Condominiums Versus Planned Unit Developments

Condominiums Versus Planned Unit Developments

Many buyers are not aware of the important differences between a condominium and a planned unit development (PUD)…as is the case with some listing or selling real estate agents.  Because there are so many similarities, the two are often confused.  In many cases, they may physically look the same and have common features but there are some critical differences.   

Both are common interest developments (CIDs) with the benefit to each owner of an undivided percentage interest and rights in the use of common areas and amenities that might be too expensive to be individually owned – pools, tennis courts, workout facilities, golf courses etc.  These developments are managed and maintained by a Home Owner’s Association or HOA.  Legal documents are recorded establishing the Association and provide for methods and procedures for governing the development - articles of incorporation, bylaws, covenants conditions & restrictions (CC&Rs), financial statements, budgets, rules and regulations, etc.  There is a mandatory requirement that each owner be a member of the association and pay ongoing fees, usually monthly, to cover the common area costs along with any other costs or reserves specified in the ruling documents.
 

While on the surface, one type of unit may look the same as the other there are important differences.   For instance, an owner in a condominium project typically owns the air space within his/her unit and possesses a fractional or percentage interest in the entire project, buildings and land.  For example if there were 100 units in the complex, a single ownership would be 1% of the whole.  Whereas a title-holder in a PUD owns the structure enclosing his unit, the individual parcel on which it sits – akin to a single-family residence - and has a percentage interest in the common area.
   

Why should I care; what’s the big deal, you may ask.  Well, if you are an all cash buyer and plan to occupy the property, no problem but if you need to have your purchase financed or want to sell your unit later to someone who needs financing, it may become an issue.  In the eyes of many financial institutions, the two are not created equal and it is much more difficult to get a loan approved for a condominium.  This seems especially true in the lower-end markets.
 

Don’t misunderstand, there are probably many great, financeable condominium properties available but it may take some time and effort to find the right one.  If you are using FHA, financing you will need to find a development that is at least 70% owner-occupied, with only a 15% delinquency in HOA fees for the entire project and which has already been approved by FHA.  There may be other restrictions that should be clarified by your lender before embarking on your search.  Even if you are using conventional financing, the Fannie Mae guidelines are very similar and a loan may be denied because the development does not qualify.  PUD loan guidelines seem to be much less restrictive and may be a better way to go for some buyers but in either case, you have to do your homework.   

Here are some examples of both types of development in the Arden-Arcade area you might recognize - that may or may not be financeable:

Condominiums
o   Pavillions Place (above photo) – Fulton/Fair Oaks Blvd
o   Woodside – Howe Ave
o   Timberlake – Fulton Ave

Planned Unit Developments
o   Exeter Square – Fulton Ave
o   East Ranch – Monroe/American River Dr
o   Campus Commons – Howe/American River Dr


Sean Safholm BRE#01270334 Headshot
Author:
Phone: 916-920-7000
Dated: October 5th 2014
Views: 269
About Sean: Sean Safholm started his career in real estate in 1999 when he was going to college to study real es...

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