Condos and Townhomes: What’s the difference?

For anyone that isn’t quite ready for all of the responsibilities that come along with a stand-alone home, a great first-step into homeownership can be either a condominium or a townhome. While many people use these terms interchangeably, there are distinct differences between the two mostly stemming from where a homeowner’s liability ends and the homeowners association liability begins.

Put more precisely… Who owns the land and the structure of the building?

In a condo, the homeowner owns their particular unit but they do not own the building structure or the land that the unit sits on. This can also be described as owning the “airspace between the walls”; the condo owner has the right to the unit and can make changes to the fixtures and colors but they can’t take down walls or otherwise alter the structure.

With a townhome, the homeowner usually owns the exterior of the building and the land underneath the unit. This means that they must maintain all of these areas, not just the interior of the unit. Of course, this maintenance can be handled by the HOA on behalf of the owners, but that is dependent on how the HOA is set up and what they choose to cover for the monthly owners assessment fee.

With the difference in ownership comes some additional positives and negatives, including overall price of the home and the cost to insure it. Condos are usually a bit less expensive because you have a low-level of ownership> This can impact the overall purchase price of the unit and the cost to insure the property. If there is a complete loss for insurance purposes, a condo association’s master policy would cover the rebuilding of the structure while the owner’s policy would cover the upfitting of the unit itself (flooring, cabinets, light fixtures, etc.)

If the property was a townhome then the homeowner’s insurance policy would cover the entire interior and exterior of the building structure along with all upfitting. While the HOA would still have a master insurance policy in place, the area of coverage would likely be restricted to community areas such as a neighborhood pool, clubhouse, playgrounds, etc. So, if there is a complete loss in a townhome community the owners and their insurance are on-the-line for more of the overall expenses.

It’s always important to keep in-mind that these are general guidelines between what constitutes a condo and what is a townhome. At the end of the day, it’s up to the specific community, how the HOA was set up including governing documents, and what laws govern the state that you’re in.

Handling an Appraisal Gap

I think that I can safely say that most homebuyers are going to finance some portion of their purchase with a home mortgage. There are always those special circumstances where someone might not, but by-and-large there’s going to be a mortgage lender involved.

First, it’s important to remember that the bank and the lender are looking at the purchase of a home as whether or not it is a good investment. A buyer may have been preapproved to purchase a home up to $400,000 but that doesn’t mean that the bank will lend you that money on just ANYTHING. They want to ensure that the home you select is worth what they’re lending you because if you default on your mortgage the only thing the bank is really going to get is ownership of the house.

With the current market factors of many more buyers than homes available to purchase on the market, prices should increase, but oftentimes bank-perceived values don’t increase as fast as a potential buyer would like. It’s because there’s an inherent flaw in real estate valuation: the flaws of historical data.

When a borrower selects a home the only way to get an idea of what the home is “worth” is to look at recent closed sales in the area. No matter who is doing the estimate of value we’re all looking for the most-similar homes within a close proximity, but the variable that we can’t correct for is that those homes were sold weeks or even months ago. A lot can happen in the market in the matter of a few weeks, so putting in an offer can contain some risk. Basically, is the lender going to see the value that the buyer sees in the home when looking only at historical (outdated) data points?

Sometimes the answer is yes, and sometimes the answer is no.

For example, if the lender deems the value of a house to be $280,000 then the bank will only lend up to 280,000 on the purchase of that home. It doesn’t matter if the buyers were originally approved for much more, and it definitely doesn’t matter if the under contract price is higher. The bank isn’t going to budge on their value calculation (usually).

In this example let’s say that the buyer is under contract on the home at $300,000. There are some options, but none of them are particularly fun. First, the buyers and their agent can argue the appraisal. For this to go anywhere the agent better have historical data to back them up, and it better be undisputable and unbiased. Basically if there’s a sale in the neighborhood that you know about that wasn’t taken into account in the appraisal report and it sold for more and was very, very similar to the house you’re trying to buy, you submit that sale for consideration by the lender’s team. Again, it’s making an argument based on historical data.

What’s more likely is that the buyer has to figure out a way to cover the difference between the appraisal price of $280,000 and their under contract purchase price of $300,000. This means that the buyer needs to have $20,000 in cash available that they were likely not anticipating needing to have. And this is in addition to the money they need for the downpayment for the lender on a $280,000 value of home and the closing costs (escrow funding needed, fees paid, attorney costs, etc.)

If your lender approved you with a certain percentage of purchase price as down payment (for example, 20%) ask if they can approve you with less money down. The difference in the downpayment required can then be allocated to the appraisal gap. This could mean that you’re now going to have to pay mortgage insurance interest (MIP) so make sure you have a full understanding of how this will impact your mortgage payment and the fees that you pay each month.

If you are very-very lucky, you may be able to structure receiving a financial gift from a family member to help with financing your home. Make sure that you discuss this possibility with your mortgage lender as there are documentation requirements and they are extremely detailed. Basically, you do not want a financial gift to need to be repaid as this would mess up your debt to income ratios and could make it impossible for you to qualify to purchase the home. There will likely be a requirement that the person giving the gift signs a gift letter stating that the money does not need to be repaid. The person giving the gift should also consult with their tax advisor prior to making a financial gift.

Lastly, if the appraisal comes in low you can go back to the seller and ask them to drop the purchase price to the appraisal value. This used to work, but in our current market it’s not a great option. Most buyers are willingly offering more than they think the home will appraise for and will therefore waive this option as part of their original offer. It’s more likely that the seller will want to put their house back on the market and get someone to waive the appraisal contingency up front than to lose potentially thousands of dollars by dropping the purchase price down.

Home is where we heal

Everyone is dealing with problems that they don’t readily show to the world. I have lived the last two decades as the sibling of someone struggling with addiction and it has shaped me in so many ways. It has also shaped how I see “home” and how I feel comfortable and relaxed.

If your home has always been your haven, then I must say that I envy you. Growing up alongside addiction has (at times) stolen away the space that one is supposed to feel their most relaxed. In my life, evenings at home could be peaceful or volatile and it was anyone’s guess which would unfold. That is the nature of the struggle of living amongst addiction. No say, no control, just your reactions and your reactions to other peoples’ reactions.

I didn’t understand what home was supposed to be until I purchased my own. There are so many people that I’ve seen take that same deep breath when they walk into their new home as their own space where they can heal from all of the things that have hurt them. Some clients are upfront about what may be going on, and some are not, but the sigh of relief after closing is unmistakable. The walk through the door signifies a weight being lifted, stress being released and the deep understanding that someone is safe in their new home.

Having a place to heal, to grow, to experiment and to express your creativity is more than just comforting, it should be a basic human right. Creating your own safe space is empowering and deeply transformative. It allowed me to learn the importance of emotional and spatial boundaries, and how to build and maintain them with those around me. Once you learn to create your own home, you will fight anyone and anything that tries to destroy it. Home becomes a place of strength, of healing, and a place to build hope.

Real estate is more than walls and windows, it’s helping clients to create their own safe space. I can say from very personal experience that our home is where we heal and I’m so thrilled to spend my days helping those around me to find their space.

Is now the time to… downsize?

As children grow up and move away their parents are hesitant to sell the house that their family has grown up in. The memories are hard to part with, but the house simply isn’t working for them anymore. Add that with the fact that this market has scared the heck out of everyone and there are some empty-nesters that are potentially missing out on an amazing opportunity to grow their wealth, upgrade their living space and live authentically to their current stage of life.

This market shouldn’t scare you, it should invigorate you.

The opportunities that you have are abundant. Receiving more for your home than you ever thought possible opens many doors of possibility to you. What could you do with an extra $40,000 that you weren’t expecting from the sale of your home and not having to make any costly repairs to get your home sold?

Pay off debt? Plunk more money into your retirement savings? Retire now instead of a year from now? Travel the US in an RV? Move to Costa Rica? Backpack Europe while staying only in luxury hotels because you’ve earned it after decades of corporate work? Whatever it is, you do you. Dream your biggest dream and watch the sale of your home carve out the first steps on your next great adventure.

Deciding to sell your home is a big decision, and it could be the start to an even bigger new chapter in your life. Need some additional information on the process or what you could net from the sale before you decide to move forward? I’m happy to help you however I can. A valuation of your home for today’s NC/SC market is always free, and I’m always happy to answer questions over a cup of coffee either in-person or virtually. So call me to get the information that you need to make the best decision for yourself.

Hardly Simple

It’s been a long time coming… Ok, it’s been almost 4 years to be exact. While I’ve been feeling paralyzed by both fear and planning tasks, I finally have a general plan for how my home renovation is going to go.

I envy those who can immediately renovate their space and call a contractor to do all of the work. While I know the stress that goes into working with renovations and outside contractors, the idea of calling someone for help and not explaining to them that I want them to teach me something sounds downright dreamy.

Meanwhile, I’m over here, googling the simplest thing for months and asking the most frowned upon questions of the construction people around me. It’s been cringe-worthy. The questions have been dumb, and some of the answers have been too. I have to keep reminding myself that everyone has to start somewhere and everyone sucks at the beginning.

It’s still a hard pill to swallow.

So I remind myself again and again of a quote from Sheryl Sandberg, the Chief Operating Officer at Facebook:

What would you do if you weren’t afraid?

Well… I’d renovate a little condo in Charlotte, NC. I’d ask all of the dumb questions and I’d make it through this entire process with all fingers and toes still intact, because that’s always a concern with power tools.