PUD vs. Condo, what’s the difference?
If you are in the real estate business you may have heard the terms PUD and Condo, but if you’re not in the business then these words are probably foreign to you. It is
not uncommon for the two to be confused with each other but there are major differences between them that we will discuss here, so let’s take a look.
Planned Unit Development (PUD)
The Planned Unit Development, or PUD, is a type of residential development where the homes are usually grouped together on lots that are smaller than typical and where there are large and open park like areas within the development. Ownership is in fee simple, which is similar to most other residential homes that people are familiar with. The common areas that are within the development are owned jointly by all the residents, so if there were 50 homes then each owner would have 1/50th ownership. Another feature is that the land beneath the home is also included in the ownership of the property.
PUD’s have become popular over the years because they can add specific requirements that normal zoning ordinances may not address. Many believe that these more stringent guidelines can help preserve property values in a neighborhood. Advantages of a PUD development includes the ability to include protected natural areas that cannot be developed, such as a park or other green area. Some features also include nature trails or bicycle paths.
Condominium (Cond0)
A condominium, or condo for short, is a form of ownership where there are separate units that are owned in fee simple. There is an undivided ownership in the common elements, meaning that everyone is part owner but no one owns a certain percentage like in a PUD development. Most people are familiar with condos that look like mid or high rises or apartments, however I have also seen a development where the “unit” is best described as a small manufactured home, so as you can see the type of unit can vary.
Ownership consists of everything within the walls of the unit and any other amenities such as storage closets that may be included. Everything outside of the walls such as hallways, lobbies, exercise rooms, or pools, etc. is owned by everyone in an undivided interest. If the unit is a free standing structure there is no individual ownership in the land beneath it but rather an undivided interest by all owners.
Additional differences between Pud’s and Condo’s
Some additional differences between the two include how repairs and maintenance is handled. In a condominium the owners pay dues that cover repairs and insurance on the common walls, roof and amenities. In a PUD development the owners pay for their own repairs and insurance, however homeowner dues, which is managed by the home owners association (HOA), pay for maintenance of the common areas such as grass mowing or pool maintenance.
Sometimes people confuse a townhouse with a Condo or PUD because they can look similar, however the type of ownership should be verified with the documents that are filed when the property is purchased. A townhouse may or may not have condo ownership. Because of the way they are built with common walls it is more likely that it could be part of a PUD, but this should also be verified.
Question
So, does this make sense to you? If not I would be glad to answer any questions you may have. PUD’s and Condo’s can be confusing so it is important to verify the type of ownership by reviewing the documents that are part of the sales transaction or that are filed in county records since condo documents are required as part of a sales transaction.
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I live in a development in California that was incorporated in 1992 as a condo organization. It was previously a mobile home park. The condos are mobile homes. I have been told by some who were involved with the purchase of the park and the ownership conversion to condos, is that they desired to incorporate as a planned unit, however, they did not have the funds required to survey the park and establish lot lines. We now have the funds and I am curious if it would be prudent to now incorporate as a planned unit ownership? Any thoughts?
That is a question that I am not sure I have an answer to. On the surface, I do not think that it would matter, however, I am not an attorney. I would recommend that you speak with a real estate attorney to see if there are any benefits or risks involved.
One thing I see left out of this review is…PUD”s usually have HOA fees which include hazard insurance. The unit owners then must purchase a unit owners policy to cover the high deductible and interior contents of the dwelling, as well as liability coverage.
Thanks for sharing that information, Dennis. That may be an important thing to look at when comparing different PUD neighborhoods. If one has a higher HOA due to high hazard insurance this may steer buyers away when compared to a similar development with lower HOA fees.
I would like to challenge you to research this further. The only difference between a PUD and a Condo is in the ownership of the common areas. What you described here: “The common areas that are within the development are owned jointly by all the residents, so if there were 50 homes then each owner would have 1/50th ownership” is pretty much the text book definition of condo ownership, not PUD. What makes a property a PUD is the required membership in an HOA and it’s the HOA that owns the common areas, not the individual homeowners. What makes a property a Condo is ownership of a unit and undivided interest in the common areas.
Also, whether or not land is part of the unit has nothing to do with if it is a condo or PUD. Look up Michigan site condos for reference. Condos can include land ownership. Maintenance agreements and insurance, etc also do not dictate whether a property is condo or PUD. These characteristics can be present or absent in either condo or PUD properties. I’ve seen them all!
I am a staff review appraiser and I work for a national mortgage lender and have been reviewing appraisals and researching market areas all over the united states for the last several years. I came across this article in a search for something else somewhat related to this topic and felt compelled to share what I know.
Thanks for the clarification, Patricia. I know there are some PUDs where owners do have partial ownership of common areas but for the majority, I believe you are right.
“If you are in the real estate business you may have heard the terms PUD and Condo, but if you’re not in the business then these words are probably foreign to you”
I’m pretty sure the non-RE person has heard of a condo once or twice before.
Patricia, what doc would clearly show the condominium ownership? Would it be the deed?
Are you able to call the association documents with a PUD a condo association
I wouldn’t think so since they are two different types of entities.
So if a home/ unit is A PUD, can ot go FHA Loan withput apprival of the HOA ?? Does the HOA have any say over it being sold with an FHA Loan, or how many units can have FHA vs cash buyers etc ?
I know that condominiums do require approval to be financed with FHA, however PUD’s do not. To my knowledge an HOA does not have any say regarding a home sale using FHA financing.
I have a question. I am studying for my real estates exam in California and they describe PUDs as owning air space. I am just curious can you have you have a land of property tax on “airspace” and do you pay those taxes or would that fall into the HOA fees
I really have no idea and would love to understand this in more depth.
ps this article was very helpful with my other questions I had originally
What they mean in basically just the area immediately surrounding your property. I don’t think they are making any distinction between land and air but just generally saying that you own and pay taxes immediately surrounding your improvements.
This helped me further understand the difference between a PUD vs Condo for my real estate class. Thank you!
Awesome! Glad it was helpful.
I learned recently that my home, which I had thought was a condo, is actually a PUD. The HOA calls our units “condos” which led to the confusion. In our case, the HOA performs the maintenance on our structures and carries liability and fire insurance on all of our dwellings. Our CC&Rs provide for that and of course, these items are paid for through our HOA dues. Do you see a problem with that?
I don’t see any problem with that. Condos and PUD’s are common forms of ownership and it seems maybe this was just an issue of semantics.
No. This is not an issue of semantics. This is an issue of lack of due diligence on the part of the selling agent. When I first learned the difference 40 years ago my area was sold as PUD’s based on “no common walls-each unit individually owned (128 units), property yard and building. The HOA owns the common areas, ie. parks and pools, etc.
In our area we have agents who it seems have never heard the term PUD. Sorry to let a little thing get to me so but I let it irk me when people call the condos. NO WAY. I would be interested in your comments.
This is definitely a confusing topic. I think it would be helpful to buyers for agents to know with greater certainty whether the property they are selling is condo or PUD.
In the midst of purchasing. I would only qualify for an FHA if unit was a “PUD”.
PUD it is, but my bank appraiser listed it as a condo. Now we are looking for verification. Management does not want to advertise that units are PUDs – now what?
I would think that their should be documents available with the property was developed that indicates what it really is. Can these be obtained for verification?
Great description Tom. You’re right on. The thing that bothers me about PUDs is that Fannie, Freddie, and FHA/HUD all have a different definition of PUD that makes anything with a mandatory HOA dues a PUD. This can be misleading to homeowners when they open their appraisal report and the appraiser says their house is in a PUD when they really are not by most other definitions. In my area, it is common for properties to no longer have HOA dues after the HOA dissolved, but the lender will see the HOA noted at closing and come back to the appraiser for a revision changing the subject to a PUD, again when it is not.
That is a great point Gary. So in the situation you described was the development at one time a PUD and then it changed to not being one? I have not seen that situation before, thanks for sharing.
This is a crucial difference. Good stuff, Tom. I have seen home owners not be able to obtain a loan in a PUD because the lender (and appraiser) mistakenly considered the property as a condo. PUDs are not subject to the same type of stringent lending guidelines as condos, so calling a PUD a condo at times can kill a potential loan when it shouldn’t have any problems in the first place.
Good points Ryan. The appraiser should make every effort to identify the correct type of ownership for the very reasons you mention. Thanks.