The Site Condo Conundrum
There’s a type of development that is becoming more and more common across the country. One that causes confusion in lenders as well as appraisers. A property type that transcends the norms and established boundaries of what we think of Single Family Residences (SFR).
I’m talking, of course, about the Site Condo.
The origin of Site Condos is up for debate, however many make the case that they started in Class’ home state of Michigan. As such, we will be consulting Michigan resources and definitions, as these apply to developments of this kind all over the country.
What is a Site Condo is? Why are they developed? and where does the confusion come from? These are all questions that we will be exploring in this post, and it is my hope that by the end, you will walk away with a new comprehension and respect for this property type that has become a force to be reckoned within the world of residential development.
From the outside, you would not be able to tell the difference between site condos and SFR’s. They are not attached to other units, they have land that the homeowner owns and, in many ways, has a lot more in common with single family homes than what we think of as “traditional condos”. The reason is because a site condo development is meant to accomplish the same thing as a subdivision. As the Michigan Community Association Law website states in their article, “the platted subdivision approach and the newer site condominium technique are two different statutory methods of reaching essentially the same practical and legal result of dividing real estate into separate residential building sites”.
Then why do things differently if the results are “essentially the same”?
The site condo route appeals to developers, as they can get most of the benefits of subdivision faster, and in a time where the housing market is threatened with inventory shortages, speed of production may become an area worth investigating. “The site condominium is sometimes chosen over the platted subdivisions because of perceived benefits to purchasers, homeowners, and developers”, so says the Michigan Condo Law article. They seem to be right, because here at Class Appraisal, we are seeing more of these appraisal orders coming in from all over the country.
As with everything, though, it’s not so black and white.
There are differences, deterrents even, for would-be-buyers looking into purchasing a site condo. For example, part of their definition is that a site condo has “common areas”. Again, Michigan Condo law’s website-
Each unit is surrounded by ‘limited common area’, which is defined as common elements reserved in the master deed for the exclusive use of less than all of the co-owners. The remaining area in the site condominium is ‘general common area’, defined as the common elements reserved in the master deed for the use of all of the co-owners.
What these areas are, or what constitutes one, varies from development to development, but it is nonetheless definitely something worth considering when purchasing your home. Another factor that ties neatly into the last is the presence of HOA’s, which are not characteristic of subdivisions and much more likely in site condo developments. That may mean monthly dues and restrictions on the externalities and fixtures of your home.
So, now we know some of the differences and similarities of site condos and single family homes, but its time for the question that Class is most concerned with – what form does the appraiser fill out?
After all, Fannie Mae’s website states, “Site condos in which the unit owner owns the detached condo unit and the land upon which the unit is built are a type of detached condo”.
“Well, that was an easy question,” you may be saying to yourself. “Fannie says it’s a detached condo – put it on the condo form!”
And that’s an option.
Truth is – it is entirely up to the lender.
If you didn’t know that, don’t feel bad. We hear it from many of our clients and appraisers. It’s almost counter intuitive to assume that the lender can tell agencies what the property type of the subject is, or rather what form to shoe-horn the appraisal into.
“Right,” you’re saying. “I’ve got it. Lender choose the form. Done and done.”
Well, not necessarily. HUD has declared that the form type must be the condo form for FHA loans on site condos, regardless of how much more the subject may appear to be a single family home (p.51).
Still with us? Good, because part of our job here at Class Appraisal is to be a resource for our appraisers and our clients. We’ve only scratched the surface on this particular issue, and there are more things to consider concerning the form type. For instance, does the development have attached units throughout? If it does then a condo form may be the better choice. Confusion like this can put an order on hold, delaying the process unnecessarily while things clear up. As stated earlier though, site condos appear to be here to stay, and may someday become common than traditional subdivisions. That’s why as an AMC, lender, broker or appraiser, we need to be willing to roll with the punches and forge a way forward for the party that will be affected by this the most: the Borrower.
Class is willing to adapt for them, are you?