Real-Estate Forum: 10 questions you must ask before purchasing a condominium
special to the daily
I get a lot of questions about buying condos vs. single-family residences and I came across this blog post from Richard Vetstein that answers many of the questions quite well. Buying a condominium unit can be more involved than buying a single-family home. This is because you have to worry about both the unit itself and the condominium project as a whole.
Buyers interested in purchasing a condominium unit must do their homework – not only about the condition of the individual unit, 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 resell.
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 and regulations? Condominium rules can prohibit pets, your ability to rent out the unit, and perform renovations. Needless to say, the buyer and possibly the buyer’s attorney should review and approval all condominium documents to ensure compliance with state condominium laws as well as Fannie Mae and FHA guidelines.
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 percent 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 two 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. 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 two years of condominium meeting minutes to check what’s been going on with the condominium.
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 resale and financing issues with the new Fannie Mae and FHA condominium regulations which limit owner-occupancy rates. If your buyer is using conventional financing, check if it is a Fannie Mae approved condo. If FHA financing, check if it’s an FHA approved condo.
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 percent 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? 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 $1 million 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.
Buying a condo in Summit County does require additional due diligence that is different from buying a single-family home, but the benefits of having a condo – your home – or home away from home are certainly worth it.
Allison Simson can be reached at (970) 468-6800 or at Info@SummitReal Estate.com. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace.
Want to know the value of your Summit County property? Visit http://www.SummitHomeValue.com
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