Planned unit developments have become increasingly popular in real estate, but what exactly are they? This article will cover the basic definition of what makes up a PUD (planned unit development), how they work, and how they are different from typical neighborhoods so that you’ll be ready to ace your real estate exam!
What is a Planned Unit Development?
A planned unit development or PUD is a community not limited by standard zoning regulations, allowing for more property type flexibility. The development could include residential, commercial, industrial, and common areas in one community.
While most residential buildings in a PUD are usually condos, they can also include townhomes and single-family houses. Commercial buildings like grocery stores or restaurants are typically present, and common areas like parks, pools, or tennis courts also add benefits. They may even have religious institutions, warehouses, or storage buildings in the community.
PUDS were formed because real estate is typically broken down into specific areas zoned for rural, residential, industrial, or solely commercial, but not combined in one small area. PUDs were created around 1925 as part of the Model Planning Enabling Act to allow planning boards and commissions to supersede local zoning laws, giving developers more flexibility with standard zoning ordinances. They then created cohesive and organized communities that included intermingled residential, commercial, industrial, and natural spaces.
The design and services provided can vary by particular PUD, but they are typically built like small cities. Most Planned Unit Developments are residential, and their purpose is to create more amenities offered to homeowners than in a typical neighborhood. There are advantages for developers also, such as consistent function design of space and lower building costs for sites, roads, and utilities. Businesses like restaurants and retail stores also benefit from the surrounding regular customers.
A planned unit development must also go through an extensive process to be approved by the city. Developers must form site plans, test soils, and have roads approved. Every building and type of zoning must be defined before development. There may even be a public hearing to determine if the surrounding communities will support the project.
Within the PUD, a homeowners association is created to manage the common spaces and other amenities while collecting HOA dues from each property owner to pay for said maintenance. It is typically mandatory that a homeowner belongs to the homeowner’s association. You may hear these terms, PUD and HOA, used closely together, so next, we’ll go over why they are not interchangeable.
What’s the Difference Between a PUD and HOA?
A planned unit development may sound like a standard neighborhood with HOAs, but they are two separate entities. An HOA is a Homeowners association, which is a self-governed organization responsible for maintaining the community it encompasses. Typically it consists of a board made up of neighbors within that community and provides shared amenities to each homeowner within the HOA.
The board collects HOA fees or dues, usually yearly, quarterly, or monthly. HOAs set standards and rules and care for the common open space, including amenities like tennis courts, swimming pools, workout facilities, and playgrounds. They may also provide services like landscaping, snow removal, trash removal, or security. A major benefit of a well-run HOA is that property values can increase by the consistent style and upkeep of the entire neighborhood.
Because PUDs are developments that provide residents with many amenities, they always have an HOA organization in place to collect HOA fees and pay for the upkeep. Therefore it is important to understand that all Planned Unit Developments have HOAs, but not all HOAs are within a PUD; in fact, many are not.
Homeowners associations do not develop any buildings or create the community, as it is just an organization set up to maintain a neighborhood that has already been built. Many HOA neighborhoods are entirely residential, and while they may have single-family homes, condos, and townhomes in one HOA, they cannot include commercial or industrial buildings like a PUD.
Examples of Planned Unit Developments
Let’s go over some examples of what a PUD can look like so you can recognize and distinguish them in the real estate exam from standard neighborhoods or HOAs.
Developer 1 finds a large piece of land with nothing on it, say 500 acres, that they want to build on. The county only zones the land as residential, but Developer 1 wants to add some commercial buildings, retail stores, a few restaurants, and a small amusement park. Because of the complicated structure that includes multiple zoning areas and wanting a functional, cohesive layout, Developer 1 applies to create a planned unit development.
Another example of a planned unit development could be an area of a city that is in distress, possibly a warehouse district zoned for only industrial use. A developer may see an opportunity to create a thriving community by adding different housing types with shared amenities, businesses, and a community park.
For this example, imagine this PUD is in Cleveland, Ohio, by lake Eire. The plan could be lakefront condos, with commercial apartment buildings behind those, and a few streets of single-family houses. They could also add a gym with workout facilities and a swimming pool. In another area, developers put a line of lakefront restaurants and a marina with boat docks.
In both examples above, a large real estate area is used to form a planned unit development with areas of different zoning types combined to create a cohesive community. Then, a homeowners association is put in place to manage the upkeep and regulations of the residential areas within the PUD.
Examples of Homeowners Associations
Now let’s clarify what a homeowners association is with a couple of examples.
Say you’re looking for your next home, and find a great neighborhood with houses that look similar in style, are well maintained, and neatly landscaped. There are no fences around the houses or signs in the yards, and every home has the same mailbox. There is also a playground and park area in the middle of the development. When you purchase the house, your realtor tells you there are HOA fees of $240 a month.
The HOA did not build the houses or develop the streets, but they set the rules or standards for what the homes should look like, what kind of mailboxes you can have, and if you’re allowed to put up a fence around your yard. The HOA also collects the $240 a month from each resident to maintain certain amenities like common spaces, parks, playgrounds, etc.
For another example, say you look at a house for sale on a rural cul-de-sac with 12 other homes on the street. All the neighbors on the street agreed long ago to form an HOA for that neighborhood. Since it is a small street with few homes, there is only 1 page of rules in the HOA documents. It defines quiet hours after 10 pm so nobody can have loud parties or lawn equipment running past that time. Also, each member must contribute $200 a year in HOA fees to pay for landscaping the cul-de-sac and ditches along the road.
Only three neighbors are on the HOA board, and they are responsible for collecting dues, hiring the landscapers, and enforcing the quiet hours. This HOA is very simple and does not involve a PUD or large neighborhood, but it is still an organization designed to set rules and maintain properties on that street.
What to Know for the Real Estate Exam
For the real estate exam, you should know that a planned unit development, also known as a PUD, is a community that is not limited by standard zoning regulations. Forming a PUD allows for more flexibility in property type, such as including residential, commercial, industrial, and common areas in one development.
Remember that an HOA or homeowners association is not the same as a PUD; it is simply an organization that sets and enforces rules and maintenance.
Also, it may be helpful to know that every PUD will have an HOA to maintain common areas and amenities, but every neighborhood with an HOA does not have to be a PUD.