If you are attempting to handle the purchase without a real estate agent or legal professional, there can be pitfalls, if you are not experienced in home/property acquisition.
A condominium is a unit within a ‘shared’ building or community complex, sometimes referred to as a planned community.
Some very large communities have a ‘mix’ of residential types: condo buildings; single family homes and duplexes/four-plexes/townhouses/villas (attached units) and high rises.
There are common areas of the community that may contain amenities such as grass areas/parks; playgrounds; pool(s); fitness center; tennis courts; beach area; golf course; restaurants, etc.
Parking and Storage
Often condos have separate parking spaces and storage areas for each unit. Determine where those are - since occasionally a previous owner may have ‘leased’ a right to the parking or storage. In some urban areas, parking may be accessible only through a concierge/valet type service.
The ruling documents
Every condominium (condo) community is different with a different set of Rules and Regulations (for example some communities will restrict: pet ownership based on size and number of pets; placement of antennas and color of paint on exterior; use of terraces; smoking; some rules restrict the rental of units, and many communities are now seeking the restriction of very short-term rental.
These rules are within the community Covenants, Conditions and Restrictions – CCRs for short. The Declaration of CCRs is a legal document and yes, it is legally binding.
Rules and Regulations can change based on HOA future rulings. Be aware of your voting rights within the HOA. Infraction of HOA rules may be subject to financial charges. Obtain and Read the HOA guidelines/ CCRs, including all recent addenda/changes.
Lenders
Mortgages for a condo can differ from a single family residence e.g. some lenders do not write mortgages for condos or require that 80% of the units in a community are owner-occupied. Some lenders charge a higher rate of interest for income property.
Home Owner Associations
Often, planned communities have Home Owner Associations (HOAs); along with professional management companies as well as maintenance companies. Some very large communities may have directors for each ‘phase’ of development.
Some very basic elements/issues of purchasing a condominium (or property within a community):
Financial statements – ask for a copy and read carefully. Ask for most recent several years to compare how fees are escalating. If you need help, ask a professional financial person to review the financial statements. A rule of thumb is that the more financial data you can obtain prior to making a purchase decision, the better.
Reserves – those are amounts set aside for major projects. Some buildings/communities in recent years are applying a “monthly reserve replenishment fee” to the HOA statement.
Insurance – for the community to protect from disasters as well as from liability lawsuits against the building/community.
Special Assessments – determine whether there will be a special assessment for any major project that could not be funded from the Reserves and also how many special assessments were done in the past.
Clear title – this is particularly important for a condominium to determine if there are any liens or past due amounts/fees assessed for the unit e.g. unpaid home owner association fees or taxes. You will need title insurance for the property.
Estoppel – a document disclosing whether there are any past due amounts from previous owners and making certain that new owner will not be held liable for those amounts.
Depreciation – for an older community, consider the age of facilities; equipment; pools, etc. and determine if those facilities are planned for renovation in the future.
Maintenance – look at common areas with a critical eye to maintenance issues, like cracked streets, sidewalks, and old or ill-maintained facilities like tennis court surfaces and gym equipment. In some cases the community ‘shares’ costs of road maintenance into the community with the city/county/local government.
Shared fence – for some units within a home owner association there may be a shared fence between units. Determine who is responsible for maintenance.
Rezoning issues – is there an empty/undeveloped lot adjacent to condo/community? How is it zoned?
Flood issues – certain cities along the coast are prone to flooding. Make sure the community has adequate insurance coverage for perils
Gated Community – over recent years, gated communities (restricted access) have become popular. Consider the costs of maintaining a ‘manned’ security gate i.e. three individuals to staff each gate access in a 24 hour period, or a company who provides such staffing. (Those costs are incorporated into the HOA fees). Also, some communities have decided to withdraw ‘staffed’ gates in favor of a less expensive automatic gate access system (using security codes). If you are buying a property because of the 24- hour ‘manned’ security, make sure there are no immediate plans to do away with the system.
Security Patrols – some larger communities hire private security companies to provide security patrols within the community grounds. This cost is added to the monthly HOA fee.
Restaurants and Golf Courses – some very large communities have one or more restaurants within the community and some have a golf course. Determine whether there are required membership fees of such amenities. Determine who owns/manages the restaurant or golf course and if the community is responsible for any ‘shared’ costs related to those amenities.
Affordable Housing – in some states, the developer of a large community was required by local government to build ‘affordable housing’ incorporated into the planned community. Determine if such affordable units are part of the community and what portion of shared expenses are attributed.
Future Plans – assess plans for new roof or new air conditioning units that may require a special assessment.
Building code violations – if the individual condo unit has been renovated, make sure all renovations were done to city/county/local government code. Ask for documentation.
New Community – if the community is new there may not be a history of fees. The developer may be ‘in charge’ of the community, until such time as the properties within the community are sold. It sometimes happens that the developer will have very low monthly “HOA” fees to attract buyers. When the developer leaves and a management company and HOA take over, the fees could increase substantially.
This is just a basic short list of issues surrounding the purchase of a condominium or property within a ‘planned’ community. It is beyond the scope of this article to determine any individual situation.
Remember, condominiums include ‘shared’ use areas and amenities…financial responsibilities will fall to each condo unit owner to support the community.
Working To Preserve Your Wealth and Protect Your Future…in a Constantly Changing World
Please read my full Disclaimer and How I Can Help You
Visit my website: www.attorneybarbaradalvano.weebly.com for over 290 articles; information about free webinars and printable infographics