How to tell a townhouse apart from a condo?
Redfin (NASDAQ: RDFN) and the like have a particularly maddening way of listing some townhouses as CONDO/CO-OP/VILLA/TOWNHOUSE, which is absolutely unhelpful if you're trying to determine whether a property is classified as a leasehold/condo or fee simple property on the title for mortgage purposes. Listing agents' descriptions do nothing to further clarify, as they tend to use "townhouse" and "condo" interchangeably.
Be aware, though, that real estate professionals can tell apart condos and townhouses by looking at the title report and/or legal description, which will specify whether the lot is for sale along with the unit. If you are using a real estate agent, have them do the legwork of going through the listings and determining which are townhouses (sit on their own lots and are not condo-classified) before you start going to look at places in person.
How do HOAs work in townhouse developments?
Sometimes the HOA in a townhouse development will be just as involved and provide as many common amenities as in a condominium complex. But it's more common that townhouse HOAs do less and charge lower fees. Condominium HOAs will handle exterior maintenance (e.g., roof repair) of units via their own staff or building management and will charge commensurately higher fees. Townhouse HOAs often keep amenities and services minimal (e.g., trash pickup and common space maintenance only), and therefore HOA fees tend to be lower.
Exactly what an HOA will cover varies according to the development, so you should ask what's covered. Specific questions include:
- Who handles trash removal?
- Who handles yard maintenance?
- Who is responsible for roof repairs?
- Is pool area upkeep included?
- Is there any security?
- Who is responsible for upkeep/cleaning of the building exterior?
- Is water covered under HOA dues?
If there is an HOA and the monthly dues seem low ($150 to $300), they may only cover a few of these things. Higher monthly dues should mean more is covered or that the amenities are more extensive.
How do underwriters look at townhouses?
Loan underwriters tend to see condos as high risk because the lender classification system for primary residences is based on two things:
- How many walls a unit shares with others.
- What's on the title as far as ownership rights.
Essentially this system assumes that the closer properties are together and the less ownership a person has, the more likely it is that bad things happening to one or a few units could drag down the value of the entire development.
Townhomes may share one or two walls, but they are not stacked on top of each other the way many condos are. They also tend to be individually upkept, as opposed to condominiums, which are "community" managed.
Because of this, underwriters tend to classify townhouses as just below single-family homes and a better risk than condos.
Property taxes on townhouses
Because of the smaller footprint, property taxes on townhouses are typically lower than for single-family homes and more in line with condos. However, property taxes are calculated according to the assessed value of a property -- the unit and the land. So, it is possible that a newer, more luxurious townhouse with a fee simple title may not have substantially lower property taxes than an old fixer-upper home on a small lot nearby.
Who does townhouse living make sense for?
- People who need less square footage -- particularly less outdoor space than a single-family home typically offers.
- First-time homebuyers and people just starting their families.
- People who like being in a heavily developed neighborhood with restaurants and shops nearby.
- People who are more comfortable being surrounded by neighbors.
- People who like to have some amenities, such as a pool, but don't want to be responsible for installation or upkeep.
- People who want fee simple ownership with condominium-like conveniences.
Is a townhouse right for you?
If you're fine with a smaller footprint and having neighbors nearby, a townhouse -- particularly a newer, well-maintained one, might be the perfect way to own a home without being completely on your own when it comes to maintenance, upkeep, security, and services.