Top Questions to Ask When Buying a Condominium.
The questions to ask when buying a condo found below are something every buyer should consider when purchasing this type of housing.
I would be willing to bet that many of these questions are topics many buyers would have thought to ask.
Purchasing a condominium is much more complicated than buying a house. There are specific details that you don’t have to worry about when purchasing a home.
In either case, part of the due diligence process in real estate involves researching the property’s history and learning about the neighborhood and general surroundings.
In the case of condos, you’ll need to go a step further by finding out about the association and management company.
After reading, I am sure you will agree they are super important! You would also ask these questions when purchasing a townhouse as well.
What Are The Condo Association Rules?
No question buying a condo is a lot different than purchasing a home.
Every buyer faces a tremendous amount of details when purchasing a home, from getting a home inspection to procuring a mortgage to buying home insurance to deciding whether Real Estate title insurance is a good idea.
Purchasing a condo typically involves all these things and a lot more. There are questions that every buyer should ask before buying a condominium.
One of the biggest things customers fail to understand about buying a condo is that they usually buy into a community where covenants, conditions, and restrictions must be followed.
It is not like owning a home, where you can usually make improvements such as adding shrubbery, planting a garden, or putting up a fence.
With a condo, you own it from the walls in. The outside of a condominium is held by a democracy where you must abide by the rules.
Owning a Condo is Different Than a Single-Family House
The point here is that you are not the king of your castle when owning a condo. Many condo communities either have an outside condo association with a management company or a direct homeowner association where all the homeowners decide what can and can’t be done.
Investigating the condo rules and regulations is an important consideration, primarily if you are used to the freedom of not having to answer to anyone else.
I can tell you firsthand some condo neighborhoods where the people who make up the rules do so to make your life miserable.
Just picture that crotchety older adult with nothing better to do than complain about every little thing they see. Their self-importance is on display at every turn. This is not to say that every condominium community is like this, but it sure pays to find out before purchasing!
If planting a garden is essential to you, ask before buying. Do you think you might want to add a patio? Be sure to ask if this is even possible. One of the things that I have heard from some of my past buyers is how surprised they are about the stringency of the rules in the condo community in which they live.
Besides finding out what can be done aesthetically to your townhouse, one of the primary considerations for many folks is the condominium’s pet policy. Some condo developments do not allow pets at all. Some restrict the number and size of pets you can have. The last you want to find out is that Fluffy is not allowed to come with you!
Lastly, you will also want to make sure there are no upcoming amendments to the condo by-laws that may deter you from purchasing. Buying a house is much different.
How Much Are The Condo Fees?
Another critical question to ask when buying a condominium is how much the condo fees are and what exactly they cover.
Condominium association fees are typically based on the number of homes, the cost of running the community, whether a professional management company is involved, and whether funds are set aside for major repairs or unforeseen lawsuits.
The condo fees from community to community can also cover vastly different things. Some of these things may or may not be necessary to you.
Possible considerations of what could be included in the condominium fees are the following:
- Exterior maintenance of the building
- Grounds maintenance, including landscaping, lawn mowing, and snow plowing
- Master Insurance
- Water and sewer services
- Road maintenance
- Trash pick up
In some condo neighborhoods, you may find frills you end up paying for in the condo fees that you may not need or want, such as a pool, tennis courts, or recreation center that may include a gym.
If you do not need such things, this could affect your buying decision.
What Are The Financing Options?
When considering the purchase of a condominium, it’s crucial to know the various financing options and understand how they fit with your financial situation.
Unlike single-family homes, condominiums have specific requirements that must be met for financing.
For example, if you’re considering an FHA loan, the condo development must be approved by the Federal Housing Administration (FHA). FHA loans are a popular choice due to their low down payment requirement of just 3.5%.
Our handy resource contains all the FHA condo approval guidelines. Ensure the condo you’re interested in is FHA-approved to take advantage of lower down payment options.
Additionally, conventional loans have their own set of guidelines that the condo must meet, including aspects related to the owner-occupancy ratio and the financial health of the condo association. Familiarize yourself with conventional loan guidelines to see if the condo meets these requirements.
You’ll want to ensure the condominium is warrantable.
I recommend that you consult with a mortgage lender early in the process to determine the best financing route for your condo purchase. This proactive approach will ensure you’re looking at properties meeting the necessary criteria.
Is The Complex Professionally Managed?
Some condominiums are under professional management, and others are run by a homeowner’s association (HOA). You should find out which is the case in the neighborhood you are considering.
If it is under professional management, you will want to get the contact information and give them a call. Management companies are often an excellent information source for anything you could want to know about the neighborhood.
If the neighborhood is not professionally managed, you should speak to the head of the homeowners association. This person will also be well-versed in the complex’s activities.
Can I Look at The Condo Association Meeting Minutes?
The meeting minutes will give you excellent insight into any potential ongoing issues within the community. It is essential to look them over before making a purchase. It would help if you asked your real estate attorney or agent to get a copy for you.
Your real estate attorney can review them with you. Association minutes typically include information on budgeting, upcoming improvements, and any ongoing complaints from neighbors.
The minutes can give you additional insights into what it is like living in the community.
Can I look at the Association’s Condo Documents, Including the Financial statement?
When buying a condo, ask for a copy of the condo docs. It is one of the first questions you should ask. The listing agent marketing the property should have a copy. The condo docs will have all of the governing rules and regulations.
The condo docs should also include the financial statement. The purpose of reviewing the financial statement is to ensure the community is sound financially. The financial statement will include what is in the reserve fund.
How Much Money is in The Reserve Fund?
When buying a condo, one of the more essential questions is how much money is in the reserve fund.
Finding out what’s in reserve is important because it establishes the association’s financial health. If an unforeseen expense arises, you want to know if the association has budgeted enough money.
Generally, a repair/reserve fund should contain about 10% of the annual revenue budget if the neighborhood is under ten years old.
If the neighborhood is older than ten years, the budget should be closer to 25% or more on hand for significant expenses. Like anything else, the older the buildings are, the more maintenance they will require.
While some condo neighborhoods may seem to have super low condo fees, you need to find out if they are funding their reserves adequately so you are not stuck with a significant expense at some point down the road.
The Importance of Ample Reserve Funds
A healthy reserve fund is indicative of a well-managed condominium association. This fund is essential for covering unexpected expenses and significant repairs without resorting to special assessments that can financially burden the owners.
Inquiring about the reserve fund’s status gives insight into the association’s financial health and preparedness for future needs. I always recommend that my clients look at the financial docs and this line item. I refer them to my real estate attorney to help with this review.
A rule of thumb is that a repair/reserve fund should contain about 10% of the annual revenue budget for complexes under ten years old. This figure should be closer to 25% or more for older properties.
Understanding the reserve fund’s adequacy is crucial. It can affect your buying decision and your financial responsibilities as an owner.
Understanding The HOAs’ Health is Crucial When Buying a Condo
Determining how much money is in the reserve fund will help partially determine the neighborhood’s financial health. There are also a couple of other questions you will want to ask when considering buying into a condo community.
One is the delinquency rate of the condo fee-paying owners. You don’t want to be caught in a neighborhood where many owners are not paying their condo fees. Another financial question to research is whether the condo complex is on the FHA-approved list for financing eligibility.
FHA stands for The Federal Housing Administration, a government entity that backs loans. The FHA loan program is one of the most popular for home buyers due to the reduced down payment requirements, which are only 3.5% down.
This is a fundamental question when buying a condo because it is incredibly beneficial for a complex to be FHA-approved. In today’s real estate environment, this is the financing route many buyers prefer to take!
Are There Any Special Assessments Coming Up?
A special assessment is typically a one-time fee that covers a significant expenditure needed in the neighborhood. For example, maybe all the roofs on all the buildings need to be replaced. This obviously would be an enormous expense.
Sometimes, rather than taking it out of the reserve fund, a special assessment is made to become a short-term expenditure.
For example, if your condo fee was usually $350 per month, it might jump to $400 for a certain time.
Special assessments can also be a one-time lump sum payment.
Of course, if you consider buying into the neighborhood, you will want to have this information for budgeting purposes.
You should ask this question before purchasing a condo, not after you have already bought and found yourself with a massive unexpected bill.
How the association funds unexpected expenses is crucial.
What Are The Property Taxes For My Condo Unit?
Whenever you are buying any type of home, it is essential to know the tax assessment. The assessment will determine your tax bill for the year.
A property tax assessment is determined by the local tax rate and assigned assessed value from the tax assessor. Having your property taxes will allow you to budget more accurately.
It will also be something your mortgage lender will ask for before committing to providing financing.
Are There Any Lawsuits Against The Condo Complex?
Another critical question before buying a condo is whether there are legal concerns! Before finalizing your condo purchase, you must inquire about any pending litigation involving the condo association.
It would be best if you made sure there were no pending lawsuits that could potentially impact you financially down the road. There could be several reasons for a lawsuit.
Maybe the homeowners have a lawsuit against the developer for not completing something in the neighborhood or for shoddy construction, which has caused some issues.
Legal disputes can range from construction defects to conflicts with the developer or between unit owners and the association. Such litigation can have significant financial implications for the association and, by extension, the condo owners. It can potentially lead to increased fees or special assessments.
In addition, pending lawsuits can affect your ability to secure financing. Many lenders are hesitant to loan buyers in complexes with unresolved legal issues. I recommend clarifying this, as it will help you make an informed decision and avoid future complications.
Most of the time, this is not a significant consideration but at least worth investigating.
What is The Condominium Rental Policy?
Finding out the rental system is a critical question to ask when buying a condo for several reasons. A high number of renters within the complex can have several adverse effects. Condos not used as the homeowner’s primary residence are more likely to default on a loan than an owner-occupied residence.
Therefore, many lenders are more reluctant to lend to a condominium with many renters. Renters also do not always have the same pride of ownership.
As a result, the property may not be kept as well as if the owner were present, and they may not follow the rules as closely as the owner would.
The two mortgage giants, Fannie Mae and Freddie Mac, may not finance in a complex with too many non-owner-occupied units. The typical owner-occupancy rate that lenders look for is at least two-thirds.
A favorable owner-occupancy ratio can significantly influence loan approval for your condo purchase.
Foreclosure Tends to Be Higher When There Are Significant Numbers of Rentals
Over the years, Fannie and Freddie Mac have learned that when the real estate market turns sour, far more units are foreclosed on in complexes with high investor ownership.
When foreclosures occur, condo fees often are not paid, so associations have to defer maintenance. Innocent owner-occupants can then find themselves held hostage in units that are getting run down, losing value, and stigmatized in the eyes of Realtors and home buyers.
Getting a mortgage on a property is essential when you are a buyer and later when you are trying to sell your home. The last thing you want is to own a non-mortgageable property in the future.
On the other hand, what if you find you need to move, but the condo has lost value since you purchased it? You may want to rent it instead of selling it if you will take a big financial hit.
You may find out you can’t rent if there is a rule on the number of units that can be rented at any one time. Again, this is a question to find out before you sign a purchase agreement, NOT after!
What is The Parking Situation?
The parking situation from one condo complex to another can vary widely. This is an important consideration, especially if you have lived in a home before and are used to having guests over quite a bit.
Some condo complexes may grant you one or two “deeded” parking spaces, of which you become the legal owner.
This means you are the only one entitled to park in that designated spot, and another owner could not legally park there.
These spots are typically located right in front of or near your unit. In other condo communities, you do not have a deeded parking spot, and it is “first come, first serve.”
Many condo complexes also have areas with dedicated guest parking. Visitors are directed to park in these particular areas.
This is an important question to ask before you have signed your offer to purchase contract, not when the moving truck is putting your furniture inside the unit.
Who Fixes What?
You will want to know precisely what you are responsible for regarding maintenance expenses. For example, one of the gray areas in many condo developments is who is responsible for replacing the windows.
This is a high cost when the time comes. Is the condo association responsible for this, or is it yours?
Another example of a gray area is balconies and porches. In some condos, you are given the option of having a patio or porch. Make sure you look at the master and unit deeds to determine who owns the porch.
The porch may be attached to your unit, but do you truly own it? In other words, are you the one who will pay for repair and maintenance, or is that the condo association’s responsibility?
Are There Any Pet Restrictions?
If you own a pet, this may be one of the essential questions you’ll want to ask. Even if you don’t have a pet now, you may want one in the future. Sometimes, homeowner’s associations limit the number or size of pets you can have. They may even restrict certain breeds of pets.
For example, it is not uncommon for an HOA to restrict having a pit bull.
Will I Need to Move Shortly?
There are some excellent reasons to own a condo, such as affordability, the need to downsize, or possibly not wanting to have the maintenance headaches associated with owning a home. However, you do want to consider that condos typically do not appreciate at the same rate as homes.
In my area of Massachusetts, the appreciation rate of condominiums has certainly not kept pace with that of single-family homes. Condo values have also dropped significantly more in the last Real Estate correction than single-family homes.
While it can be hard to predict what will happen in the future, what you realize in appreciation may be a smaller figure than a home if things follow past trends. This makes it even more critical to understand if you want to live in a particular condominium development.
As you can see, many questions exist before buying a condominium. It makes sense to do your homework so you are happy the day you buy and for years to come!
If you are considering buying or selling a condo anywhere in the Metrowest, Massachusetts, area, I welcome the opportunity to interview with you.
Additional condominium resources:
- Tips for dealing with a homeowners association – Learn what you need to know about dealing with an overbearing association.
- What is the purpose of a homeowners association? An explanation of what a homeowners association does for those living in a condo.
- Age-restricted condominiums – see what you should know about age-restricted condos in this helpful resource from Wikipedia.
Use these additional resources to make a sound decision when purchasing a condo!
About the Author: Bill Gassett, a nationally recognized leader in his field, provided the above real estate information on questions to ask when buying a condo. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications in which he has been featured. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. For the past 38+ years, Bill has helped people move in and out of Metrowest towns.
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