To Condo or Not to Condo – That Is The Question...

To Condo or Not to Condo – That Is The Question...

Many would-be home buyers including first-time home buyers, empty nesters and retirees consider buying a condominium (or a condo title townhome), instead of a fee-simple, single family home. The most common reasons for considering a condo are:

• Price (normally condos are cheaper)

• Low maintenance – easy (lock and go)

• Amenities (I.e. pool, exercise room, tennis courts)

• Location (if close to place of work)

We advise our buyer clients need to ask additional questions to determine if a condo is the right fit for their personality, financial situation and desired lifestyle. Here are some of the issues we suggest exploring:

1. Do you want to be 100% in control? In a condominium, the homeowner does not own the real estate, he/she owns a portion of the condo association, and the association owns the real estate. Therefore many decisions affecting the property and the enforcement of the bylaws are taken by the Homeowners' Association (HOA) or by the Property Manager. Although every owner has a say in the overall governance of the association, their say is only proportional to their percentage of ownership, and major decisions are usually made democratically by a majority vote.

2. Do you need a loan to buy the condo? If so, a couple of key questions will determine whether lenders will finance a purchase for the particular condo you like.

   • It the HOA involved in any litigation? If the answer is “yes”, it is likely that lenders will not finance any purchases, given the uncertain outcome of the litigation (depending on the nature of the legal issue at hand).

   • What is the percentage of association owners who are investors? Lenders like to see a maximum of 10% of the units as investments (non owner-occupied)

3. Do you intend to have pets? Do you intend to rent the unit out a portion of the year? Do you want to operate a home business? Check out the association's Covenants, Restrictions and Bylaws regarding their regulations and restrictions as to pets, noise, parking, use of the premises and rental restrictions.

4. Is the HOA financially solid? Have your accountant review the financial statements and operating budget of the HOA, to determine if it is well managed, if they have adequate funds in reserve to do required maintenance and/or future repairs.

5. Who manages the property? How good are the property managers? You can usually tell if a building and its grounds are properly managed by their appearance, but it doesn't hurt to ask a few neighbors and get their point of view.

6. Are there any special assessments forecasted/approved? Many times the association falls short of money to perform required repairs or unexpected expenses, and they implement a “special” mandatory assessment that applies to all the homeowners. It is not uncommon to see homeowners sell their condos when a special assessment is due. This is a common situation when the association settles litigation regarding building or construction issues, as the settlement may fall short of the required repair budget. You don't want any surprises!

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