you buy it. The seller is obligated to provide all of this information to buyers under contract, including all of the minutes from the HOA meetings for the past 12 months.  It is important that you read this information before buying because this is where you will discover any pending assessments that might have been discussed and not yet approved. It is never a good feeling to move into a new condo, having just liquidated your savings account only to discover three months later that the HOA wants to assess you an additional $10,000 for a project that was discussed 4 months prior when you weren’t the owner. All HOAs come with a stack of paper called “The CC&Rs”.  This stands for covenants, conditions, and restrictions. It is usually boiler plate language describing the allowed uses of the property.

Most home buyers are typically concerned about the rules and regulations which is an additional document required to be disclosed in a sale. This is where you will find rules that may affect you personally like whether the complex allows pets, can your unit be rented out, and other restrictions. Be sure to read these carefully before you buy.

Have you ever heard a realtor tell you “this townhome doesn’t have an association or HOA dues”? Well they are technically half-right. All condos and townhomes have an association and all of them require dues. However, it is not uncommon to see, especially within very small developments, that the homeowners have agreed not to pay dues. This is most common when the development consists of only two to three units. The homeowners will get together and say, “I will get my own insurance, you get your own.  I will take care of my yard, you take care of yours”,  or maybe they just simply split the gardener bill when it comes in. However, there still is an HOA, it is just considered inactive.

Take a peek inside an ocean view townhome with NO HOA . . .

Ocean View from Manhattan Beach townhome

There are pros and cons to these situations. The pros would be that no one has to act as treasurer and manage the funds or concern themselves with collecting them.  Sometimes you feel like you are saving money because you are not paying monthly dues. Cons can be if there is an expense that arises like painting or roofing issues there will be no reserves to pull from to pay for the bill. If your neighbor is one who is not good with planning, then good luck trying to collect from him. Some homeowners argue the question “why should I put money in reserves that gets used by a future homeowner?” The truth is, the property will be worth more money if there are healthy reserves because buyers will feel more comfortable buying into a complex that has evidence of a strong financial future.  Another downside can be that some lenders will not lend money on an inactive HOA or one that is not properly insured, or that doesn’t have ample reserves.

A common misconception that buyers have is that they the main reason they don’t want to buy a condo is they don’t want to pay dues. In reality when you buy a single family home you are paying dues they just come in a different form. It is called… your insurance bill, your roofer bill, your plumber bill, your landscaper bill, your electric bill and your handyman bill. Whether you are paying dues or paying bills there is a cost to homeownership.

The only time you really pay higher costs than standard homeownership is in a situation where the condo complex offers a lot of extra features or services. This could include 24 hour security, doormen, golf courses and other shared recreation features. In these developments it becomes a personal decision if these extra benefits are worth the added monthly expense.

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