Attached Housing, A Primer

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

Here's a quick comparison of the three:

Condominium Single unit that usually resembles a finely finished apartment. Found in large and small, high-rise or low-rise complexes.

Townhouse Two-floor unit that shares a common wall with at least one other townhouse, found in clusters (also known as rowhouses).

Cooperative Single apartment unit owned as shares in a corporation, partnership, or trust that holds title to building.

Ownership Status Owner has title to the interior space of the unit and shares title to common areas in the complex.

Owner has title to the unit and land under the unit and shares title to common areas (if any). Some ownership arrangements more closely resemble those of condominiums.

Owner has proprietary lease to live in the unit and corresponding number of shares in cooperative corporation that owns the building.

Governed by Condominium board of directors (elected by residents) in accordance with bylaws and covenants, conditions, and restrictions.

Homeowners' association, in most cases (elected by residents). Board of directors (elected by residents).

Know Your Condominium

Before you buy a condominium, research the project by yourself or with a real estate attorney. There are several documents you'll want to review carefully before you sign any kind of purchase contract. These papers should be available from the condominium board of directors or its representative:

Master Deed This key document establishes the project as a condominium project. It gives residents the authority to form an operating association and includes the legal descriptions of all individual units and common areas.

Bylaws Bylaws are the operating rules for the condo association. Among other things, they authorize the board of directors to create a budget, assess fees, hire professional management staff, and perform other operating duties.

House Rules 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 You may also ask to see the current operating budget, current and proposed assessments, financial statement of the homeowners' association, and any leases, contracts, blueprints, or other design plans.

Know Your Co-op

Some cooperatives are run like families, but most have budgets and rules that you must follow to the letter. Some cooperatives prohibit renting; others do not allow pets. Make sure that you can live with the restrictions before you buy.

Co-op Rules Review all of the co-op rules, including membership regulations and house codes.

Legal DocumentsCheck the legal documents including incorporation, bylaws, and proprietary lease.

Budget Examine the financial statements and the operating budget of the cooperative.

Legal Issues If you are confused by the legal jargon, ask a lawyer who specializes in cooperatives.

Warning Signs

• More than 50 percent of the units are rentals. Upkeep may be poor and some lenders will not make a loan on a unit in the complex, which may reduce your investment's long-term value.
• The condo association doesn't have a healthy reserve fund. Members may have to pay a special assessment to cover the cost of major repairs.
• Members of the board of directors don't get along with each other. If they can't agree they will make poor decisions for everyone else.
• The project is heavily involved in litigation. Lawsuits with builders and other homeowners can sap reserve funds and affect resale value.