The basics of Condos, Townhouses and Co-ops

The single-family detached home with a yard isn't everyone's American Dream. In high-priced markets with space at a premium, the only affordable solutions for some buyers are condominiums, townhouses or co-operative apartments.

Condominiums, townhouses or cooperative apartments are three forms of so-called attached housing, homes that share common walls and common areas with neighbors. This type of housing is popular and essential in pricey real estate markets in which only a small percent of households can afford to purchase a home. Condominiums are beginning to proliferate in less-populated areas, too, as an alternative for retirement housing for active adults.

Here's a quick comparison of the three:

Condominium

Single unit, most often resembling a more finely finished apartment. Found in complexes large and small, high-rise or low-rise. Owner has title to interior space of unit and shared title to common areas in complex. Condominiums are governed by a condominium board of directors (voted by residents) in accordance with bylaws and covenants, conditions and restrictions.

Town house

Two-floor unit sharing common wall with at least one other townhouse. Townhouses commonly found in clusters (rowhouses). Owner has title to unit and land under unit, and shared title to common areas (if any). Some ownership arrangements more closely resemble those of condominiums. Town houses are governed by homeowner association (voted by residents) in most cases.

Co-operative

Single apartment unit owned as shares in a corporation, partnership or trust that holds title to entire building. Owner has proprietary lease to live in unit and corresponding number of shares in cooperative corporation that owns building. Co-operatives are governed by a board of directors (voted by residents).

Know your documents

Before you buy a condominium, you'll want to bone up on the project by yourself or with a real estate attorney. There are several documents you'll want to go over with a fine-tooth comb before you sign any kind of purchase contract. These papers should be available from the condo's board of directors or their representative. They include:

Master deed: The key document in a condo project, the master deed establishes the project as a condominium project. It gives residents the authority to form an operating association and gives the legal descriptions of all individual units and common areas.
Bylaws: These can become sticky in heated board of directors' discussions. Bylaws are the operating rules for the condo association. Among other things, they authorize a budget to be created, the assessment of fees, the hiring of professional management staff and other operating duties.
House rules: These also can become sticky when owners disagree. House rules govern what owners can do in common areas.
Covenants, conditions and restrictions: Private restrictions on the use of project property; usually created by the developer.
Purchase agreement: This is similar to a standard purchase. It should include a cooling-off period during which you can back out and financing and inspection contingencies.
Other papers: Current operating budget, current and proposed assessments, financial statement of the homeowners association and any leases, contracts, blueprints or other design plans.

Checking out your co-op

Some cooperatives are run like families and can be fun. But most have a serious side, too, with budgets and rules that must be followed to the letter. Some cooperatives prohibit renting; others do not allow pets. Make sure that you can live with the restrictions.

Review all of the co-op rules, including membership regulations and house codes.
Check out the legal documents including incorporation, bylaws and proprietary lease.
Examine the financial statements and the operating budget of the cooperative.
If you are confused by the legal jargon, ask a lawyer who specializes in cooperatives.

Flags on the play

Condominiums may offer maintenance-free homeownership, but not all condo projects are nirvana. Take the time to check out the complex before you buy and look out for these red flags:

If more than 50 percent of the units are rentals, think twice about the project. Upkeep may be poor and some lenders will not make a loan on a unit in the complex, which could reduce the long-term value of your investment.
If the condo association doesn't have a healthy reserve fund, beware. If there isn't money to fix major items such as a new roof or plumbing, the members will be hit with a special assessment to pay the tab.
Avoid a condo association in which the board of directors isn't getting along. They will make poor decisions for everyone else in spite of one another.
Steer clear of a condo project that is heavily involved in litigation. Lawsuits with builders and other homeowners can put a cloud over the project.