When appraising townhouses, I always search the MLS for both single-family attached sales as well as condominium sales. Why? It’s because at times, there is confusion between the differences. Often I see real estate agents list townhouses as condos when they are not actually condos and visa versa.
I totally understand why. When it comes to townhouses, it is impossible to know from an outward appearance whether or not it is a condo, or not. Before we get into that, what is a condominium and what is a townhouse?
WHAT IS A CONDOMINIUM?
A condominium can come in many different styles. Here are some pictures of properties that are condominiums.
The term condominium is often used to describe a style of dwelling. That’s not necessarily wrong in some cases. However, it’s not always that clear. The term condominium is actually a form of land ownership. With condominiums, a plat of land is divided into multiple parcels. Each individual parcel includes ownership of the interior walls, floors and ceilings of the unit. The exterior elements and shared common areas are generally collectively owned and maintained.
WHAT IS A TOWNHOUSE?
The term townhouse relates to a style of dwelling that generally consists of two stories and is attached or semi-attached on the sides.
Here is where it gets tricky. This style of dwelling can offer condominium ownership or single family ownership. If it is a single-family ownership, generally speaking, the owner actually owns the ground directly beneath the dwelling footprint. In these cases, owners are often responsible for the maintenance of the portion of the exterior that they own. At times, townhouse associations will care for certain aspects of the exterior. It really depends on what has been decided upon in the bi-laws of the association.
If the townhouse offers a condominium ownership, typically the land below is not owned by the parcel owner of the parcel.
There are many variations of these types of ownership in the market today. The descriptions used in this article are just basics.
HOW CAN YOU TELL IF A PROPERTY IS A CONDO OR NOT?
In my area, and I assume many others, if you read the legal description, the term condo or condominium may be in the verbiage. If it is, then there’s a good chance that the property is a condominium. However, just because there is no mention of those words in the legal description does not mean that the property isn’t a condominium, as you will see in the examples below.
If you have access to data that provides you with a plat map, looking at the plat map is, in my humble opinion, one of the best ways to determine whether or not a property is a condominium or not. If the plat map includes multiple units (parcels) on one plat, it’s probably a condo. If the plat map shows just the one building or the footprint of the one unit, then the it is a single-family attached or semi-detached dwelling.
Here are some examples of what I am talking about. I hope this is helpful.
LEGAL DESCRIPTION (Doesn’t mention condo or condominium)
PLAT MAP (The plat map contains numerous parcels on it. Clearly this is a condominium.)
SECOND EXAMPLE OF A CONDOMINIUM
LEGAL DESCRIPTION (Mentions condominium)
PLAT MAP (Plat map reflects multiple parcels on one plat. This is a condominium.)
SINGLE FAMILY ATTACHED
LEGAL DESCRIPTION (No mention of condominium)
PLAT MAP (The plat map only outlines the one parcel of land surrounding the subject property. This is not a condo. It is an attached single-family dwelling.)
SECOND EXAMPLE OF A SINGLE FAMILY ATTACHED
LEGAL DESCRIPTION (No mention of condominium)
PLAT MAP (Again, the plat map only outlines the one parcel of land surrounding the subject property. This is not a condo. It is property is also an attached single-family dwelling.)
As you can see, if it’s a single family dwelling, the plat map will reflect only the individual unit’s footprint. If it is a condo, the plat map encompasses the entire development or sections of a development in which multiple units are located on the same plat.
As these examples demonstrate, there is no way to really determine whether or not a townhouse is a condominium or not, without doing the proper research.
For lending purposes, if the subject is a single family attached townhouse style dwelling, it would be completed on a Fannie Mae 1004 form. If it is a condominium townhouse, it would be completed on a Fannie Mae 1073 form.
WHAT’S A SITE-CONDO?
Now let’s muddy the waters a little, shall we? Have you ever heard of a site-condo? A site-condo is a detached dwelling that is encumbered by a declaration of condominium covenants or condominium form of ownership. Site condos look like single family detached dwellings. However, their ownership is as a condominium. Here is a picture of a site-condo. Just looking at it, you would probably never guess that it is actually a condominium.
Site-condos do not share any garages or any other attached buildings, archways and/or breeze-ways. Based upon information from FHA/HUD, site-condos consist of the entire structure, as well as the site and air space and are not considered to be common areas or limited common areas AND, insurance and maintenance costs are totally the responsibility of the unit owner AND, any common assessments collected will be for amenities outside of the footprint of the individual site.
Here is the legal description for this property. As you can clearly see, this is a condominium.
There is no individual parcel map for this individual house. That is because it is a condominium and located on a plat with other parcels. The plat map is made up of the entire development. For lending purposes, this type of property is typically completed on the Fannie Mae 1073 form.
Why do developers sometimes use this kind of ownership? Typically, developments like these are built this way due to zoning. Zoning usually requires a lot to be a certain size in order to be able to build upon it. However, if the zoning allows for condominium developments, some developers will build a condo development made up of site-condos. They have the look and feel of a single family detached dwelling. However, they can squeeze more homes into a development with this type of ownership.
Here is another picture of a site-condo.
After examining these things, I may just made this as clear as mud. And now, let me share with you a strange appraisal situation I found myself in that is related to this topic.
A STRANGE SCENARIO WHERE A CONDO BECOMES A SINGLE FAMILY DWELLING
Several years ago, I was hired by a bank to appraise a condominium for a purchase. (This is a picture of it)
It all seemed pretty cut and dry until I started doing my research.
In doing my research, I discovered that back in the 70’s, when these properties were built, the minimum building requirements stated that the to be able to be built upon, lots in this area had to have a minimum 100′ of frontage. So, the builders had the bright idea to build two unit condominiums. The person that I spoke with in the building department told me that they are still perplexed as to how the building department at the time, allowed these to be constructed as condominiums. But they did allow it. In fact, they built several streets with these kind of condominiums. Each condominium and condo association consisted of two units. The left and right side unit. Each side paid a monthly HOA fee that covered the up-keep of their side only. It was a little strange.
Flash forward to more recent times. The zoning department changed the zoning so that the use as a condominium became illegal. (It’s complicated) Now what do you think happens to the market value of a unit that cannot be financed due to it’s now being an illegal use? Values of these kinds of condominiums plummeted in this neighborhood. The only potential buyers would be cash buyers. Interestingly, there were people paying cash for these units as condominiums.
So what needed to happen in the case of the unit I was appraising? Since the subject was going to be financed, the subject would have to be re-platted into two single-family semi-attached dwellings, with each side having ownership of just their side. Needless to say, my appraisal was made ‘subject-to’ the subject property being re-platted and converted to a single-family semi-detached dwelling. There were comparable sales in that neighborhood that had already been re-platted and converted from condominiums to single-family semi-attached dwellings. And those, of course, had much higher market values because they were able to be financed.
This was a strange case. This does demonstrate the importance of real estate professionals doing their homework and really understanding what a condominium is, and what it is not.
Thank you for taking the journey with me this week! I really appreciate you’re being here and taking the time to read my article.
If you’re in Northeast Ohio and are looking for an appraiser to speak in your office about this or other real estate topics, don’t hesitate to call me! I’d love to do so!
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