Monday, July 15, 2024

Confused about condos? Here’s everything you need to know

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Have you ever heard of a “site,” “detached,” or “single-family condominium”? If you’re like most real estate professionals as well as most appraisers, lenders, MLSs, portals (Realtor.com and Zillow), property tax assessment districts, local building departments, the press and even state legislatures, you have no idea what these are.

Furthermore, you’re probably making a massive number of mistakes in how you are disclosing this style of ownership to consumers. Here’s what you need to know about this rapidly mushrooming style of ownership and how to minimize the number of problems that will most likely occur when you list or sell one of these properties. 

Last week, I spoke at Triple Play, the annual convention for the New Jersey, New York and Pennsylvania Associations of Realtors, on “Demystifying the Confusion Around Detached/Site Condominiums. The session was based on these two articles I wrote last April explaining what detached/site condominiums are and how they differ from single-family homes in a platted subdivision. 

What is a detached, site or single-family condominium? 

A common mistake that real estate professionals and consumers make is believing the term “condominium” refers to a structural stye of the units —“apartment style,” “townhouse,” “horizontal” or “vertical.” 

KEY POINT: A condominium development is a form of ownership, not a specific type of physical development or structure. 

Consequently, a detached, site or single-family condominium is:

  • A free-standing, single-family residence situated in a condominium subdivision as opposed to a traditional platted subdivision of lots. 
  • Rather than lot lines, it has “unit boundaries” that describe how far the unit extends vertically and horizontally. 
  • Vertical boundaries normally extend 200-600 feet above the surface of the lot. 
  • Horizontally, the unit owner has title to the surface of the land (“Surface Ownership”), as well as whatever is below the surface of the land that supports their unit exclusively including the structure, the slab, telecommunications systems, plumbing, electrical, plant and tree roots, swimming pool, hot tub, etc.
  • The HOA has title to the remaining portion of the land.
  • Horizontal boundaries are easily confused as metes and bounds legal descriptions of lot lines, and hence, are a major source of confusion about what this style of ownership entails. 

A good way to understand how this works is to compare what happens with mineral rights. The HOA can deed the mineral rights to a third party but still owns the land. 

The Condominium Declaration creates the unit and then the developer/HOA deeds the unit with the surface rights as described above to the buyer.

KEY POINT: The HOA still owns the land that is not included in the deed, conveying the surface rights of the unit to the new buyer.

This style of condominium ownership has been around for over 20 years and has recently exploded in many parts of the country because of the flexibility, reduced cost and fewer regulatory hassles for builders and developers. 

How to recognize when a property is a ‘single-family’ condominium 

The photos below show one home that is in a traditional platted subdivision of single-family homes and one that is a single-family (detached/site) condominium. 

Property 1

  • The MLS and the property tax rolls state that the lot size for Property 1 is 11,848 square feet and for Property 2, the lot size is 10,332 square feet.
  • Both have a Homeowners Association with CC&Rs and common areas. 
  • Both are located in Planned Unit Developments.

Can you tell which one is which? 

Property One is a “single family (detached/site)” condominium and Property Two is in a traditional platted subdivision where the HOA has common areas that include the clubhouse and the pool. 

Property 2

KEY POINT: You cannot identify a detached/site condominium by looking at the property, by what’s on the MLS, or what the tax assessor has posted as the “lot size” in the public records.

Boundary descriptions are almost always interpreted as lot lines

The plat map below is taken from the detached/site/single-family condominium subdivision where Property One is located. It’s easy to see how this plat could be confused with a plat map from a traditional platted subdivision. 

If you look at “Unit” 71 in this plat map, you will see what looks like a metes and bounds description of the property:

  • Below “Unit 71” on the plat, it says 5,770 square feet. 
  • The three linear boundaries are 93.97 feet on the east, 69.85 feet on the south, and 88.08 on the west. 

The following plat map from PropertyShark illustrates how a traditional single-family platted subdivision vs. a site/detached (single-family condo) subdivision appears. 

As you can see in the legend above, the “residential” properties are in yellow. Note that each of the properties in the two yellow subdivisions has a lot number. The lot number is the legal description of the property (not the street address). 

On the other hand, the subdivision in the center indicates that the gray areas are “building footprints.” This subdivision only has three lots. Lot 1 contains 250 condominiums, of which 100 are detached/site (single-family) condominiums. These properties are designated on the plat as “UNITS” as in the example with UNITS 71 and 72. The city library is situated on Lot 2, and Lot 3 is a vacant, commercially zoned lot. 

The simplest way to tell whether your listing is a detached/site (single-family) condominium

Look at the plat map of the property and if it has boundaries on the plat, as in the example above, plus the word “UNIT,” it’s a detached/site (single-family) condominium.

Bob Burton, an Austin-based attorney who has been involved in writing Declarations and representing developers who use this style of ownership for over 20 years, described what you will see on the plat map like this:

You will see unit boundaries and how the units are configured. In a detached condo, you’ll see an upper boundary, you’ll see a lower boundary, and you’ll also see a discussion about side-to-side boundaries. Think of a detached condominium as a three-dimensional airspace in effect, that encapsulates the home as well as the exclusive yard space around the home. 

Additional similarities

Owning a detached/site condominium has much in common with owning a home on a lot in a platted subdivision. 

  • Owners of detached/site condominiums have fee simple title just like owners in platted subdivisions.
  • In subdivisions with HOAs, there are CC&Rs, By-Laws, and use restrictions limiting what owners can and cannot do to their property.
  • The HOA typically maintains any private streets, entry gates, drainage easements and open space.
  • The homeowner maintains their own insurance.
  • The homeowner also performs their own exterior and interior maintenance of the structure as well as maintaining all the systems that support the property.

2 primary sources of headaches for everyone who touches the transaction

In the subdivision where Property 1 is located in the example above, there is a very common, but critical, mistake that has impacted almost everything to do with the sale of the property. The mistake? The Travis County Tax Office interpreted the plat map of the subdivision incorrectly and stated the boundaries of the Unit as the “lot size” in both square feet and acreage. 

This carried over into the MLS, although the agent who listed the property below correctly noted that it was a “condominium” in the remarks, but then provided the “lot size” in the Austin Board of Realtors MLS. 

Most other agents in this subdivision of detached condos (the term used in Texas for this style of ownership) classify their listings as “single-family residences,” which is correct. What these agents fail to do, however, is to state that the property in question is a detached condominium.

In other words, they’re disclosing the detached condo on the MLS as if was located in a single-family platted subdivision rather than in a condominium subdivision. 

Mistakes galore

When I applied for a HELOC on my detached condominium, the mistake made by the Travis County Tax Office resulted in the following problems. 

  • The lender gave us a single-family residence loan application, i.e., for a platted lot in a Planned Unit Development.
  • The appraiser used the form for appraising single-family homes for platted lots in Planned Unit Developments, instead of the forms for appraising condominiums.
  • Both the lender and the appraiser missed several of the required condominium forms and disclosures.
  • When the escrow received the preliminary title report showing our property was a condominium, we had to redo the entire loan application as well as do a whole new appraisal. 
  • The loan documents and deed of trust were also drawn up incorrectly, and all had to be redone. 

Additional problems include: 

  • Appraisers typically rely on MLS data to establish details about a property and locate comparable sales.
  • Appraisers (and agents doing CMAs) cannot choose appropriate comparable sales when detached/site condominiums are lumped together with traditional condos where the owners have no surface rights to the land.
  • In New York, the state legislature passed a law that single-family homes “benefited from an unofficial tax break because [they] were designated as a condominium.” Governor Hochul vetoed the bill protecting site condo owners who do not have full title to the land on which their unit is constructed. 
  • A Realtor.com article incorrectly stated that typically condo owners only have to “take care of their home, not the land on which it’s built. Site condo owners, on the other hand, own both the house and the land.” 

The Catch-22 in showings

One of our neighbors was a highly motivated seller whose property was placed on the market as a single-family residence. Showing activity was brisk until the owner was forced to classify the property as a condominium. Showings stopped, and they had to take the property off the market. 

Across the board, almost all MLSs, as well as the portals, allow one choice when classifying the property — either single-family residence or condominium. Buyers looking for a free-standing single-family residence are not going to be searching for condominiums.

The workaround

An agent from New York who attended my session had an interesting workaround for listing site condominiums (the term used in New York). He placed the listing in the “single-family” category in the MLS, but in the “Agent Remarks,” he said, “This is a single-family residence in a condominium subdivision. Contact listing agent for details.” 

When agents contacted him, he explained that the property was a “site condominium” where the owners had certain rights to the surface use of the land on which their single-family residence was situated. If the buyers need additional information, he urged them to contact the title company, the developer, and/or their own attorney to review exactly what those rights are. 

That solution was effective, and the transaction closed with no problems. 

The bottom line

If you’re showing a free-standing property that appears to be a single-family residence but is located in a subdivision where there are other condominiums, check the plat map immediately to determine if the property uses the word “LOT” on the plat map and in the legal description or uses the word “UNIT.” If it says “UNIT,” the property is a detached/site/single-family condominium.

If that’s the case, follow the guidelines above and check with your company or MLS’s legal counsel to guide you on exactly how to handle this style of ownership. 

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