Do you know what a condo is and how it works? A condo is a shortened term for a condominium.
If you are considering buying a condo, you’ll find this a comprehensive resource.
There are many reasons to be attracted to condo living. I know because I own three condos in different states.
Owners are typically attracted to reduced maintenance costs, additional security, community living, or a desire to live in a walkable area.
Whatever your reason for looking at condominiums for your next dream home, there might be more to this type of property than you realize. We will answer the question, “What is a condo?”
Different from apartments, condos are owned by individuals. If you own a home like this, you must pay monthly fees to the condominium association.
A condominium association is a type of HOA that manages the communal areas and the exterior of the building, leaving you with less to worry about.
While this might sound great, there are also some negatives to consider.
From experience as a Realtor for almost forty years and owning multiple units in different states, it is essential to do more research than buying a single-family home. I will help you understand why. I have loved being a condo owner and you can too armed with the right knowledge.
If you are considering buying a condominium, we’ll help you decide if this is the correct type of home for you.
There are differences between condos and other types of properties that you might not have known.
But first, let’s look at what condos are.
What is a Condo?
So, what is the definition of a condo? A Condo is short for “condominium.” According to Wikipedia, the words originated in Latin and have been traced by scholars to a document from 1st-century Babylon.
Condos are homes in a housing development with individual units, each with a separate owner. A condominium project typically involves many particular unit owners sharing community property.
Common elements include landscaping, tennis courts, swimming pools, and fitness centers.
These amenities are almost always found in warmer weather climates or retirement communities. Condominium developments in a cold-weather environment will likely include snow removal with monthly fees.
The units in a condo complex are typically run by a governing body of a board of directors comprised of unit owners who oversee day-to-day operations.
If you rent one, you’ll be dealing directly with the owner of the home instead of a management company.
From my experience as a realtor and owner, they are great for those who lead busy lives with hectic schedules. They offer a lifestyle with the benefits of having fewer worries about property upkeep.
I have loved condo ownership because I don’t have the worries associated with exterior upkeep. You don’t have to worry about cleaning the gutters, painting the siding, staining the deck, or dealing with wood rot. Everything is done for you.
Understanding Ownership and Management
Condominiums represent a unique blend of individual ownership within a collective framework. When you purchase a condo, you buy more than just your unit. You are investing in a piece of a more significant entity governed by rules and managed by an elected board or a professional management company.
This dual nature of ownership extends to the amenities and common areas, such as pools, fitness centers, and outdoor spaces, which are shared among all residents.
Managing these shared amenities is crucial for maintaining the property’s value and the quality of life for everyone in the neighborhood.
The condominium association plays a pivotal role in this. Funded by monthly or annual fees from the condo owners, the association oversees the maintenance of common areas, enforces the community’s rules, and manages the collective budget.
This structure ensures that individual owners are not solely responsible for major repairs or upgrades to the building’s exterior or shared facilities. However, it also means owners are subject to the association’s rules and fees. From many years of experience selling real estate and owning condos, I know that rules and fees can vary considerably. I recommend extensively researching this aspect before committing.
Understanding the nuances of condo ownership and management is essential for prospective buyers. Condos offer a unique blend of community living with the perks of homeownership, but they also require a willingness to participate in a collective governance structure.
The Evolution and Legal Framework
The concept of condos is not a modern invention but has roots that trace back to ancient civilizations. It has evolved significantly over time. Today’s legal framework varies by country.
In the United States, the legal foundation for condominiums was established in the mid-20th century, providing a structured approach to collective living and ownership.
This legal framework outlines the creation of homeowner associations (HOAs), the rights and responsibilities of condo owners, and the governance of common areas and amenities. The maintenance of common areas is a vital responsibility of the condominium association, funded by the fees collected from all owners.
Establishing associations has revolutionized the management of common areas in condominiums. They ensure that amenities are well-maintained for all residents to enjoy.
The evolution of condominiums from ancient times to their current legal standing demonstrates the adaptability of this housing model to meet changing societal needs. Participating in a condominium’s collective governance can empower owners to have a say in managing shared resources and amenities.
Today, condominiums serve as a viable option for people seeking the benefits of property ownership without the responsibilities of single-family home maintenance. This legal structure ensures the orderly management of shared spaces and resources. It promotes harmony and efficiency within these communities.
What Are The Fees?
When you own this type of property, you must pay association HOA dues, which are called condo fees. It is doubtful you will find a condominium without an HOA.
These fees go towards maintaining common areas of the complex and any additional perks like those mentioned. They will also go towards paying insurance for the building and common areas.
The condo’s owner is responsible for maintenance and repairs inside the unit.
You take personal responsibility for everything inside the interior walls or “studs in, “as many real estate agents and others refer to it within the industry.
These are all the things that make a condo a condo. Before buying, I recommend you do a deep dive into the fees. You’ll want to know precisely what they cover. Will you be getting what you wish to from paying the fees?
Paying for things you won’t use is generally a mistake.
Sandy Jamison with Tuscana Properties knows the details that go along with condo purchases and shares this:
“When potential buyers consider purchasing a condo, they must look beyond the surface level of condo fees. Understanding what these fees include and the value they bring is the key.
I always recommend that my buyers ask themselves, “Does the condo fee match up with the amenities and services offered? Are there any red flags indicating issues or insufficient reserve funds?” These fees go beyond being expenses and are investments in maintaining the property, enhancing community life, and safeguarding that investment.
Understanding how these fees are allocated can provide insights into how the condominium is managed and any future financial responsibilities of the community. It’s a matter of weighing costs against benefits, from upkeep and renovations to facilities like pools, gyms, and security features. This is more than just a simple association fee. This is security against special assessments and keeping your comfort level long into your residency.”
How Do They Look?
Condos can have many different looks, from apartments to traditional homes. They can be in large buildings with many units or as small as a two-unit duplex.
Some complexes are large, while others are on a small scale.
What is a Questionnaire?
They will vet the complex when you want to purchase and use a mortgage lender. The lender does this by asking the association to fill out a form with questions.
The questionnaire allows the lender to determine whether the complex meets its loan requirements. It provides lenders with the information needed for this purpose.
The mortgage lender will pass this document to the listing agent, who will then give it to the association for answers.
What is a Resale Certificate?
A resale certificate proves that a unit owner is in good standing with the homeowner’s association.
It will include any past-due fees, unpaid special assessments, unpaid violations, and any expenses due upon closing.
In Massachusetts, it is called a 6D certificate. It can also be called a condo certification. As a buyer, you’ll want this to ensure you are not stuck with any of the seller’s financial problems.
Different Types of Condos
They come in different shapes and sizes, with the two primary categories being freehold and leasehold.
A freehold condo is owned outright, whereas a leasehold means the tenant has a contract with their landlord for the home.
It is expected to see condo units as part of a single or complex of buildings. However, condos can also look more like single-family homes, with the difference not evident outside.
These condos can be detached, but the owners can still pay association dues to maintain the buildings and communal areas.
Let’s look at the different kinds of units you could encounter.
What Are Buildings?
This is simply a building made up of units owned by individuals.
An HOA or property management company will generally maintain the complex. There are a couple of types of buildings.
You may find high-rise buildings or something on a smaller scale.
High-rise buildings are most often found in an urban area or within a city.
It is not uncommon to see parking garages within the building itself. With a larger building, you’ll find additional parking spaces within a parking lot.
Sometimes, there are shared spaces assigned. In some instances, you can also purchase your parking spot.
Getting your own deeded parking space can be an impossibility for city residents.
Detached Units
If you like living in a single-family home without some downsides of living very close to your neighbors, detached condos might suit you.
As the name suggests, detached residences don’t share walls with their neighbors. They still benefit from low maintenance, with the HOA taking upkeep.
A detached unit is the best of both worlds for those looking for less maintenance but wanting additional privacy.
The main difference will be less noise and possibly more land surrounding the home. One of the condos I own is a detached unit, and I love it. It’s like having a small house but with the benefits of condo living.
Private Condos
Sometimes known as private apartments, these are rented out to tenants. They are similar to apartments, with a few differences. These differences can include different application requirements and landlord rules than are typical with apartments.
Timeshares
Timeshare or condo shares are homes to which tenants have limited access. They are generally vacation homes, and the tenants allocate days to spend in them each year.
You essentially own shares of interest over a specified time frame.
While property taxes and maintenance can be spread between the tenants, these properties aren’t a good investment. They are often difficult to sell, but they provide vacation property that can considerably save similarly located resorts.
Not committing to a time-share is essential without reading all the fine print in detail. Having a real estate attorney look over any documentation would be a good idea, too.
These documents often have essential details that could have significant financial impacts, including your desire to get out of them.
The Pros and Cons of Condos
As with any housing, there are advantages and disadvantages. Let’s look at the pros first.
It would be highly advisable to read about the questions you should ask before buying a condo.
For example, always ask if any special assessments are coming up.
Without finding out, you could be hit with a significant expense beyond the purchase price you weren’t planning for.
You’ll also want to key in on the reserve fund to ensure ample funding is available for projects down the road. Not checking on reserve funds can be a significant mistake.
It is one of the criteria you should always consider before buying.
If the cash reserves are low, you could be on the hook again for an unplanned expense.
These are just a few of the many things to do as part of your purchase due diligence.
The Pros
Affordability is More Common
Generally, they offer more to homeowners with lower budgets. However, you still have to remember the extra fees you’ll pay for maintenance in the complex.
They are usually cheaper than a single-family home overall.
These homes are usually excellent for first-time home buyers who are just starting and have a smaller down payment. They are also fantastic for those who have experienced a divorce and don’t need significant space or have considerable wealth.
If the cost of buying a home has put you off starting the process, you might find that this housing choice is more within your budget.
The mortgage lenders you’re working with can help with potential lending guidelines for purchasing. You should know that mortgages can be more challenging in some neighborhoods.
If you plan on getting an FHA loan, ensure the Federal Housing Administration has approved the community for financing.
Although being FHA-approved is a popular option, it does cost money, and some board members can be shortsighted about getting approval. Many potential buyers use FHA financing, so having it approved will be worth it.
See why FHA condo approval is vital for both a buyer and seller. It’s important to note that mortgage rates are sometimes slightly higher than home loans. Rates can be higher because there is more risk for mortgage lenders.
They Cover Maintenance
If you are looking for a home with fewer things to worry about, it is one of the features that make them a great choice. With this type of home, you won’t have to worry about as many maintenance issues as with most other property types.
For example, the association will take care of lawn maintenance, pest control, and roof leaks. This leaves you with less to worry about ensuring the home is adequately maintained. Knowing the obligation of upkeep is lowered will give you more peace and less hassle in your life.
Less to do is one of the common factors many people consider when considering home ownership with a condo.
Residential units with limited common elements will also put less strain on your finances through lower fees. Coming from a large home and wanting less maintenance was the driving force for choosing a condo.
You Might Get Additional Amenities
If you like having access to additional amenities, condominium living might offer it. Amenities offered will vary between complexes but could include a pool, gym, or dog park.
You can benefit from these facilities without being responsible for their maintenance. A homeowners association could be accountable for this instead.
These advantages make buying ideal for many different types of people. They make a great choice if you want to downsize from a larger home or for a home with fewer things to worry about.
I have a condo in Florida and love that I can walk out the front door and take a dip in the pool 25 yards away. The best part is someone else maintains it!
The Cons
Privacy Can Be an Issue
Privacy Can Be an IssueCondo living typically means sharing a smaller space with more people. While this can provide a better sense of community, you’ll have less privacy.
If you share a wall with your neighbor, you may have problems with noise.
In these types of developments, there can sometimes be restrictions on guests, and you might need to check with the HOA.
This wouldn’t be a concern in a single-family home. I recommend finding out who will be beside you to alleviate any concerns.
Space Can Be Limited Outside
Units often lack outside space, and though there may be access to a park or playground, this isn’t guaranteed.
You might need to travel some distance to enjoy the outside. This won’t be a problem for many but could concern larger families.
As a real estate agent, it is one of the limitations I hear people expressing in their reviews.
Homeowners Associations Can Have Overbearing Rules
Living in a development means following the rules set out by the HOA. I tell all my real estate clients to review them carefully.
These restrictive covenants can even include restrictions on your choice of pet, parking requirements, and limits on what you can do with the property, like renting it out.
Strict rules can often damper those looking into a purchase.
You will also be required to pay a monthly fee to the HOA. These fees can help cover the cost of facility maintenance and future upgrades.
The expenditures could be a high extra cost to your monthly mortgage payment.
If you are someone who doesn’t like the sound of additional rules restricting what you do with your home, condos might not be for you.
Here are some standard rules worth reviewing. From experience listening to complaints, regulations are the most common drawbacks you’ll discover. You might feel your rights are violated even though the rules are clearly stated.
Comparing Living to Other Types of Homes
As we’ve shown, living in a condo has advantages and disadvantages. But to help you determine if a condo is right for you, we’ll compare them to other property types.
What is The Difference Between a Condo and an Apartment?
How do condos compare to apartments?
It can be easy to confuse apartments with condos; many think the terms are interchangeable. However, there are differences, some of which are pretty important.
The big difference is that you can only rent an apartment, while you can either rent or buy a condo.
So, ownership is the most significant difference between the two.
Have a look at the comparison of renting a condo vs. an apartment.
Ownership is Not The Same
Property management companies typically own apartment buildings, but this isn’t the case with condos. Different people typically own condo units.
There will generally be an association instead of a property management company for building maintenance.
So, instead of paying rent to the management company and leaving the maintenance to them, you must deal with the owner if you rent. Renters should keep this in mind going into a lease.
Amenities Can Vary
Both apartment complexes and condo communities may offer extra community amenities. What is available can vary greatly, with some complexes offering pools and gyms. Some places will have better security services than others.
You can expect to pay more rent if the building offers better amenities.
Amenities offered within apartments are frequently the same for all units. In condos, there can be slight differences between units. Owners can do what they like inside the home if they don’t disturb their neighbors.
For example, kitchens can be renovated, and appliances can be upgraded to improve the property.
Expenses Are Often Comparable
The cost difference between renting a condominium and an apartment might not seem too far apart. Your fees will differ slightly, but the overall costs will be comparable.
There are association fees to pay with condos, and your landlord may give you the responsibility of paying them. The other option is to add it to the monthly rent. Responsibility for dues collection will be a vital consideration.
The same can happen with utilities, but you should check the lease to know where you stand before signing. Different owners don’t always do things the same way.
As mentioned, owners must pay association fees, HOA fees, and property taxes. They could also have mortgage payments to cover each month, and these costs must factor into the decision to buy this type of home.
Both Cover Maintenance
The management company will handle maintenance in apartments. They might even have staff on-site for more significant buildings, which can quickly resolve issues.
If you rent a condo, you must contact the owner to deal with issues within the home. This can mean things take longer to get fixed while you reach your landlord, who waits for someone to repair the problem.
Rules Apply to Both
Living in both choices will involve rules. Apartment rules will be set by the property manager or company responsible for the building. These rules should be the same for everyone in the complex.
In a condo rental, you must follow the rules laid out by the association responsible for the building. The condo association board will be operated by people who own units in the building, so they should be reasonable, as board members must follow them.
However, as a tenant, you must also follow any additional rules your landlord has.
When you choose between renting an apartment or a condo, you need to read the contract to make sure you are clear on the rules that you will be expected to follow when you move in.Click To TweetComparing Condominiums With Houses
Often, single-family houses are more expensive than condos and are less likely to be located near the center of cities. The choice between these types of homes depends on whether you want more space or to live near the city.
Here is a detailed comparison of buying a condo vs. buying a home.
Ownership of Property is Not The Same
Buying a house will be different from a condo purchase. A single-family house doesn’t have commonly shared walls with neighboring homes like condos often do.
These properties will probably include the land on which the home is built and generally have more outside space than condominiums.
You can expect far more privacy, especially when you own an acre of land or more.
Amenities Are Different
Houses don’t usually offer extra amenities outside of the home. Condos are more likely to provide owners with community amenities, though there will be association fees to pay for this.
These extra fees will go towards maintenance as well and can include utilities.
Expenses Are Typically Lower
You can expect a house to cost more in general. When you purchase this type of home, you are paying for the land, and the home will probably be more prominent.
Though you won’t have condo association fees to pay with a house, you will have more maintenance costs and taxes to consider.
A single-family home is usually a better option for larger families. I left my last house for a condo due to higher maintenance and property taxes. It has been a breath of fresh air, bringing down my costs.
Maintenance is Reduced
Houses require more maintenance than condos. The owner is responsible for the home’s exterior and inside. This will include the front and back yards, so if you don’t like having to deal with mowing the lawn, perhaps a condo is better.
Maintenance is a significant expense that is reduced with condo living. Essential repairs are more likely to happen when owning a house.
With a house, there is more opportunity for renovations and upgrades to increase the value. It will cost you more initially, and you will need the time and money to invest in improvements.
I don’t miss painting my home’s exterior every five or six years.
Rules Might Bother You
With a single-family home, there is less chance of rules restricting how you use your home. Strict HOA rules are less likely to be applied to houses, which could prevent you from changing your home.
With a home, you make your own rules and don’t have to live by someone else’s you might disagree with. There will be no worries about HOA violations and fines that come with them.
Condominium owners can be very disappointed when they don’t read the rules carefully. Having restrictions will be the most significant difference from owning a home.
The Difference Between a Condo and a Townhouse
Let’s look at the difference between a townhouse and a condo.
Townhouses are where condos and single-family homes meet. While townhouses share things with condominiums, there are some differences, too.
Townhouses have shared walls and multiple stories but don’t have neighbors above or below.
Learn more by reading what a townhouse is.
Ownership Differs
Townhouses can be either condos or owned like traditional single-family homes. If the townhouse follows the condominium model, you will only own and be responsible for the home’s interior.
An HOA will take care of the exterior and communal areas.
Alternatively, the townhouse will be wholly owned, including the land it sits on.
This can avoid HOA fees and restrictions, but it does mean there is more to take care of. You will be in charge of the entire structure and won’t have the same services.
Quite often, there can be fewer amenities with townhouses.
Amenities Can Be Different
Often, townhouses won’t benefit from the same amenities enjoyed in condominium developments.
Newer townhouses are more likely to have access to similar amenities, however, with resort-style community developments.
Expenses Are Usually Less With Townhouses
Typically, you can expect townhouses to be less costly overall. While you could still find that you have to pay HOA fees with a townhouse, the costs are likely to be less than a similar condo.
If there isn’t an HOA involved, there will be maintenance costs to consider, though they will likely be less than a typical single-family home.
Maintenance Usually Differs
Where you save on HOA fees, you’ll have to pay for repairs and the upkeep of the townhouse. In addition to the interior, you must take care of the yard and maintain the roof and walls.
You’ll need to budget for sufficient funds to cover these expenses as they come up.
Rules Are Typically Similar
You must follow the rules if your townhouse is part of an HOA. Typically, these might not be as strict as the rules implemented by condo associations, but associations vary.
You must be sure you fully understand the rules before deciding whether the property is right for you, whether a townhouse or a condo.
There are certainly pros and cons to a townhouse.
What is a Co-op?
Many people will ask what a condo co-op is.
When you purchase a condominium, you own the unit and a percentage of the joint space. When buying a co-op, you purchase a share of the property and have a deed allowing you to live in a unit.
A co-op is much like buying stock in a company. You don’t own the unit, but you are a shareholder.
Being a shareholder gives you a voice in how the co-op is run.
What is a Condo Hotel?
A hotel condo is a building that is legally a condominium but is run as a hotel. They are also known as condotels. With condo hotels, individual units are rented by the hotel as part of a rental program.
Some condo hotels sell all of their units. In others, the developer will keep some of the units.
How do You Find a Unit to Buy or Rent?
Of course, the best way to find one to buy or rent is to seek out a professional local real estate agent. They will show you the local projects in the area where you would like to live. If you’re just getting started with your search, you can also do some research on your own.
You might give a condo near me, a condo for sale near me, or a condo for rent near me a shot. You will likely get a decent amount of search results to look around before hiring a buyer’s agent. If you drive around and find some condo developments you wish to explore, a Realtor can help.
Remember that condos require far more due diligence, especially financially, than homes do. An exceptional agent should be able to assist with research, including collecting all pertinent docs.
The documents, including the declaration of covenants and financials, should be scrutinized. Doing so will allow you to decide whether it’s a great place to buy.
The best way to make a purchase is to research it before signing the legal document.
Understanding a Non-Warrantable Condo
One last crucial piece of information: You’ll want to ensure it is warrantable when buying. Unwarranted residential buildings are much more challenging to sell.
When a development is non-warrantable, it does not meet conventional financing guidelines. Fannie Mae and Freddi Mac will not be able to sell the loans.
Under these conditions, many buyers could not purchase a non-warrantable condo. The lack of warrantable will hurt the appraisal value.
Usually, a condo is considered warrantable under the following conditions:
- No single entity owns more than two units if the project is between 5-20 units. With projects with 21 or more units, no more than 20 percent ownership.
- The lender could waive the review if the project is 2-4 units.
- The subject is a detached unit that does not share walls with another condo.
- At least 50 percent of the units are owner-occupied.
- For owner-occupied agreements, there is no owner-occupancy requirement.
- Less than 15% of the unit owners are behind on their dues.
- The condo association is not involved with any lawsuits.
- The building’s square footage has less than 35% commercial space.
Checking if a unit is non-warrantable is the best advice so you don’t waste time trying to buy when you cannot get financing.
Stats About This Housing Type
1. Approximately 78% of condos have shared amenities such as swimming pools and fitness facilities.
2. The average size of a unit is 945 square feet.
3. They comprise about 35% of the residential housing market.
4. On average, a condominium building has 50 units.
5. About 62% are located in urban areas.
6. The median price in major cities is $350,000.
7. They attract an average of 12 potential buyers within the first week of being listed.
8. Around 42% of owners are millennials.
9. Buildings typically have an average occupancy rate of 85%.
10. The average annual maintenance fee is $3,500.
Final Thoughts
If you’ve wondered, “What are condos?” you should now understand entirely. There may be more types than you thought and more options for your next home.
Despite the advantages of different types of units, the unique characteristics of the condo you are looking at should play a more significant role in your decision. One complex might offer better advantages, and the location is usually crucial, too.
They are often ideal places to live for first-time buyers or people looking to downsize from a larger home. Individual units can offer all the amenities you want without the headaches of having to maintain these yourself.
While extra fees are paid above what you would pay in a traditional home, this saves you from dealing with much of the upkeep of your home.
Hopefully, you are now armed with all the information you need to decide whether this housing type is the right move.
About the Author: The above Real Estate information on what a condo is was provided by Bill Gassett, a nationally recognized leader in his field. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications in which he has been featured. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. For the past 38+ years, Bill has helped people move in and out of Metrowest towns.
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