LaPlante Appraisals' Blog

If you ask a realtor, appraiser and homeowner, what constitutes a townhouse versus a condominium you will likely get various answers. The difference between a townhouse and condominium goes beyond the style or design of the home. 

   

As appraisers, we look at the ownership rights and legal descriptions of the subject to determine what the real property includes. For a condominium, you own the structure, for a townhouse or single family home, you own the structure and the LAND. This is the key difference between a townhouse and condominium. Take a look at the difference in assessor cards between these two types of properties. Can you see the differences and tell which one is a condominium and which one is a townhouse ? 

      
Condominiums have an undivided interest in the surrounding common elements and land. This means they all share a part of the surrounding areas together with the other units within the complex. While a townhouse owns the structure and the land it sits on with no other shared interests with neighbors. So in these two examples, Rough Rider's structure outline is the same as the structure, while 24th Pl shows a lot line and some land rights beyond the subject's structure. Another key is to see what the legal description states.

Does it say "LOT" in the legal description? Does it mention an undivided interest in common areas in the legal description? 

When ordering an appraisal, it is important for the lender and title to know the ownership type. This is because they have different lending requirements for different type of properties. Condominium loans can be more expensive due to restrictions related to shared and/or jointly owned building spaces, making the loans potentially more risky. As an appraiser, we are typically asked to verify if there is any pending litigation for the HOA in the condominium. If so, this can make the loan riskier and sometimes lenders will not loan on it. 

But I am not an expert on the lending side of things, so I asked another friend to come and share his perspective from the lender's view. Here is what he had to share: 

Determining whether a property is deemed a townhome or a condo by the county can be make-or-break for financing. From the lending perspective, “Townhome” is a style, and this home can either be a PUD or a Condo in official classification. If it’s determined that it is officially a PUD, just in the style of a townhome – it’s business as usual. No overlays. You’re financing just another Single Family Home that happens to have an HOA.

If it is determined that it is officially a condo: that opens a whole new set of obstacles as Kari discussed earlier. Now we have to look at what loan type we’re using as they all treat condos a little differently. We need to get a copy of the CC&R’s, Master Insurance Policy, a condo questionnaire needs to be filled out and HOA’s , tragically, have “varying” levels of diligence and efficiency. If you’re utilizing programs such as Grants or Down payment Assistance, you need to double-check their guidelines & overlays with Condos and how they’re treated if they’re on HUD’s approved condo list or not.

I’ve seen many a loan be rejected due to failure to identify the loan type, and can’t stress enough the importance of being able to spot it. --Ryan Zamudio

If you are planning to purchase a condominium or townhouse and want more information or have questions please reach out. Ryan is very personable with great energy, he is passionate about what he does. Ryan can be reached at: ryan.zamudio@edgehomefinance.com or find him on Facebook or Instagram @lender.ryanzd

A housing shortage has resulted in some cities and states to change zoning usages to allow for things such as Accessory Dwelling Units (ADUs). Instead of allowing one single family home on a plot, several cities have changed zoning to allow multi-family units (2-4units) or an ADU. In November 2023, the City of Phoenix changed zoning laws for R1-6 (Single Family Dwellings) to allow for Multiple Dwellings. You can read the details of the change on the city pf Phoenix Zoning Ordinances.  There are many different opinions about these new zoning changes. Just as with any change-there are always two sides to the argument.  

FOR ZONING CHANGES:
One pro is this change allows for multi-generational families to live on the same property with separate homes. Whether they are aging baby boomers or recently graduated college students, they can have their own house on the property while maintaining the feeling that they are not living on top of one another. 

Secondly, with the increase of inflation and the cost of living, people are now looking for 'side hustles' to make some extra cash. One of these 'side hustles' is investing in income producing properties such as: Air BnB or VBROs. With the opportunity to live on the same property and build another home for income producing purposes, Phoenicians can have additional supporting income. 

AGAINST ZONING CHANGES:
With increased buildings and populated lots, there are some potential problems. Due to sewer, water and electrical lines not built to support 1-4 dwellings on an individual lot, these utilities are at risk. Utilities were designed to service single family homes, however with a change in zoning allowance, utilities will need to be upgraded thus increasing taxes or utility bills to accommodate. 

Another thought is that although having multi-generational living situations sounds wonderful, there will be a time when large developers will come in to buy out these multi-generational properties. Homes that need rehabilitated will be bought out by developers who have the cash to do so. They will likely tear down the existing dwellings and build multi-dwelling units. Developers have the money to do so, which in turn will lead to tearing down current residential homes to build larger multifamily complexes.

Finally, these zoning changes will impact lending. When a home is zoned single family, banks have various loan options available. Payments are spread over 30 years, buyers can put down 3.5%, and there are lower interest rates due to 'risk' assessment. However, once a property is zoned for 5+ units, it becomes a commercial property. A commercial property requires higher interest rates, increased down-payment and more requirements to secure a loan. Therefore, making it more difficult for the average Phoenician to buy a house when competing again developers with larger pocketbooks. 

Whether you agree or disagree with these zoning changes, it is important to know both sides of the argument. LaPlante Appraisals strives to educate the public on Appraisal related topics. No matter if you are an investor, developer, homeowner, or future homeowner, these changes can impact you directly.