There’s quite a bit of confusion around the real estate topic of “Common Interest Developments” (CIDs): condominiums, townhouses (or townhomes) and planned unit developments (PUD, sometimes called just Planned Development, or PD). Given that we have many of these communities in Silicon Valley, I think it’s important to explain what these are, why the type of ownership matters, and how you can tell the difference. (The explanation here is not a thorough legal definition but is a general description.)
Part of the confusion stems from the fact that there are two things to consider: the architecture of the buildings and the type of ownership.
- What is a townhouse (or townhome)? A townhouse is a type of building or architectural style, not the type of ownership involved. A townhouse could be a planned unit development (PUD) or it could be a condominium.
- What is a condominium or condo? A condominium is a type of ownership of the real estate. (We tend to think of it as an apartment which one buys, but that’s not correct.) Condo ownership means that the purchaser has 100% rights to the unit and a percentage of ownership in the common lands (fractional ownership in common areas). Condos can architecturally be a unit that resembles an apartment, a townhouse, or even a single family home.
- What is a PUD? A planned unit development is architecturally either a townhouse or a house in which 100% of the unit plus the land under it is owned and the ownership of the unit also provides for a membership in the homeowner’s association or HOA. The HOA in turn owns all the common elements (such as private roads and ammenities such as a pool, tennis court, parking lots, etc.). With a PUD, homeowners have an easement and rights to use the common area through their HOA membership.
- What is a CID? A common interest development, or CID, is a general term meaning the ownership of property in which there are “common areas” such as private roads, a pool, parking, tennis courts, utility rooms etc.
A townhouse that’s a condo can look exactly the same as a townhouse that’s a PUD. This is also true for other types of construction too. In Los Gatos we have some freestanding homes (or properties with the only common wall being at the garage) which are in condo ownership. Same with the beautiful Villas of Almaden community. Both have “common areas” and mandatory membership in the home owner’s association.
Why does it matter if a San Jose townhouse is a condo or PUD / PD?
Whether a CID is a PUD or a condo is actually of huge importance to homebuyers today if they hope to purchase an affordable Silicon Valley home with FHA financing. If the complex is in “condo ownership”, the whole complex must be FHA approved in order to get FHA backed financing. But if it’s a PD or PUD, that approval is not necessary! This is most important in the less expensive Silicon Valley townhouses for sale, of course. For luxury townhomes, it’s not an issue for the most part because if there is a loan on the property, it is likely to be for a higher amount.
How can you tell if the townhouse is in a PUD or Condo CID?
Sometimes the info is right in a property profile, which is very easy for most real estate agents to obtain through their preferred title company. More often, though, to be certain of the ownership type it’s necessary to review the preliminary title report.
Here’s how a condo is identified in a prelim (what to look for):
The estate or interest in the land hereinafter described or referred or covered by this Report is:
Condominium as defined in section 783 of the California Civil Code
Here’s how a PUD is identified in a prelim
The estate or interest in the land hereinafter described or referred or covered by this Report is:
Fee
How can you tell if a townhouse that’s in condominium ownership is FHA approved?
The best way to learn if the Silicon Valley townhouse for sale is in an FHA approved complex is to talk to your lender. He or she may have multiple ways of checking the complex’s approval status. You can also check online (I’m just not sure how current this is!) at the HUD website listing condo communities that are either approved or pre-approved.
Common interest developments, or CIDs, can encompass a wide range of home types, including houses, townhouses, or structures which look like apartments. The common features can be few (private road only) or many (pools, tennis courts, expansive lawns or hiking areas, ponds, horseback riding trails and more). Details on what’s included can usually be found in the Covenants, Codes and Restrictions (CCRs).
More reading:
Definition of Planned Development (not on any of my sites)
The Challenge of Being an FHA Home Buyer in a Seller’s Market
How Important are Parking Spaces and Garages in Silicon Valley?
Why Isn’t My Silicon Valley Townhouse Selling?
More articles of interest on my other Silicon Valley real estate websites:
Silicon Valley home buyer tips
Buy a home in Silicon Valley (many pages of content)
Relocating to Silicon Valley
