What to Look For when Buying a Condo

What to Look For when Buying a Condo

A condo, like a co-op, is common or shared interest real estate. You own the title ("fee simple" in the case of a condo, stock in the company in the case of a co-op) to the "air space" your unit occupies. In a large building, this may mean that you own the equivalent of an apartment with other units above, below and on all sides around you. In the case of a townhouse, you also own the land on which your unit sits and the air space above (up to a few hundred feet).

All of these different types of developments share their common spaces: walkways, landscaping, parking, recreational facilities and so on. In short, you not only are buying a home but usually also are getting the right to use a lot of amenities. In a sense, you're buying into a lifestyle. While this appeals to many people, it also has drawbacks.

Downsides of living in a condo
Lawsuits by individual homeowners against the homeowners' association (the group that represents all owners and sets rules) over real or imagined affronts have been all too common and have tied up such associations in legal wrangles that can impair the ability of owners to resell their condo or co-op. In other cases, needed repairs and maintenance to common areas (such as reshingling a roof or repainting exterior walls) have been put off, causing deterioration of the property.

What to watch out for
Here are some concerns to be aware of before buying into shared-interest real estate:

• Does the unit have adequate covenants, conditions and restrictions? Conditions and restrictions such as minimum square footage, voting rights, size of board and so on, set the basic rules for use of the development. Many older developments had covenants, conditions and restrictions that only filled a page and left out much that was needed. Most condo association documents now contain covenants and conditions that run to a hundred pages or more.
• Is the development separately incorporated? If not, you could be heading for a morass of legal problems.
• Are any lawsuits pending against the development (homeowners' association)? If you discover there are some, it could mean poor management. Further, if the association loses and the award is greater than the insurance, each homeowner could be responsible for the difference. (Some states, such as California, have passed laws exempting homeowners from deficiency payments, provided minimum amounts of insurance are kept.)
• Are there clear and reasonable architectural guidelines? These could be vital if you later want to remodel or add on.
• Is the association solvent? Check its financial statements. This is critical. Is there a comfortable bank balance, or is each month hand to mouth?
• Are there adequate reserves to handle maintenance, repairs and emergencies? A rule of thumb is that 25 percent of the annual budget should be put away as reserves.
• Is the project old and in need of repairs? If so, you might be assessed in the future and your monthly dues could go up dramatically.
• If you're buying a new and not fully completed development, how are sales going? If they are slow, is there a chance the developer/builder could collapse leaving many uncompleted units and the existing owners with a real headache?
• Does the homeowners' association provide insurance against earthquakes, hurricanes or tornadoes? You may need it to get a mortgage (either when you buy or for the next buyer when you resell), and you may not be able to get this insurance individually.
• What is the ratio of owners to tenants? If there are more than 25 percent tenants, you could have problems with noise and maintenance. Tenants, generally, don't take as good care of a place and aren't as respectful to it as owners. You could also have trouble reselling if the ratio of tenants to owners is too high.
• Look for shared interest properties that are older than three years but younger than 10. During the first three years, most problems (if any) with the building develop and are corrected. After 10 years, the dues are usually increased to pay for major maintenance.

You don't need an attorney to buy a condo or co-op. But you do need to be able to read and understand all the documents including the bylaws and the covenants, conditions and restrictions. If you can't and don't have a knowledgeable friend who can, getting an attorney's opinion of the documents could be money well spent.

Here is what else you will find in this section:

Dealing With A Homeowners' Association
Your home is your castle, unless they happen to own a condo, townhouse or co-op. Homeowners' associations are organizations set up to handle all of the common areas and police the sometimes very strict bylaws and restrictions.

Challenging Condo Regulations
If you have a homeowners' association, chances are that you will eventually come into disagreement with it. You're interested in your needs and wants; the homeowners' association looks out for the general good of the whole association.