People of all ages are attracted to condos, co-ops and townhomes—shared-ownership housing—because of the many benefits they offer, from low-maintenance to an extra sense of security. In fact, the three major groups that dominate the condo and townhome market—-singles, first-time home buyers and senior “baby boomers”-— are drawn by the affordability and convenience of shared-ownership living.
But condos and townhomes are not for everyone, and buyers need to know both the benefits and risks involved in purchasing these properties. Let’s look at some of the advantages and disadvantages of living in condos, co-ops and townhomes.
How condos, co-ops and townhomes differ
Let’s start with a brief definition of the kind of ownership involved with each property:
Condominium: you own (have title to) the “airspace” from floor to ceiling and from wall to wall of your unit. You do not individually own the building or the common areas, but you share ownership interest in the common areas.
Townhome: you own the airspace, plus the land beneath the building. You share walls and common areas.
Co-op: you do not own or get title to any property. The corporation (co-operative) owns the building; you own stock in the corporation and rent your unit from it. These properties require special financing and may be more difficult to buy and sell.
Why you’ll love shared-ownership living
Clearly, the economic advantage is one of the primary reasons most people buy shared-ownership property. Because ownership of condos and townhomes includes little or no land, prices are often well below those of single-family detached homes. And co-ops usually cost even less than condos, since you’re not getting an actual title of ownership.
Shared ownership also gives many people a sense of physical and financial security. The homeowners association (HOA) stipulates rules that govern owners’ use of their property, so shared-ownership developments are generally well-regulated. Furthermore, there’s security in knowing that there are always people around and, since common areas are maintained by the association, you don’t have to shoulder the burden alone when a major item needs repair.
Condos and townhomes may offer amenities that attract people, especially to downtown areas. Swimming pools, fitness equipment, saunas, party and guest rooms, libraries—perks you may not be able to afford as a single-family home owner.
Convenience is another huge factor in choosing shared-ownership property, especially for seniors and busy singles and couples. The monthly association fee should cover all maintenance of the common areas. Some fees also cover heat, water, and hazard insurance. Before buying shared-ownership property, know exactly what is covered by the association fee.
But it’s not all rosy
Some of the same characteristics that make shared-ownership living appealing also have their downside. The sense of security that comes from having other folks around can easily turn into a feeling that your privacy is being compromised. Noise can also be an issue, even though it should be regulated by HOA rules.
The rules themselves may be a source of irritation, especially if you want to do something not allowed by the HOA regulations. There may be pet or rental restrictions, for example. You’ll also have to limit your decorating ideas to the inside of your unit. HOAs like to maintain a uniform external appearance, so if you want to paint the trim on your townhome red when the other units are all gray, you’ll have a battle on your hands (one that you’ll probably lose). Potential buyers have a defined period of time to read the HOA documents before the sale is completed. Take advantage of this and understand exactly what you’re agreeing to when purchasing shared-ownership property.
There are financial and legal concerns also that can negatively affect buyers. Part of the monthly association fee should go into a reserve account from which the HOA can draw to cover major expenses and replacements. If the HOA doesn’t have adequate reserves, what will happen when the roof needs repair, the furnace dies, or the members decide to upgrade the common areas? Since all owners share these common expenses, each unit will be assessed its share of the expense. You will have to either pay the assessment in cash, or take out a loan. So make sure the HOA has a healthy reserve fund and that the major components of the building (roof, electrical, plumbing, heating elements) are not on their way out. And when you purchase a shared-ownership unit, make sure there isn’t already a special assessment pending from the previous owner.
Litigation can quickly deplete the HOA reserves. If the HOA is involved in a lawsuit, you’ll need to know the nature of the complaint, and the type and amount of insurance coverage, and you may want to speak to an attorney before signing any documents.
Five questions to ask before buying shared-ownership property
1. What percentage of units are rented vs. owner-occupied? If you’ll be living in the unit, you’ll definitely want to see a lower number of rentals, and so will your mortgage lender.
2. How much does the HOA have in reserve? This is important for all the reasons stated above, and also because you do not want the association fee increasing every year because there’s not enough money in the bank to take care of day-to-day maintenance.
3. What does the association fee cover? Minimally it should cover hazard insurance and common area maintenance (lawn care, snow removal, trash collection, pool and fitness equipment maintenance). Make sure the building is well-insured—-this is not the place to skimp on coverage.
4. Is the association currently in litigation?
5. Are there currently any special assessments, or does the HOA intend to mandate a special assessment in the near future? If the answer to either of these questions is “yes,” you may want to consider these costs when you negotiate the purchase price of the unit.
Shared-ownership property has its upside and downside, as do all real estate purchases. The important thing is to understand all sides before you commit to such a major expense.
Janet Contursi has been a Twin Cities Realtor® for more than 10 years. She is expert in all types of residential real estate, including short sales and foreclosures, and she especially enjoys working with first-time buyers and sellers. Contact her at (612-655-1207) or: realtorjanet [at] msn [dot] com