Condo shopping? Ask these 7 questions before you buy
Don't get stuck with a lemon. Here are the areas you must check out before putting money down on your next condo.
You've found your dream condo, and you're ready to relax among the mango trees and swaying palms.
To keep from getting stuck with a lemon, you have to do some homework. Here are the seven most important questions you should ask before buying a condo.
1. What's the beef?
Look at the minutes of the condo association's board meetings to see what owners have been griping about. If everyone was complaining about the faulty plumbing or the gardener's absence, you know that the complex is having management difficulties. Even if there aren't complaints, reading the minutes will reveal the kinds of projects that are under way at the complex, including those that the seller may not have mentioned. (Bing: How and when to sue your condo association)
2. Who has been naughty and who has been nice?
Find out the delinquency rates of present owners. People not paying their association dues on time is a sign of discontent or can show that the association might be underfunded.
3. How much is in the repair fund?
Ask if the community has done a reserve-fund review in the past five years. Lester Giese, author of "The 99 Best Residential & Recreational Communities in America," recommends the following formula: If the complex is less than 10 years old, the reserve fund should have 10% of the cost of replaceable items such as roofs, roads and tennis courts. For complexes between 10 and 20 years old, the repair fund should be at 25% to 30%. At 20 years, that amount should be 50% or more. Residents who brag that they don't pay much in maintenance may be in a complex that has poor upkeep or that is living beyond its means.
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4. Can you cover me?
If you look at nothing else, get a copy of the certificate of insurance, which is a summary of the association's policy. First, see if the replacement costs that the policy covers are an accurate estimate of rebuilding costs. Then ensure that the policy has a building-ordinance clause, which means that the insurance will cover the cost of bringing the building to code if rebuilding occurs. On older buildings, there may have been many code upgrades since construction. Finally, make sure that you understand exactly what the association policy covers and what you are responsible for. Smart condo owners will insure their personal belongings, along with any other items in the unit that the association's policy does not cover. If you have trouble understanding the insurance lingo, take the insurance certificate to an agent whom you trust and who understands the state laws.
5. Does the association present any legal problems?
Buying a single-family home without a lawyer is no big deal for many people. But with a condo, much more is involved. Have a local real-estate lawyer go over the association's bylaws. Do they make sense? Are they consistent with the state laws? Giese says he once found that the association bylaws of a large garden-style condo complex had been lifted from the books of a high-rise condo, leaving confused tenants with rules about shared hallway space and the correct use of garbage chutes. Also, have your lawyer screen the association to see if any owners have filed suit against it.
6. Is the complex renter-friendly?
If the renter population is more than 10%, there should be clear rental policies, either listed in the bylaws or tacked on as an amendment. Does the management company find renters for you? If so, do they get enough good renters? Ask other tenants about their experience. In addition, ask to see the association's rental lease, and have a real-estate lawyer look it over. Remember, though, that an association can change its bylaws to prohibit or restrict renting at any time. The more owners who rent out, the less of a chance that will happen.
- MSN Money: 10 reasons now is the time to buy
7. Am I my community's keeper?
Watch out for a condo whose owners manage the place themselves. Although many are operated efficiently, self-management can lead to more hassles for owners — especially those who live thousands of miles away. If the complex is professionally managed, check out the management company as thoroughly as you check out the association. Ask other owners and people in nearby buildings. And be sure to interview the day-to-day manager directly. If you hook up with a bad manager, you can be sure of this: Your dream condo will keep you up at night.
Buy the condo FHA. Let the underrwriters figure out if the absent landlords constitute a concern. Likewise, the vacancy rate could be an issue. Are there many vacant units? Are they bank owned? Are the monthly fees in arrears? Are all of the anticipated amentities completed? Does the Developer/Builder have a majority voice in association decisions? Condos are easy to buy, and can be difficult to sell. HOA fees and surcharges can kill the unsuspecting Buyer.
Definitely do your research! I wish I would have done more research on my condo! My 2 story building is not soundproofed and I have inconsiderate renters who live above me. Talk about a doubly whammy! My management company doesn't do much to help me and I pay a hefty monthly assessment fee. I've been where I am for 6 years and they either raise the assessment fee every year or they slap us with a special assessment fee. Either way it's an increase. I plan on selling my condo when the market picks up a bit. Condo living has been a real eye opener and quite a learning experience for me!
One item I would add is to find out how many rentals are in the complex, and what your state laws are concerning the ratio of renters to homeowners in a condo complex. I was turned down when I attempted to refinance my condo, because the number of renters in the complex was higher than allowed by law, which resulted in the denial of my attempt to refinance. No mortgage company would refinance it because the high number of renters reduced the values of the home so greatly. Now that the housing crisis is in full force, my 3-year old condo, which I paid $162,000 for in 2007, is now barely worth $130,000.
How do I know who the association is and how do I ask?
I don't want to go knocking on someone's door to ask this questions.
Both of these are excellent posts as well as an informative article. With the housing crisis, Fanny and Freddy sorting out their mess, and the new FHA requirements for condo financing, these are all important things to know. My mother lives in a condo that is managed beautifully and efficiently. I, on the other hand have moved into a condo property that my late father purchased as a family income property. Thirty-five year old, marginally constructed, seismic and fire deficient, converted 12-plex apartment buildings that are in decline. Underfunded since conversion, it is going to be difficult to fund necessary capital projects without painful special assessments and now is not a good time economically speaking for most people here and elsewhere. For us here, and many elsewhere I suspect, condo-ownership and HOA's are simply not the right tool for the job. I am looking toward re-organization as a Co-op as one of several solutions that may work. Anyone else?
Take it from a condo owner = #3 is the most important on this list. Some people walk away from buying in my development because our monthly fee is higher than those nearby, but it is because we are fully funded for maintenance, repair and replacement, and properly insured. We have two FT and two PT staff on-site, which is great. No burned out bulb goes unlit more than one business day, and they are johnny-on-the-spot with urgent issues.
Most people don't do their homework. Of course a new development will have a low fee. Everything is new and often under warranty, and since it's not fully occupied there aren't a bunch of people needing service. But even if a development isn't new, and it's fully occupied, a low fee means problems aren't readily fixed, and you could often get hit with high, unexpected assessments. Example - mid-Atlantic snow storms - my dentist's mom got slapped with a $1,500 assessment for removal and repair. I saw bare pavement very soon after each storm, and it didn't cost me a penny extra.
People are weird, so of course you can expect that to be reflected in the minutes. You just want to assess their merit and relative importance to you. You'll always have a few loudmouths who buy into group housing and then want their own way. These people should buy single family homes out in the boonies, with no neighbors.
Example - Some here want a community room. I don't. I don't have family nearby. Why should I pay to accommodate strangers (who might even have criminal records) who hog up our parking? Another example - someone complaining about landscaping who parks outside a half-primer, half ear-wax-gold-colored sports car and never moves it? And that car isn't an eyesore? Can't do anything about it's tagged, tires are inflated, and it isn't on blocks.
I'm surprised homeowner association data isn't required to be available to the public, but it should be. An underfunded development or one adjacent means more units may go into foreclosure because owners
can't afford to pay special assessments, and foreclosures bring down appraisal values in the area.
The housing/credit crisis, however, has changed things. Lenders are looking more closely