Choosing Between a Single-Family, Home, Condo, or Co-op

For many people, there is no choice to make. They simply want a single-family house and nothing else will do. Others demand a condo or co-op and will not consider an alternative.
Most people, however, at least consider their options. If homes are expensive, will a condo/co-op be cheaper? Will prices appreciate (or drop) faster in a condo/co-op than a single-family house? Are there any real differences?

Price Appreciation in Condos versus Single-Family Homes
Going back about 50 years, the rule of thumb was that when prices went up, condos were the last to appreciate. When prices fell, they were the first to go down. That’s changed.
Today, in many parts of the country, condominium price appreciation is faster than for single-family homes. Indeed, in many areas condos sell quicker and for more money per square foot than their single-family counterparts.


TRAP—GETTING THE RIGHT COMPARISON
Always compare apples with apples. When comparing prices between condos and single-family homes, do it on a square foot basis. If a 2000-square-foot house is selling for $300,000 and a 1500-square-foot condo is selling for $250,000, which costs more for what you get? The answer is the condo! The condo is selling for $167 a square foot, the home for $150 a square foot. It’s something to consider.

The reason condos are appreciating faster now than in the past is
mainly because there are fewer of them available. Thirty years ago,
builders swarmed to condominium construction and conversion. (A
conversion is where an apartment building is converted to condo-
miniums.) For the builders, the costs were less for multiple family
dwellings, yet the prices they could get were handsome. So they built
condos.
Then came the lawsuits. As it turned out, builders had grabbed
hold of the tail of a tiger. When the roof on one or two units
leaked, the HOA( Home Owners Association) often demanded
that the entire roof over all the units be replaced before leaks
could appear elsewhere. When the ground settled, the HOA
sometimes demanded that the whole building(s) be lifted and a
new foundation poured. Similar problems were found with
plumbing, electrical, mold—all matter of things. Since the
builders often had to guarantee the construction for as long as 10
years (in some cases by state law), they were faced with enormous
liability.
Some builders went out of business. Others took the heavy financial hit. But very few built more condos. In California, as an example, in 1999 there were roughly 20,000 new condo units built. By 2002 that number had dropped to roughly 2000.
As a result, in many areas there is a shortage of condominiums. And, consequently, the price of those available is driven higher.

TRAP—WHEN OLDER MAY BE BETTER
When buying a condo, it’s best to look for units that are at least 10 years old and that don’t have any pending lawsuits. Chances are that any construction problems will have already been taken care of. And you probably won’t have as big a risk of being assessed if the existing lawsuits go against the homeowners.


What Is a Condo?
A condominium, as most buyers know, involves shared ownership. You end up with a deed to the property (called a “fee simple”) and separately own the inside of the unit while sharing with the other owners the grounds, walkways, and recreational facilities—in short, everything outside.
Another way to look at it is as if you were renting an apartment and then decided to buy your rental unit. (Indeed, some condos are converted apartment houses.)
It’s sometimes useful to know that there are actually two sepa-
rate kinds of condominium ownership. The first is the one with
which most people are familiar—you could be on the fifth floor
of a building and you own only that airspace that your unit occu-
pies.
The second is called a townhouse (technically known as a PUD, or planned unit development). Here units are not arranged on top of one another. Rather, you own the ground underneath your unit and the airspace above.