Numerous developments are occurring daily in the real estate industry. One of the developments is a planned unit development, which you may have heard of or seen advertised or on a billboard.
PUD is an abbreviation for Planned Unit Development, but what exactly is PUD in real estate?
Planned Unit Development
These are housing development units built in a gated or open community with an autonomous system in their own right. In many ways, it is more like a small town with a governing system that is the homeowner’s association.
Unlike traditional subdivisions, planned unit developments are not subject to variances or zoning regulations; instead, the location and construction of various projects are determined by investors with the assistance of the local government.
Some directives may include shared and private areas and local building codes and regulations.
Planned Unit Developments and Housing Estates
A housing estate is a collection of houses and other structures that have been constructed as a single entity. Their appearance is consistent because they are mainly built by a single contractor and have similar or slightly different building designs.
A PUD, on the other hand, is a collection of different houses and amenities all located in the same area under the control of a homeowner’s association. There is an autonomous governing system that oversees operations within the community, and they are self-sufficient.
PUDs and the Law
Construction of commercial buildings in a residential zone is prohibited by zoning laws and building codes, which regulate the local restrictions on projects such as building height, proximity to the main road, and commercial buildings in a residential zone.
Planned unit developments are mostly made up of real estate. Typically, they won’t need a zoning variance because they are bought as a single piece of land or are made up of different homeowners who have come together to form a single community.
A court or government official may determine which laws are applicable and require a variance, as well as which rules are not applicable in their particular circumstance.
Home Owners Association
The home owner’s association (HOA) is the governing body of planned unit development, and it is in charge of overseeing operations. The homeowners who are part of the PUD contribute to this effort by paying a fee to the HOA.
Everyone who lives in the planned unit development is a home owner’s association member.
🤔Did you know: If a homeowner living under a Home Owner’s Association agreement does not adhere to a specific rule, they can be sued? Read our article on real-life crazy stories where homeowners get sued!
Characteristics of a Planned Unit Development
They may come fully furnished with pre-built houses of various sizes, including condos, townhouses, single-family homes, and even senior living facilities.
They may also include amenities such as
Medical facilities, i.e., a hospital or clinic
A supermarket or grocery store
Religious institutions like churches
Storage facilities, like warehouses
Recreational facilities like swimming pools and gardens
PUDs can affect both commercial and residential properties. If you are a tenant, you may be notified that the property you have signed a lease for is part of a PUD.
It is also possible to find land in a PUD being sold off to home buyers who wish to construct their own homes within the boundaries of the PUD. They will continue to pay the necessary HOA fees and be considered community members.
A PUD may also be advertised to the public by a real estate company before it is built, allowing the public to purchase homes before they are built. The price of the house includes the plot of land on which it is to be constructed.
PUD vs. HOA
The distinction between the two can be challenging to make because a homeowner’s association oversees a planned unit development.
The primary distinction between the two is that a PUD is a piece of real estate, whereas an HOA is a governing body where residents pay annual dues.
They also differ in who owns the land on which they live.
A home owner’s association community is typically a condominium complex overseen by a board of governors that is made up of volunteers or appointed by the community’s owners to oversee the operations of the complex.
Although the association owns the land, some guidelines govern how occupants use their space. These guidelines may be somewhat restrictive in parking, visitor policy, and paint color, among others.
On the other hand, in planned unit development, the homeowner owns the land and can use it however they see fit. The HOA that manages the development may have rules in place intended to keep the property values of the homes in the PUD stable by establishing rules that are similar to those that apply in a condominium setting.
A PUD tends to be more expensive due to the freedom residents enjoy and the amenities available to them, which are mostly only accessible by residents. Therefore, residents must pay regular PUD fees to the HOA to continue to benefit from these amenities.
Garbage collection and disposal, security, sewage, and water treatment, as well as backup electricity and landscaping, are some of the services that both companies may provide.
💡Insight: All of these fees are paid on a monthly, quarterly, or yearly basis, depending on the terms of the agreement.
Future development costs, such as those associated with planned development, renovation, or extension of a specific building or area, may be included in the fees.
PUD on an Appraisal
As a home buyer, you’ll need to know how planned unit developments work before you can proceed with the rest of the purchasing process.
It specifies whether the property you wish to purchase is part of a PUD and any rules or fees that must be adhered to before the transaction.
The HOA governs a planned unit development and also, in itself, has regulatory measures put in place for the occupants.
Anyone involved in the planned unit development must adhere to these rules to maintain the development’s value and reputation.
Additionally, they outline your rights as a homeowner within the development and the procedures to be followed if those rights are violated.
Fees must be paid to the HOA to take advantage of the private amenities and services provided to the occupants, such as recreation and landscaping.
🎓Experts Tip: The amount of money you owe as a homeowner and the frequency of making payments are detailed in the appraisal documents.
The appraisal also includes information on mandatory fees such as security deposits and optional fees such as service fees. You will need to be aware of these before agreeing to live in a planned unit development.
🧠Remember: Any unclear information should be discussed with the appraiser to obtain additional information.
Advantages and Disadvantages of Planned Unit Developments
First and foremost, to make an informed decision about whether or not to live in or purchase property within a planned unit development, PUD, you must be aware of the implications of doing so on both a negative and positive level.
There are various reasons for choosing a planned unit development over a condominium or a single-family residence, but there are also downsides to living in a planned unit development.
Take a look at the table below for a quick summary:
You get access to various private amenities that make a living in the area more convenient.
You have a legal obligation to follow the rules. Even though you own the land, you’ll still need permission to do anything with it if you want to make it productive.
You are not responsible for the preservation of the common area.
Because you may not wish to take advantage of any of the amenities, PUDs can become prohibitively expensive to live in.
The homeowner’s association provides a variety of security services.
Compared to a typical neighborhood, the homes are much closer.
You are the legal owner of both the land and the property.
You will be able to take advantage of snow removal and landscaping services.
Disadvantages for Developers
The planning process for the development consumes a significant amount of time and resources. There are a lot of secondary costs, such as paying for the land even though it will not generate revenue for an extended period.
Marketing a PUD typically necessitates hiring specialists who are well-versed in the field, and these specialists are often prohibitively expensive.
Most of the time, planned development units are intended to revitalize a dying town by bringing in amenities and other necessities. However, the project does not provide enough to make it financially viable.
Planned unit developments do not eliminate the need to commute from one location to another because it is technically a town where vehicles are required for most transportation needs.
Working with Mortgage Lenders
Working with a mortgage lender to finance your home may seem like an unending process, especially with all the documentation required.
🤗Friendly Tip: If you find yourself facing financial hardship and unable to pay your mortgage, you should immediately speak with your lender to prevent foreclosure. Also, there are ways to get of your mortgage, like refinancing your home.
What is the most reliable way to determine whether a home you want is a part of a PUD?
If the property is part of planned unit development, the homeowner’s association fees are usually included in the documents provided by the realtor who sold you the home.
As a member of a PUD, your realtor may also inform you that the house you want is subject to a PUD and provide you with the contract outlining your obligations and rights as a member of that PUD.
🔥Hot Tip: If you want to sell your house yourself and don’t want to deal without a realtor, check out our simple guide, which explains how to get the ball rolling!
The mortgage lender collects these documents to review and approve the loan application. In conjunction with the standard loans provided, several checks must be completed.
The lender needs to be aware of the financial impact of the PUD and HOA policies on the budget before approving the loan.
Some examples of cross-checks are as follows:
Verification that the PUD is a residential development rather than a commercial development.
There are enough reserve funds.
There are mandatory expenses that must be paid by the homeowner within the time frames specified.
There is adequate insurance coverage in place, and the necessary insurance options are made available to the community’s citizens.
Any contingency clauses in the contracts that may impact the budget’s overall health are checked.
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