Condos and Townhouses – You’re Comparing Apples to Oranges

Because I get the regular opportunity to chat with appraisers, I also have the regular opportunity to answer a lot of questions.  One that frequently comes, especially in coaching situations, is what at first appears to be a simple question, but is really quite profound.  It is a question that appraisal qualifying education classes typically do not cover, simply because there is not enough time.  Yet the answer to this question, if you do not understand them, can leave you in an unenviable position with your state appraisal board.  That’s a position you’d like to avoid, right?

So, what is the question?  It is “what is the difference between a condominium and a townhouse?” And the reason the answer may put you in an unenviable position with your state appraisal board is the irony that while there is a difference, there may be no difference at all. And, yes, I’ll explain that.

First, please understand that what creates a condominium is a function of legal ownership.  For example, if you look at a recorded deed and it refers to a “declaration of condominium”, or as “…a condominium legally described in Official Record Book 47, at page 12…” then the property is a condominium.  While the definition of a condominium will vary with state law, what usually happens is that the seller sells and the buyer buys the space between the planes of the exterior walls, floors, and ceilings.  The external walls, floors, and ceilings are under the ownership of the condo owner’s association as common areas.  Typically the COA also owns the land underneath the building(s).  Then, as owners of a condo unit, the unit owner also owns an undivided share of the common areas (as does every other owner in the legally defined condo).  In short, then, a condominium is a form of ownership.  Anything, even equine boarding facilities can be  developed, constructed, bought, held, and then sold (at wholesale or retail) in condominium ownership. 

On the other hand, a townhouse is a function of architecture and building style, as well as land use.  Traditionally, townhouses tended to be tall and skinny, with no land involved other than merely the land on which the corners of the building sat.  Typically, there was no land, no estate, to go with it.  “Townhouse” developed as a word to distinguish one’s house in town from one’s estate in the country.  Townhouses were skinny since the land in town was generally way more expensive per square foot or per front foot than the land in the country.  Skinny properties sit on less land than fat ones.  They tended to be tall for two reasons:  (A) the only way to get a livable amount of square footage on small site was to build up rather than out; and (B) in the old days, real estate taxes were a function of the amount of land you owned, not the square footage of the improvements on it.  Thus, a tall skinny building on a small site made sense for a number of reasons.

The irony of all of this is that you can have a townhouse development with tall, skinny units, but they are legally condominiums if the COA owns the land and the common elements.  So, again, the term “townhouse” refers to a style of architecture and land use.  “Condominium”, on the other hand, is a legal term describing ownership.  

For appraisers, the problem comes when they use the terms synonymously.  They are not synonyms (or antonyms).  And, for appraisers, the issue is one of comparability.   You can have two townhouse projects that look alike. Yet in one, the unit owner owns the land underneath the four corners of the building.  In the other, however, the COA owns the land and the common elements.  Given the townhouses own the land and the improvements to it, while the condo owns merely the encubed airspace and an undivided interest in the land and other common elements, to use these as comps is to compare apples to oranges, while expecting the results of that comparison to yield a mango.   

Unfortunately, there are a lot of grey areas when it comes to the differences (and similarities!) of townhouses and condos.  But the primary differences are that (A) the word “townhouse” implies an architectural or building style, as well as a mode of land use; (B) whereas “condominium” is a legal term describing ownership.  To use them as comparables, when indeed they are not, could prove to be a professional problem.

For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 

12 thoughts on “Condos and Townhouses – You’re Comparing Apples to Oranges”

  1. Pingback: Condos and Townhouses – You’re Comparing Apples to Oranges - Appraisal Buzz

    1. Considering there has been no reply from Dustin’s worker bees in the Philippines Tom, please take note that the word Townhouse is not synonymous with being a non-condo form of ownership property. As an example, form 1073 indicates Row or Townhouse as a design style option, thus one can compare a townhouse condo, to say a garden style condo (adjustment needed, maybe, maybe not). Hell, there can even be design styles within design styles, meaning you can have a townhouse (style of architecture), within say a high rise design style.

      Seek the truth.

  2. I appraise second homes near a major ski resort. Home owners/buyers do not distinguish between the two but it should be pointed out. It’s all about market perception. It is important to note market perception.

    1. In short Sue, as I can’t compare a non-condo home to a condo form of ownership home, I could care less about market perception amongst buyers, sellers, agents, etc. A condo is a condo (attached, detached, garden, townhouse, high rise, age restricted, etc.) and will only be compared to other condo properties.

      Seek the truth.

  3. I’m glad you used the words :”typically” and/or “traditionally” because I’ve seen condo’s come with a small plot of land and almost all townhomes come with a small plot of land (1500 sqft or less) here in SE Texas. The problem is realtors don’t know the difference and MLS groups them all under the same search category. Trying to get HOA reps to return your calls can take days.

    1. But David, have you appraised a manufactured home that is of a condo form of ownership while being age restricted (55+)? Not a problem in San Diego county (1401 El Norte Pkwy, San Marcos, VCA 92069). Most people think its model match’s and PUD’s in the bit city (fake news).

      Seek the truth.

  4. Randall R. Davis, SRPA, SRA

    Let’s toss in Site Condominiums to the fury. A SITE condominium development, which even though it has “condominium” in its name description, IS NOT A CONDOMINIUM IN IN THE TRUE SENSE. A site condominium project equates similarly to platted subdivisions in appeal, marketability, and popularity. Site condominium projects are merely a technical procedure that is used by developers to speed up the approval process that is mandated by the State of Michigan and there is no measurable difference between a subdivision and a site condominium project. Site condos have no common entities other than possibly development road signage. Each home in a site condominium development is a stand-alone or detached structure that has a described site size that is maintained by the individual property owner and all streets are dedicated to the public and have been built to the standards of and are maintained by the county road commission.
    Enter a lender: What’s the question? Why of course. You put it on the 1073 condo form! Really? Well, maybe not.

  5. I’ve seen in our market developments of condos and townhouses that are right next to each other and very similar on the exterior, but very different prices. The condo development will usually sell for less, but have a higher HOA cost to reflect more common area costs. In the end, cost of ownership is similar if the developments are overall similar (in our market), but I would not try to compare one to the other in terms of sales price.

  6. Sorry I know you think you are “teaching” appraisers but stating that using a condominium ownership property to a property with owned land as a comp is “apples to oranges” is wrong in parts of my market area. We have subdivisions in my market with both. For some reasons the builders will built both types of ownerships in the same subdivision. Could be zoning requirements, could be village requirements or just could be for financial reasons. Example: Side “A” of a street was built with owned land and side “B” of the street was built with condominium ownership. All of the buildings are identical same 4 model floor plans in each building, same HOA fees, same amenities etc. 99.999% of the homeowners have no clue what type of ownership they have, 99.999% of buyers have no clue of the difference nor do they care. The village assessor’s office doesn’t know the difference between side A and side B and the taxes are the same for both sides. So using a same model match comp for the subject property from side A when the subject property in on side B would not be “apples to oranges”. Additionally my market area has thousands of one story townhouses so saying a typical townhouse description refers to a skinny tall two story attaches home would not apply in my market. My townhouse sits on a 1/3 of an acre lot. I’m Just saying it’s a big country and markets vary! Learn your market and make your own decisions on what effects market values.

    1. Kim, regardless of any similarities, and or if they are exactly the same (characterizes, same street, etc.), a condo form of ownership property can’t be compared to a non condo form of ownership property. Meaning, your states review board will give no weight to your defense even if you have the owner, buyer, brokers, agents, etc. in your corner saying they see them as equals.

      Seek the truth.

  7. Considering as Dustin says in part “townhouse, refers to a style of architecture”, and “condominium is a function of legal ownership” why start a blog Dustin, or at least provide a headline that is misleading? Don’t believe me, go look at a form 1073 (etc.) under Design (Style) and explain to me why Row or Townhouse is an option? Its an option because in part condominiums can be detached, row or townhouse, garden, mid-rise, high rise, and or other.

    Seriously people, didn’t you learn on the 1st hour of the 1st day of appraiser training how to locally identify condos from non-condo owned properties? If you work in San Diego county, any and ALL properties that have APN numbers that end in 01 to 99 are of a condo form of ownership regardless of there design style. Perhaps its a big city/county thing (3 mil + all with 30 miles of me), but every, every, every market search must be filtered to either include, and or exclude certain APN numbers so true substitute sales can be compared.

    Apples to oranges, more like kumquat to lampposts.

    Seek the truth, and apparently skip the all-star membership meetings if you’ve had at least 1 hour of training from a qualified mentor.

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