Triangle Area Real Estate News & Information

Working with as many home-buyers as I do, I wanted to explain the difference between condominiums and townhomes and why it matters in terms of financing as well as specific legal issues here in North Carolina.

Kensignton Trace is a popular condominium with UNC graduate students and young familes development in Chapel Hill NC If you’re reading this and looking to buy in any other state you should really check with a local Realtor regarding how your specific state views these two forms of real estate. While much of the information I’m sharing below is likely to apply, I know it’s different in every state and these differences could be quite significant.

Understanding The Difference Between Condos & Townhomes

What's the difference between the two — aren’t' they basically the same thing? Possibly the single biggest difference between a condominiums and townhomes is that condo owners only own from middle of the exterior wall in, while townhome owners own the complete unit, including the exterior, the roof, and the land on which the unit is built and possibly additional adjacent land such as a front and/or back yard.

If you own a condominium you are not personally responsible for the exterior maintenance of the building which, as long as it's being properly maintained, works well for some people. However if the development is under capitalized, this could potentially be a real problem as either the buildings fall into disrepair or special assessments are needed to pay for maintenance and repair of items like the roof, siding, parking lots, etc. While you might like the idea of paying low monthly fees now; if you get stuck with large special assessment bills unexpectedly you may not feel this way. Because of this I feel it's critical that a condominium purchaser take a look at the development’s financial statement as part of their “due diligence” to confirm that they’re buying into a well-managed, financially stable development.

Every condominium and townhome development also includes “common areas” which can include, but aren't limited to, sidewalks, parking lots, recreational spaces, hiking or biking trails, shared community amenities like pools, tennis courts, and fitness centers. In condominium associations these “common areas” are owned in common by all the property owners within the development. In townhome developments these are more commonly owned by the homeowners association for the benefit of the association’s members. In either instance owners should expect to pay a monthly or annual fee for the maintenance and costs of operating these common or community assets.

What other differences are there between the two? Legally there are some differences between the two. The creation, management and sale of condos built prior to October 1, 1986 is governed by the Unit Ownership Act while condos built on or after this date are governed by theNorth Carolina Condominium Act.Townhomes are not subject to these acts and the covenants, rules and regulations may vary considerably between different developments. That said townhome projects of more than 20 units created on or after January 1, 1999 are covered by the Planned Community Act as are other developments that have voluntarily chosen to abide by part or all of these rules. Developments that fall outside the Planned Community Act are typically governed as single family homes.

Are There Any Restrictions In Condos or Townhomes?

What are the restrictions in the development I'm considering buying in and how will they affect me? There's really no simple answer I can give to this question as every development has their own set of restrictions typically set out in a document referred to as the Community Restrictive Covenants or Condominium Declaration. These rules can limit the number of people who may live in a unit, the number of vehicles you may park at the development, pets, fences, whether you may rent the unit, the types of landscaping you may have and literally dozens of other things. For this reason it's important that a buyer ask for and review these documents. Getting a current and complete set of all the rules should be a simple and straightforward matter, but unfortunately it's not. Buyers ultimately should assume that in order to be certain they may need to do more than simply ask their closing attorney or Realtor. I always start with a request to the Seller and typically make it a contingency in my buyers offer. I will then track down the manager of the Association and request a full and current set of all rules, regulations, by-laws, and restrictive covenants including any amendments. I also request a copy of their most recent financial statement issued to the homeowners. Occasionally I have had to go and ask the county to give me a copy of all these documents. If there is an expense to getting a copy of these the buyer should be prepared to cover it. If you have any concerns after reviewing them you should immediately discuss these with your agent and or the manager of the development. Don't assume that they will make an exception for you and if they offer to do so, you'll want it in writing. If you have any qualms at all about being able to comply with the rules of the development, do yourself a favor and don't buy there. It's important that you understand that to some degree the association has the right to tell you what you may and may not do with your property. I can share countless stories of unhappy home buyers who battle endlessly with their associations. Trust me: It's not worth it.

Will My Dues & Strata Fees Ever Increase?

The short answer is that you don't. This is another reason to look into the financial picture of the association/development you are considering. If they have a substantial capital reserve, chances are that they aren't likely to have to raise the fees. However, if the capital reserve is low and the buildings appear to require maintenance it would be reasonable to assume that there will either be an assessment or an increase in dues. It’s a simple matter of speaking with the association manager early on and finding out if there are any plans to expand the common areas or amenities or if any major repairs such as roof, parking lots, etc are presently planned. Buyers should request that the Seller, the Sellers Agent or their own Agent supply them with the current contact information of whomever is managing the Association/Development and then confirm that this information is indeed current.

Keep in mind that it's also possible for a municipal government to levy an assessment against any property owner, this could be for things like bringing public utilities to a neighborhood, or adding sidewalks, or taking over private roads etc. This applies to all property owners whether single family or condos/townhome. While not done frequently it's certainly not uncommon and if you have any concerns about what may be planned in the near future for the neighborhood you're considering buying into you should visit the local planners or development office in the municipality that the property is located within and ask.

Can I Get Out Of Paying Condo Fees?

Is there some way I can avoid paying my dues or special assessments if I don't agree with the association or like what the money is going to be spent on? Absolutely not. All condominium owners (including the developer/builder) are responsible for paying their shares of the common expenses. This is also true of townhome owners if there are clear and definite written rules or guidelines in the townhome's restrictive covenants. There are legal ramifications if you fail to pay; it's even possible in some instance for your association to foreclose on your property even if you own it outright. If you have a dispute with your association it's possible you may need to go to court or mediation to get it resolved. Even if there are clearly written rules or guidelines it doesn't guarantee that they are legally enforceable. That's what courts are for. In most instances as long as a rule is considered “reasonable” it's likely to be upheld in a North Carolina court.

Is It Easier To Get A Mortgage For a Condo Over A Home?

Anything else I need to consider regarding condominium or townhome ownership? One of the biggest and most significant differences is that for the past few years it's gotten increasingly difficult to get financing for a condominium, while townhomes don't have these same issues. This is not the first time the market for condo financing has dried up and it's unlikely to be the last. I've been selling real estate full time for over twenty years and have seen this happen before. However, I haven't ever seen it last as long as it has and honestly I see nothing that's likely to change anytime soon.

This is directly related to the fact that a condominium owner doesn't own the ground beneath their unit or even the exterior of the building. In order to get a mortgage for a condominium it's going to be critical that it be FHA approved. To find out if the condominium your considering is on the approved list you can use this link: https://entp.hud.gov/idapp/html/condlook.cfm. You’ll need to narrow it down by state to see if it's on the pre-approved list. If you don’t find it on the list it's still possible it has approval. But be prepared that it may take a little time for your lender to make a final determination. There are many reasons a condominium project might not be on the list. These range from too many non-owner occupied (or investor owned) units, to failing to keep their paperwork current with FHA, too many owners not current with their dues, under capitalization, not enough units sold in a newer development, as well as others. Unless the development is on the approved FHA list there's no simple way of knowing. What I as a buyer broker know is that the moment a lender realizes one of my buyers is interested in a condominium a red flag goes up and I'm always cautioned that while my client is approved for a mortgage, they may not be able to get one for the particular property their interested in. There are literally thousands of condo owners who are currently stuck trying to find cash buyers for their property as mortgages simply are unavailable for their units. It's something every buyer should consider and discuss with their buyer broker.

No matter what kind of residence you're thining of buying, it's always a good idea to consult a broker first. Get in touch with the team at MyNCHomes.com online or by phone at 919-659-5173 to connect with one of our central North Carolina real estate experts before you buy.