In a condo each owner owns from the walls in plus a fractional share of the common areas. The biggest difference is there is no land ownership associated with condos. A condo can be a single story unit. It's the type of ownership that determines condo vs townhome. The Homeowner’s Association (HOA) maintains the exterior of the units (roofs, exterior walls, fences, landscaping) along with the common areas (pools playgrounds, rec centers.) Each owner contributes fees to cover HOA management and maintenance. In some cases, water, gas, cable, trash, and blanket insurance is included in the HOA fees.
Homeowners insurance coverage is different because the HOA is responsible for covering the exterior (walls out) land, and all common areas. Mechanicals such as air conditioners or hot water heaters that may be located outside are usually the responsibility of the homeowner.
Townhomes ownership includes the land (and airspace) for each unit (and in some cases a yard or patio area) plus a share in the common areas. The units can be single or multistory and usually have one or more common walls to neighboring units. While the HOA is responsible for common areas, it may or may not be responsible for roof, wall, yard and fence maintenance. An important consideration when comparing options.
Patio homes are similar to townhomes but are often free standing . Usually there are no common walls between homes but sometimes there is a common wall or they are connected in a limited fashion. Ownership is the land and yard and like condos and townhomes, owners have share in all the common areas. Maintenance of the home and yard is usually the homeowner’s responsibility. In some case however, things like front yard maintenance, water, sewer, trash, cable can also be included.
HOA Financials…Is There a Rule of Thumb for Reserves?
An important aspect of the due diligence before purchasing is the financial health of the HOA. FHA lending policy has set the minimum at 10% of annual common fees as a Reserve Fund contribution. If reserve funds are below 10%, additional guidelines are triggered, such as a higher down payment to offset the higher risk. 10% is easy to measure, but it does not tell the whole story, nor does it predict future needs.
A community that offers few or no amenities, will still need money for roofs, sidewalks, decks, and paint or siding maintenance. Depending on the amount of money needed, a 10% Reserve Fund contribution may be insufficient for the true needs of the association. That number could be closer to 25% or more! Add in amenities like pools, clubhouses, tennis courts and such and that number climbs higher. A condo reserve study, prepared by a reserve study professional estimates the useful life, replacement schedule and replacement cost of building components. At the very least compare the reserve study recommendation to the current reserve levels.
Higher Reserve Fund contributions mean higher common fees. Higher common fees can cause potential buyers to go elsewhere so it is not uncommon for associations to keep their fees artificially low so that there is more demand for their unsold units.
As each community is different, there is no “rule of thumb.” Just as condition and proper maintenance on a single family is impact market value, current and future health of the HOA can have a significant impact on future market value of condos, townhomes, and patio homes.