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.