10 Questions You and Your Buyers Must Ask Before Purchasing A Condominium Unit

Reblogger Gabe Sanders
Real Estate Agent with Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales 3090099

 

Here's an excellent post from Richard Vetstein pertaining to purchasing a Condo:

 

Original content by Richard Vetstein

Buying a condominium unit can be more involved than buying a single family home. Tbuying a Massachusetts condominium unithis is because you have to worry about both the unit itself and the condominium project as a whole.

10 Questions You Must Ask Before Purchasing A Condominium Unit

To borrow from a famous phrase, not all condominiums are created equally. Some condominiums are very well run; some are quite poorly run and underfunded. Buyers interested in purchasing a condominium unit must do their homework:  not only about the condition of the individual unit they are interested in purchasing, but on the financial health and governance of the condominium as a whole. Remember, you are buying into the entire project as much as you are the unit, and your decision will impact your daily living and your ability to re-sell.

Here are the 10 questions buyers should ask when deciding to purchase a condominium unit:

  1. What is the monthly condominium fee and what does it pay for? The monthly condominium fee can range quite dramatically from condominium to condominium. The fee is a by-product of the number of units, the annual expenses to maintain the common area, whether the condo is professionally managed or self-managed, the age and condition of the project, and other variables such as litigation. For budgeting and financing you need to know the monthly fee and exactly what you are getting for it.
  2. What are the condominium rules & regulations? Condominium rules can prohibit pets, your ability to rent out the unit, and perform renovations. Make sure you carefully review the rules and regulations before buying.  Needless to say, the buyer's attorney should review and approval all condominium documents, including the master deed, declaration of trust/by-laws, covenants, unit deed and floor plans to ensure compliance with state condominium laws as well as Fannie Mae and FHA guidelines, as necessary.
  3. How much money is in the capital reserve account and how much is funded annually? The capital reserve fund is like an insurance policy for the inevitable capital repairs every building requires. As a general rule, the fund should contain at least 10% of the annual revenue budget, and in the case of older projects, even more. If the capital reserve account is poorly funded, there is a higher risk of a special assessment.  Get a copy of the last 2 years budget, the current reserve account funding level and any capital reserve study.
  4. Are there any contemplated or pending special assessments? Special assessments are one time fees for capital improvements payable by every unit owner. Some special assessments can run in the thousands, others like the Boston Harbor Towers $75 Million renovation project, in the millions. You need to be aware if you are buying a special assessment along with your unit.  It's a good idea to ask for the last 2 years of condominium meeting minutes to check what's been going on with the condomininium.
  5. Is there a professional management company or is the association self-managed? A professional management company, while an added cost, can add great value to a condominium with well run governance and management of common areas.
  6. Is the condominium involved in any pending legal actions? Legal disputes between owners, with developers or with the association can signal trouble and a poorly run organization. Legal action equals attorneys’ fees which are payable out of the condominium budget and could result in a special assessment.  In most states, you can run a search of the condominium association in the court database to check if they've been involved in recent lawsuits.
  7. How many units are owner occupied? A large percentage of renters can create unwanted noise and neighbor issues. It can also raise re-sale and financing  issues with the new Fannie Mae and FHA condominium regulations which limit owner-occupancy rates.
  8. What is the condominium fee delinquency rate? Again, a signal of financial trouble, and Fannie Mae and FHA want to see the rate at 15% or less.
  9. Do unit owners have exclusive easements or right to use certain common areas such as porches, decks, storage spaces and parking spaces? Condominiums differ as to how they structure the “ownership” of certain amenities such as roof decks, porches, storage spaces and parking spaces. Sometimes, they are truly “deeded” with the unit, so the unit owner has sole responsibility for maintenance and repairs. Sometimes, they are common areas in which the unit owner has the exclusive right to use, but the maintenance and repair is left with the association.  Review the Master Deed and Unit Deed on this one.
  10. What Does The Master Insurance Policy Cover? The condominium should have up to $1M or more in coverage under their master condominium policy. For buyer's own protection, they should always buy an individual HO-6 policy covering the interior and contents of the unit, because the master policy and condo by-laws may not cover all damage to their personal possessions and interior damage in case of a roof leak, water pipe burst or other problem arising from a common area element. Ask for a copy of the master insurance policy and don't forget to check the fine print of the by-laws.  Sometimes, there's language that would hurt a unit owner in case of a common area casualty.  Condominiums over 20 units should also have fidelity insurance to protect against embezzlement.

Often a standard condominium questionarre will answer all or most of these questions. If not, be prepared to generate this list and incorporate it into your Offer to Purchase or Purchase and Sale Agreement, as the case may be in your home state.  Do not have your buyer put earnest money down until satisfactory answers are received.  Good luck and happy condo hunting to you and your buyers!

 

 

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Rainmaker
4,432,317
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Thanks for the post. This is a good list of questions that a buyer should have answers to, before buying a condo.

Mar 27, 2010 11:39 PM #1
Rainmaker
5,076,635
Barbara Todaro
RE/MAX Executive Realty - Franklin, MA
Marketing Agent for The Todaro Team

That's a very good list of important questions to ask....most are never asked....especially the one regarding the association in litigation.

Mar 28, 2010 12:31 AM #2
Rainmaker
3,248,409
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

Gabe

Outstanding information thanks for re-posting and sharing the information.

Good luck and success.

Lou Ludwig

Mar 28, 2010 03:39 AM #3
Rainmaker
507,032
Cal Yoder
Keller Williams Elite - Lititz, PA
Homes For Sale in Lancaster PA - 717.413.0744

Gabe,

This is an excellent repost and well worth it. The questions are invaluable to someone like me who has limited experience with condos. Condos are not very popular in my part of the world.

Cal

Mar 28, 2010 10:04 AM #4
Rainmaker
671,751
Sandy Shores FL Realtor®, Melbourne Real Estate
M & M Realty of Brevard Inc. - Melbourne, FL
Brevard County Real Estate, Florida's Space Coast

Gabe, Richard did an incredible job here of pointing out the questions that must be asked BEFORE considering a condo purchase.  If the buyer's agent doesn't get the answers upfront, their bank will surely be asking all of these questions today to be sure the complex qualifies for financing. 

Mar 28, 2010 11:12 AM #5
Rainmaker
4,797,764
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Thanks for your comments, always appreciated.

Jun 11, 2015 04:09 AM #6
Rainmaker
4,797,764
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Hi Gita, thanks for taking the time to comment it is always appreciated.

 

Jan 28, 2018 06:37 AM #7
Rainmaker
4,797,764
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Hi Barbara, thanks for taking the time to comment it is always appreciated.

 

Jan 28, 2018 06:37 AM #8
Rainmaker
4,797,764
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Hi Lou, thanks for taking the time to comment it is always appreciated.

 

Jan 28, 2018 06:37 AM #9
Rainmaker
4,797,764
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Hi Cal, thanks for taking the time to comment it is always appreciated.

 

Jan 28, 2018 06:37 AM #10
Rainmaker
4,797,764
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Hi Sandy, thanks for taking the time to comment it is always appreciated.

 

Jan 28, 2018 06:38 AM #11
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Gabe Sanders

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