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Buying a Condominium Requires Doing Your Homework

Buying a Condominium Requires Doing Your Homework

Helping a client with the purchase of a townhouse recently has reminded me that a condominium purchase can actually be more involved than buying a single family home. This is partially due to the fact that you need to be concerned, not only about the unit you are buying, but also with the strength and stability of the entire condominium complex.

Before entering into the purchase of a condominium there are some important questions that need to be researched.

Monthly condominium fees - Depending on the complex, these can be significant and they figure into your overall monthly expense of home ownership. You will need to find out what the fees are and exactly what they include. Fees typically go toward the maintenance of common areas, landscaping, snow removal and the master insurance.
What is the percentage of renters vs. owner occupied units? Being in an environment of rental properties can have a direct effect on resale value. Additionally, depending on the type of financing you are seeking, your lender will want to know the owner-occupancy rate of the condominium complex.
Bi-laws and covenants - These rules can govern how you can decorate your home, pet ownership and whether or not you can rent out your unit. It is not atypical in a condominium to have to control your noise levels or show a certain color, usually white, of window treatment from your unit.
What does the master insurance cover? You will need to get a copy of the condominium's master insurance policy and examine it to see what your responsibility will be with regard to coverage. Most condo owners have to insure their own personal belongings or everything within your unit's walls. This includes carpeting, flooring, appliances and your own fixtures.
Check recent resale values at the complex - Have sales of units been keeping up with the rest of the condo market? How have the "days on market" fared?
What is the parking situation at the complex? When you have guests they will need a place to park. Most condominium complexes have some provision for guest parking. How many spaces are there for your guests and where are they located?
Have unit owners been delinquent in paying their condo fees? If there is a large delinquency rate of owners paying their fees this is sign that the complex could be falling into financial trouble and this will not bode well for any future repairs, improvements or resale value.
Are there any special assessments that are currently due? When a condominium project has fallen short on their budget sometimes the onus for special repairs (new roofs, decks, common areas) must fall on the owners. This will be in the form of a special assessment that needs to be paid either annually or monthly. You really do not want this type of surprise.

In addition to the above, you will need to check out the management company and see whether or not it is professionally run. This information should be provided by the listing broker or seller along with all of the condo documents as well as the financial statement and budget. All of this information should be carefully reviewed by your attorney.

Typically banks have a standard questionnaire that they require for all condominium purchases but if it is a cash deal you will need to come up with a list of your own and have the questions answered sufficiently by the owner or the management company prior to purchase.

For a more carefree lifestyle a condominium can offer some distinct advantages over single family living. Just be sure to do your homework to ensure a happy and safe investment in your new home.

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Posted by Claudette Millette - Metrowest Mass Buyer Broker on 06/22/2010 10:40 PM

Comments (65)

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65 Comments on Buying a Condominium Requires Doing Your Homework

JUN

2010

Condos are sometimes more risky than purchasing a single family home. How they are run and whether they have adequate funding and reserves is crucial. Otherwise, one can end up with a host of special assessments.

This is an exellent summary of the kinds of things a buyer really needs to find out before buying a condo. I have seen several condo complexes here where inadequate reserves have really led to grief in the way of deferred maintenance & then huge special assessments when work can't be put off any longer.

Hi Claudette... being a condo owner, I appreciate that you prepare your clients for the requirements of condo living BEFORE they buy! Way to go!

Very timely, Claudette. I am buying in a condo unit where the chimney is not up to code and is a fire hazard. And the complex is only 5 years old. This has not come up in any other sales and the management company know nothing about it. Someone somewhere is hiding something, so it pays to really investigage the complex you are buying into. Very well written overview.

Claudette, as Jane says this is "very timely", I'm now working with two sellers and a buyer involving condos. I've book marked this for review...thank you.

JUN

2010

Joan:

You are so right. I have just discovered that the condo my client is buying does have a $5,000 special assessment attached to it and the owners were not very forthcoming with that information. It should have been disclosed on the listing but was not.

Nancy:

The budget and those reserve amounts are crucial pieces of information.

Steve:

I am sure you realize from experience that you do not want to end up with any surprises.

Jane:

Thanks so much. That chimney should probably fall under the condo association budget. That will make a great difference in the cost you have to incur for your purchase. I hope it all works out in your favor.

Nick:

Good luck with your clients. We need to cover all the bases with condo sales and purchases.

Claudette, I suggested your post. I live in a condo myself and our community is not as depressed as some of them out there. I know lenders have a strict questionnaire that has to be filled out by the association. That is why in our agreements, there are a lot of subject to's, to protect the consumer. Great Post!

One question my experience have taught me to ask:

How often are special assessments incurred?

Some condo complexes - that's every year. And guess what? That was the one I bought. You never know to ask those questions until you actually own one.

Greatt Tips Claudette, it seems like the parking situation is always a big one, of course along with the others, depending on how many deeded parking spaces and visitor spaces could be a deal breaker...thanks for sharing Jen

Don:

Thanks. The banks have come up with some very good questionnaires and getting those answers will solve a multitude of problems, but not all. There many questions that must be resolved with a condo purchase.

Loreena:

A special assessment every year? It is a good thing that you asked that question.

Jennifer:

Some people do not think about the parking until it is too late. You really have to figure this one out if you are ever going to have guests.

Claudette: All of the things you mention are worthy of repeating .. and repeating .. and repeating. Just recently, I have had to deal with some complexes that are part condo .. and part townhome. Also, FHA lending was allowed on some units and not others, so it can get rather confusing and can cause real problems while in processing. Buyers and agents alike need to be aware of all the items you list and more ... and make sure they are working with a lender that is educated and equipped to handle the processing that will most assuredly be ahead of them. Absolutely great and timely post, Claudette!

Gene

Excellent list as you covered most everything a buyer needs to ask concerning a condo purchase. Many associations are hurting at this time due to unpaid HOA fees.

Gene:

I am currently experiencing all of the nuances of condo buying. It seems as though the banks are staying on top of this by all of the additional paperwork they require. And, it is actually helpful because all of those questions really need to be asked.

Cameron:

That is one of the important questions on the list - how delinquent are the condo fees? That will matter greatly to the general health of the condo association.

This is a fantastic list for consumers considering buying a condominium. Each one of these could be a deal breaker!

Claudette, this is so timely! I just had one where there ended up being an issue with 5 of the 8 buildings that is going to cause each unit, over 10 years, essentially $11,000. My buyers found out just in time -- there wasn't really a lot of information out there in the resale package, and the owners themselves didn't know about it. Luckily, due to my buyer's hard questioning and follow up, he got the answers he needed. It could have been very bad if the buyers hadn't been aware!!!!

Condo complexes, if the buyer is planning on an FHA loan, will need to be on their approved complex list, as well. Good capture of what to do when buying into an HOA. Fortunately, a good "team" of insurance brokers and title people can help address some of these details.

So true! I liked the post, thanks for getting it out to us today.

Patricia/Seacoast NH

Great blog Claudette! Particularly in this lending climate where condo financing can be tough, buyers and their agents need to do their homework.

Good list of things to keep in mind. Thank you for sharing this post.

This is very true in Florida. There are 5 major documents that buyers must receive, along with the Condo addendum to the contract. Fail to provide these documents to the buyer and they can cancel the deal right up until the moment of closing. As it is, on a resale they can cancel for any reason within 3 days from the effective date. They get more time to cancel if they are buying a new condo from the builder.

I am amazed at how many agents here have no idea which documents are required. I am also willing to bet that in a large percentage of transactions, documents were missing due to the lack of knowledge by the agent(s) involved.

It is also important to know if there are any legal actions pending against the condo association.

People also need to realize that condos are not always the high-rise buildings or townhomes we normally think of . Here in Zephyrhills, we have mobile home parks that are set up as condominium associations. Not sure what the advantage is since we have many that have homeowners associations and the ownership is fee simple. But if they are set up as condos, then the documents and rules I mentioned above apply just as they would to a high-rise condo building.

Stephanie:

So, true. They are all important issues.

Marney:

I also just had a similar situation where after my questioning of the condo association I discovered that there is a $5,000 special assessment that is due on the unit. This should have been disclosed in the listing but was not.

Carla:

You are right - the banker, insurance agent and attorney all help to get to the bottom of these issues but I like to find out the answers as soon as possible. I do not want my client to get too far into the deal with a home inspection and a deposit at risk before finding out that there are some things that they will just not be able to live with.

Patricia:

You are welcome.

Lori:

Financing is pretty restrictive these days and that is why most banks have a standard set of questions for condo complexes.

Lawrence:

Thank you.

John:

That is interesting. We have no such requirement here. I have never heard of five documents that a buyer needs to receive for condos. Also, the fact that they can cancel like that is quite startling. You really have to know what you are doing with a condo sale.

As with any of my transactions I make sure that an attorney does a thorough review of everything prior to the purchase and sale signing. I would not do without that in any event.

John:

I am in agreement about not all condos being high-rises. Actually here most are not. They are usually similar to the photo that I used for this piece.

Hi Claudette -- Very true, much more complex (no pun intended), and if FHA financing can't be obtained, it can impact the complex even more as there can be much less demand that ensues.

I have a friend who just sold a $400,000+ condo in Myrtle Beach. I just don't understand how buyers continue to buy them in our area. There are thousands on the market. Owners have no control of costs, and fees are high. That person could have bought a single family residence for that price. Oh well, it was good for my friend. Just hope the buyer understood everything you posted...good post.

This is an excellent summary. I do a lot of condos and cooperatives...Coops are another matter altogether and can be a nightmare.

JUN

2010

Claudette,

Condominiums aren't for everyone and from a realtors point of view way more work and less reward.

Great post. One addition is to check if the condominium complex is FHA approved. As others have touched on, even if your buyer is not seeking FHA financing, FHA financing approval is important for future resale value. Unlike other commentors, I personally like condominiums because of all the community amenties that they can provide but one definitely needs to do their research.

Hello Claudette - Thank you for posting this blog. Many buyers do not often think about all theses things and it is very important that we help our clients with these issues. I am reblogging this one right now!

Thanks again

Claudette,

Excelent post. Good things to look out for.Most condos in Manhattan, the condo board has "first right of refusal" they have to issue a waiver to the seller when the purchaser is approved. Because of that restrictive covenant there is no FHA financing. The buyer's attorney does due dilligence, reading the offering plan, the last two years building financials and reading the minutes of the meetings. I primarily sell condos and coops. Condos are much easier to sell than coops.

so true - Vegas has so many problems seems like all condo complexes are cash only

Great post. Specially in today's market that includes many short sales and REO's. Anything could slip by or easily be overlooked.

Claudette:

As a real estate valuation specialist I'm surprised that many condominium buyers don't realize the complexity of this form of ownership until much later after their purchase, usually when a problem arises. This list will be a great help.

Claudette - Many buyer's do not realize the importance of all of these items, they get so caught up in the excitement of the purchase. It is our job to educate them as best as possible. You have provided a very good list that could very easily be turned into a checklist for your buyer's. Well done.

Great "list to live by" when considering a condo! Gentleman in #30 made another critical observation. FHA has a waitlist that a condo community may be on for blanket approval. I know that BoA has a process where with a little more legwork they may be able to get a "one-off" exception approved for an otherwise qualified buyer & transaction.

Also, with REOs it's typical for the new owner to start with a blank slate if taxes and/or assessments were not paid in full at the time of title transfer, but not necessarily so with short sales. It may be requested of the Purchaser to split or pick up those outstanding costs 100% prior to taking ownership.

Obviously, a buyer agent should check the Hud Condo list prior to submitting an offer but I also check the Tax Records for owner occupancy. The tax records can be a monthbehind, but if it shows a 65% OO, then you probably are ok. Even if it is Hud approved, your buyer still won't get an FHA loan if the OO is under 50%. There are no more spot approvals, that went away this year.

Claudette - excellent post. I will re-blog. I've had buyers back out before after receiving the condo resale docs. In VA we have a 3 day right to back out after receiving these documents. In this high REO environment too, there are bargains to be found in condos, but the price you pay might be a weak association. Is it worth it? Might be if the price is low enough.

Chris:

Absolutely, whether or not FHA financing can be obtained in a particular complex can have an effect on its future value since it will be difficult for most people to buy in.

Linda:

I know what you mean but some people just like the convenience of a condo - no major maintenance or upkeep, regardless of the price.

Ruthmarie:

I have never run into a co-op in this area. I know they are completely different.

Terry:

They definitely are more work, more research and more paperwork than a single family.

Jason:

The amenities - tennis courts, swimming pools, club houses are very attractive to a lot of buyers, particular single people.

Tom:

Buyers usually have no idea of everything that is involved with a condo purchase. They think it is merely an easier lifestyle, and it is, once you get all of paperwork resolved.

Mitchell:

I am sure that Manhattan is a totally different story than what I am dealing with in my towns. That sentiment about co-ops seems to be shared by many.

Billie:

I assume that is due to the owner occupancy ratio - the cash only purchases.

Jesus:

REO's and short sales have certainly made this a different market and I am sure have their effect on condos.

Richard:

So much better to catch these things ahead of time, not after the purchase and sale is signed.

Judy:

Having a checklist is extremely helpful with this type of purchase.

Lisa:

Yet more details to think of. Fortunately, I am not dealing of B of A right now.

Mike:

An owner occupancy that is that low would be a red flag at any rate; I am not sure I would even want to go there with that many renters.

You are so right -- and it seems pretty difficult to get much information from the listing agent -- at least that's been my experience in this area -- it's very hard to get questions answered regarding HOA and what the dues cover. No one wants to produce a copy unless an offer is made, but then the buyer doesn't want to make an offer if he doesn't know anything about the property.

Carol:

I know what you mean. It could be tempting if it seems as though you are getting a bargain, but a weak condo association could spell problems down the road.

Pam:

Fortunately, most banks are forcing the issue by making their questionnaires non-negotiable so the sellers have to provide those answers. However, with a cash deal you don't have the guidance of the bank and need to filter out the questions on your own.

Claudette - What a great post in regards to the additional things you need to plan for when doing a condo deal. Just posted this on our facebook page as well !

Condo buying is different, especially in this day and age. Financing is a problem here for condos. They are still a major part of my business. Have a great Thrusday!

Cladette,

I think #7 is particularly relevant. This could be one of the first signs of an investment starting to go sour.

Brian

Claudette I think that same caution applies to all real estate today - your points are well done

Claudette - Purchasers in Ontario should also take a very good look at the condo's status certificate.

Great checklist, Claudette. There is also one other clause I always insert into the offer and that is that the Sellers have not made any changes to the unit that required permission from the Corportion, without getting the written permission. If they did, the news owners could be liable and made to pay any costs associated with restoring the changes back. i.e. if all owners are required to have the same colour on the front door, they must restore it back to its original colour...

Also, when buying a condo apartment, I always check the registration of the unit, to ensure the correct legal description is on the contract. Just because the unit is #2301, doesn't mean its on the 23rd floor....

Here in Canada after the offer has been accepted, the Seller obtains a Status Certificate from the management company, and the buyer's lawyer reviews it to ensure everything is in order, i.e. the insurance is in place and effect, checks the year end date to see if any increases are coming up in the maintenance fees, checks for any special assessments levied, ensures there is sufficient funds in the reserve fund of the corporation, any for outstanding lawsuits, which could adversely affect the corporation and the owners. If all is in order, then the buyer waives that condition and firms up the offer.

Have a great day! and thanks for sharing all that great information.

Purchasing a condo in today's lending market can be tricky. Its very important to get as many of the facts up front as possible.

Claudette,

Great Post! This is a good list. You are so right.

All great points and I have run into these as problems over my real estate career. It is especially important when either insurance can't be funded or repairs done by the homeowners. What often happens are the special assessments can get large.

Claudette,

Thanks so much for this post. It was perfect timing & great info. as I have one client in contract for a condo & another client looking into investing in condos / TH's.

Brian

Hi Claudette, Well written, all important points to consider, both for loan qualification and the health of the HOA.

Claudette, great list and I will reblog for my clients! Thank you! Susan

Great post! Especially the part about the management company. We have more problems getting POA's from management companies than anything else.

Great Post.

I don't know if there is a distiction in you area, but on the left coast, add to your list form of ownership. Is it condominium or townhouse ownership. Out here there is a differance.

This is a bookmark, a reblog, and a reread. Great post. Thanks for sharing!

Fortunately, you have a relatively low foreclosure rate there. We've had several instances lately with lenders requiring last minute certs for % of delinquent HOA dues and percentage of foreclosures.

These items can change significantly over the course of 45 days. The real estate agents involved need to be on it and watching for changes.

Excellent post! Great and valuable information's! HOA sometime are pain to deal with!

Thanks for sharing,

Adam

Claudette,

Great post and another reminder to buyers of the value of a buyers agent. I too recently sold a townhouse/condo ownership in a community where the buyers have to pay an application fee as well as a 3 month surcharge and be approved before they commit to the purchase. My buyers lived 40 miles away so they relied on me to be their advocate to make sure all the paperwork was done in time. We close Monday.

Great information Claudette. There is so much information that really needs to be asked prior to considering show clients condos or townhomes. With the real estate market the in such turmoil you just never know what association are current with dues, insurance and so on.

And the problem with even a great checklist like this one is that each lender has different requirements and may interpret the data differently. As I just learned the hard way on a recent condo transaction! Even with asking all the right questions up front and ensuring that every item on this list was checked off, there was a major problem at the last hour...

i might be different in other states, but in Florida roof should not be the cause of Special assessment as this is a mandatory item in the reserves.

Well, in Florida usually hurricanes take care of roofs, I mean the insurance

If it is a professionally built roof, it has a good chance to surpvive until a good hurricane takes it out

JUN

2010

This is going to be a re-read and bookmark. Thanks for sharing this Claudette. Have a great weekend. Great post.

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Ashland, MA

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