Questions You Must Ask Before Purchasing A Condominium

Not all condominiums & townhomes are created equally.

Some condominiums are very well managed and some are poorly run and often times underfunded. If you are considering the purchase of a condominium you must do your homework, not only about the condition of the individual unit you are interested in purchasing, 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 as well as the ability to re-sell the property in the future.

Here are 10 questions you must ask when you are considering
the purchase of a condominium:

1. What is the monthly HOA condominium fee and what does it pay for?
The monthly condominium fee can range quite dramatically from condominium to condominium. The HOA fee is a by-product of the number of units and the annual expenses to maintain the common areas; whether the condo is professionally managed or self-managed by a board of directors made up of owners; the age and overall condition of the property; and other variables. For budgeting and financing purposes you must know the amount of the HOA fee and exactly what these fees pay for.

2. What are the condominium rules & regulations?
Condominium rules can prohibit or limit pets, your ability to rent out the unit,
and make renovations to the property.

Make sure you carefully review the bylaws and any deed restrictions
before you consider making an offer on a condo property.

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% 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.

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 be a couple hundred dollars while others 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 12 months of
HOA 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.

7. How many units are owner occupied?
A large percentage of renters can create unwanted noise and neighbor issues. It can also raise re-sale and financing issues with the new Fannie Mae and FHA condominium regulations which limit owner-occupancy rates. If you are using conventional financing, check to see if the property 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 currently require that the delinquency rate be no more than 15%.

9. Do unit owners have exclusive easements or right to use certain common areas such as porches, decks, storage spaces and parking spaces?
Condominiums differ as to how they structure the “ownership” of certain amenities such as roofs, 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 the responsibility of the HOA.

10.  What Does The Master Insurance Policy Cover?
The condominium should have up to $1M or more in coverage under their master condominium policy.  For your own protection, you should always buy an individual policy covering the interior and contents of the unit (often referred to as a “walls in policy”), because the master policy in most cases does not cover damage or loss to personal possessions and interior damages in the event of a roof leak, water pipe burst or other problem arising from a common area element. Ask for a copy of the master insurance policy and don’t forget to check the fine print of the by-laws.