Condominiums and townhouses are a great alternative for many different types of homebuyers. Their price is generally lower than a single-family home and the idea of less maintenance makes them attractive to both empty-nesters in the process of downsizing and busy professionals. But what is the difference between a condo vs townhouse?
Homebuyers are often confused about the differences between condos and townhomes. The two property types share many similarities but also have some pretty significant differences, let's start by defining what each property type actually is.
Condominiums or condo units are a type of real estate ownership. Condo owners are essentially buying the air space or living space on the interior of their unit along with a fractional co-ownership of any communal areas (recreation centers, pools, etc…) and common areas of the structures and land among all unit owners.”
A townhouse is a style of building, typically seen as an attached structure of 2 or more stories with common walls in a community of buildings. These are a version of the old “brownstones or row houses made popular on the east coast. The primary difference between condo and townhouse communities is that the townhouse owner actually owns the structure as well as the land under a townhouse. This is not the case in a condo.
The most obvious similarity shared by a condo vs townhouse is common walls. Townhouses will generally share one or two common walls with a neighbor. The end units of a townhome development, of course, share only one. Condos, on the other hand, could potentially share many more walls including ceilings and floors depending on the design of each unit.
Common Interest Communities or CICs. This means that the owners share interests in common elements like clubhouses, fitness centers, pools, and parks. These amenities are funded by the owners of the units through fees or dues. That money along with the maintenance of the community and any common interests are managed by a homeowners association (HOA). In the case of condominiums Association is often simply referred to as the "condo association".
One of the most important differences between a condo and a townhouse is what you actually own. In a condominium, you own an interest in the entire property. This can be a difficult concept to grasp, you don’t really own anything tangible. You own the air space inside of your particular unit as well as a fractional interest in the development’s common elements.
A townhouse is actually a type or style of property, you own the land your townhouse is built on as well as the actual townhouse structure. In a townhouse development, the owners may or may not share ownership of the common amenities but they most certainly pay the dues to maintain and use those amenities.
Condos tend to be part of larger buildings, similar to apartment buildings. They share at least one and in some cases many walls. Condo buildings are likely to also share neighbors both above and below. It's nearly impossible to distinguish between apartments and condominiums from an architectural standpoint. Think of a condo as an apartment you own.
Townhouses are similar to Condos in that they may share a wall or walls. Townhomes are more of a style than condos are. Townhomes tend to look more like single-family homes. Generally two stories and side by side like an east coast brownstone or row-house. Townhomes can come in a single level configuration as well but these are often referred to as "Patio Homes".
The main differences between condos and townhouses are related to ownership. Condominiums or condos are a type of real estate ownership. You are essentially buying the inside of the individual units along with a fractional co-ownership of any common amenities, things like recreation centers, pools, tennis courts, etc… and common areas of the structures and land among all unit owners.”
Townhouse owners actually own the land the home is built on along with the home itself. In many cases, you will have a front yard and a small yard or private outdoor space in the back of the property that you own as well. The amenities and common spaces are owned by the homeowners’ association but used by the residents. The homeowners are responsible for maintenance as well.
Condos are a popular option for buyers that are looking to get into the market. 1st. time homebuyers find condos a very affordable way to get into homeownership. Buyers must beware of potentially high fees, which can negate the initial price benefit.
The Home Owners Association will be required to carry insurance for the development. The Condominium Owner will need condo insurance, this is similar to renters insurance in order to cover their belongings.
Depending on the townhome development the owner will either need a homeowners insurance policy or if the association provides insurance for the structures, a renters policy will be required for the owner’s belongings.
The two factors that establish the amount of property taxes you’ll have to pay each year are your home's assessed value and your local mill levy. The assessed value is established by the assessor, they look at things like the lot size, square footage, the number of bedrooms & bathrooms, as well as comparable properties nearby.
The mill levy side of the equation is based on the number and quality of your local amenities. Amenities and services like public schools, libraries, police departments, fire departments, as well as parks, trails, and open space all play into the mill levy. The more amenities and services your area has, the higher you can expect the mill levy to be.
Since both condos and townhouses are usually smaller than single-family homes, the taxes are generally lower as well. Additionally, since the common areas and amenities are shared, this helps lower property taxes as well.
Your monthly fees will be affected by the particular development association, but in general, condo associations take care of more maintenance and amenities than a townhouse would, things like lawn care, and snow removal. So, condo fees are usually more expensive.
Because more maintenance responsibility falls to townhome owners and townhome communities generally have fewer amenities than condo developments, the fees are usually lower.
Common walls, shared amenities and common areas generally make Condominiums less private than Townhouses.
Fewer common walls and separate entrances along with some yard space make townhomes more private than condominiums. While both can make you feel like part of a community, a real plus if this is one of your personal preferences.
Convenience is the primary benefit enjoyed by both condominium and townhome owners. Exterior maintenance is non-existent in a condo and is usually minimal in a townhouse.
The amenities available to owners of both condos and townhomes are another distinct benefit. Why join a gym when everything you need is just steps from your front door.
Another benefit is a sense of community, especially for people that like social interaction. Most developments have a clubhouse and community events, if you’re the type of person that enjoys this type of interaction, a condo or townhome development might be just what you’re looking for.
There are downsides to condo and townhome living. To start, this type of community provides much less privacy than a single-family home. The common walls mean you're most likely to hear noisy neighbors and your neighbors are most likely to hear you.
Rules, regulations, covenants, and restrictions are a big part of living in a condo or townhome community. These rules are in place to make the community more appealing to a wider range of people. While many of the restrictions may seem a bit much for some, they are appealing to others.
It’s important to familiarize yourself with the particular restrictions in any community you are considering living in. This goes for single-family homes with an HOA and especially condo and townhome communities. When you close on the property, you agree to adhere to the rules, covenants, and guidelines of the community. Failure to abide by these guidelines can result in warnings, fines, and in some extreme cases property liens or a cloud on the Title. If you think adherence to these guidelines is going to be a problem, it’s best to avoid these types of communities altogether.
Pet restrictions are another disadvantage to living in a condo or townhome community. Homeowner associations will often implement breed restrictions as well as weight restrictions. These restrictions generally focus on what are considered “dangerous breeds”. So, if you have or plan to acquire what would be considered a “dangerous breed” or big dog, over 45 lbs., these types of communities are not a good idea.
Limited parking is another drawback to condo and townhome living. Most condominiums will have limited parking options consisting of carports or outdoor parking in assigned spaces. Some condos do come with a garage but these are rare. Townhomes are similar in this regard, while townhomes are more likely to come with a garage, it will most likely be a one-car garage, fine if you only have one car. If you are the type of person that requires multiple cars, this is something to consider before buying.
Storage is another consideration when buying a condo or townhouse. This one is similar to the parking issue. While both condos and townhomes will most likely have storage, it is limited. If you need more than a large closet full of storage space, you’ll most likely need to find offsite storage for your needs. If you need to pay for that storage, this expense can quickly eat into any savings you realized by purchasing a condo or townhome.
Fees are another financial consideration when looking at any community that has an HOA. Both condominium and townhome communities are going to have HOAs and those HOAs charge fees. These fees go to cover the cost of maintaining the community as well as the amenities enjoyed by the residents. These fees can add up and eliminate any savings advantage you thought you were realizing by buying a condo or townhome.
It’s essential that you understand what association fees you will be responsible for prior to closing on any property located in a Common Interest Community. In many cases, the advantage you realize in a lower payment can be eliminated by high fees.
Another consideration would be “special assessments” this is an additional fee used to make repairs and perform required maintenance. These fees are generally implemented when the costs of improvements exceed the amount of money in the reserve fund. Special assessments are a very controversial subject because they generally result from poor planning and a lack of foresight about the condition of the property and the state of the reserve funds.
If you are considering purchasing a condominium or townhouse, there are a number of things you need to keep in mind as you proceed.
One of the most attractive aspects of purchasing a condo or townhome is consistency in pricing. Because the units are so similar, pricing is easier to deal with than in a single-family property. Because there is minimal variation between units in these communities, pricing is more consistent. Unless a particular unit has some truly unique characteristics, it’s easy to use comparative pricing models in order to determine how much a unit is worth.
It’s important to understand the rules and regulations of where you will be living. It doesn't matter if you're buying a condo vs townhouse, you are Buying into a covenant-controlled community. This purchase is accompanied by certain expectations and adhering to the covenants is one of those expectations.
When you close on the property, you are agreeing to adhere to those covenants. The penalties for failing to adhere to these rules can start with a simple warning followed by potential fines and in some extreme cases end with a lien on the property. No one wants to go through this experience. So, before you close on a property with an HOA, read the governing documents.
Talk to the current residents and find out what the hot issues are. You want to make sure you are buying into a well-run community. Make sure there are no big issues that might require a special assessment. If there are issues, you’ll want to investigate how big the reserve fund is.
Owners ultimately pay for upkeep, repairs, and maintenance so you want to know if a big expense is looming before you close on the property.
Another thing you can learn from the current owners is how the board and management group deal with owners and their requests. The relationship should be cooperative and respectful. If the relationship is adversarial, you will want to proceed with caution.
When we compare financing for a condo vs townhouse, the process is similar to financing a single-family home, the only real differences that affect condos vs townhouses. Since condominiums offer more risk for the lender, the interest rate will be a little higher. You can bring the interest rate down on a condo loan with a larger down payment of at least 20%.
In some cases, the lender may need to review the development before loaning on a unit. This review is to assess the risk involved with things like reserve funds and other potentially risky aspects of the management of the project.
Another factor that affects condominium developments is the eligibility for government financing. This relates to FHA and VA loans. In order for a lender to make an FHA or VA loan on a condo or townhome, the development has to be what is known as FHA or VA eligible. Eligibility requirements take into consideration things like the rate of owner-occupied units, more owner-occupied is desirable. A strong association balance sheet and ample reserve funds are other positive factors, Finally, is the development free of any litigation.
Remember, that financing is related to risk, and lenders are looking to avoid risk. As a homebuyer, you would be wise to avoid risk as well. Here is a great step-by-step guide into Financing a Condo.
The selling of a condo vs townhouse presents different challenges than selling a single-family home. In many cases, the condo townhome market can be a seasonal market. If the property is located in a resort area, waiting for the peak selling season may be in your best interest.
Another consideration is pricing. Because these properties are so similar, it is easy for potential buyers to figure out what they should be paying for a property based on historical sales. Unless the unit has some truly unique features like a view or access to some amenities or convenience the prices are pretty similar. The trick is to maximize your profit without overpricing and risking a lengthy time on the market, or problems with the appraisal, especially if you are in a seasonal market.
Transparency is important when selling a condo or townhome. Because these properties are part of an association, you are essentially selling the association as well. Make it easy for potential buyers to get information about the development. This means supplying things like governing docs, newsletters, and any other information that would help them decide if this is where they want to live. Remember, they will eventually learn about the neighborhood, and concealing information only prolongs the inevitable. Better to be transparent and find the right buyer than waste time and money with buyers that don’t like what they discover.
Both a condo community or a townhouse community can be a great place to live, for the right person. Like anything real estate-related it takes a little knowledge and homework to find the right fit. If you think you might be a good candidate for this type of living situation, use the information provided to create your own priorities, and have fun deciding between a condo vs a townhouse and searching for your new home.