10 Questions You Should Ask Before Purchasing A Condominium
Not all condominiums are created equally. Some condos are very well managed while others are poorly managed and underfunded. If you are considering the purchase of a condo, you must do your due diligence, not only about the condition of the individual condo you are interested in buying, but on the financial health and governance of the
entire condominium complex as a whole.
Remember, you are buying into the entire project as much as you are a specific condo, and your decision will impact the quality of your daily living as well as your ability
to re-sell the property in the future.
Here are 10 questions that you should definitely ask when considering
whether to purchase a condominium:
The monthly condominium fee can range quite dramatically from condominium to condominium. The fee is determined by 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 insurance and any litigation. For budgeting and financing it is important that you know the monthly fee and exactly what you are getting for it.
Condominium rules can prohibit pets, your ability to rent out
the unit, and or perform renovations.
Make sure you or your attorney carefully review all condominium documents, including the by-laws, covenants, rules and regulations.
The capital reserve fund is like a savings account for the inevitable capital repairs that every building requires. As a general rule, this fund should contain at least 10% of the annual operating 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. Try to get a copy of the last 2 years budget, the current reserve account funding level and any capital reserve study.
Special assessments are one-time fees for capital improvements payable by every condo owner. Some special assessments can be a couple hundred dollars while others can run into the thousands. You need to be aware if you are buying a special assessment along with your condo. It’s a good idea to ask for the last 2 years of condominium board meeting minutes to learn what’s been going on with the condominium complex.
A professional management company, while an added cost, can add great value to a condominium with well-run governance and management of common areas.
Legal disputes between owners, with developers or with the association can signal trouble. Legal action equals attorneys’ fees which are payable out of the condominium budget and could result in a special assessment.
A large percentage of renters can create unwanted noise and neighbor issues. It can also raise re-sale and financing issues with Fannie Mae and FHA condominium lending regulations which limit owner-occupancy rates. If you are using conventional financing, check to see if the complex is Fannie Mae approved.
If FHA financing, check to see if the complex is FHA approved.
Again, a signal of financial trouble, and Fannie Mae and FHA currently require that the delinquency rate be at 15% or less.
Condominiums differ as to how they structure the “ownership” of certain amenities such as roof decks, porches, storage spaces and parking spaces. Sometimes, they are truly “deeded” with the unit, so the unit owner has sole responsibility for maintenance and repairs. 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.
The Master Condo Policy or Condo Association Insurance is the insurance policy that is held by the homeowners or condominium association. … The Master Condo Policy is responsible for covering two main areas of risk — general liability for the association and property damage coverage for common areas. The master policy may not cover damage or loss to your personal property or interior damage in the case of a roof leak, water pipe burst or other problem arising from a common area element. You should always carry an individual policy covering the interior and contents of your condo.
