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Questions to Ask Before Buying a Condo

Written by Stuart Lieberman on Wednesday, 13 September 2006 7:00 pm
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Condominium ownership is becoming quite popular throughout the United States. Especially, but not only, in our big cities.

It seems as if condominium developments might be a win-win for everybody. For homeowners, they can be a very efficient and sometimes luxurious way of enjoying a nice lifestyle.

For builders, they can represent a strong return on investment -- at least they did before prices started dropping a few months back. And in the case of high rise condominium construction, less property has to be purchased so the profit margin can be even greater.

Condominiums come in all shapes and flavors. As I indicated, it seems that the newest breed are found in the urban areas. This is partly due to the trend towards urban renewal and redevelopment that is found in many portions of this country.

Of course, many condominiums are also located in suburban areas. Often upscale, these units may be gated and every bit as exclusive and luxurious as their urban counterparts.

When I talk about condominiums, I don't literally mean just those developments that follow a condominium form of ownership. I'm also talking about similar kinds of legal entities such as homeowners associations.

The types of developments have different names in different states. However, the concept is often similar. Unit owners are responsible for and own the interior of the living spaces, often to the finished walls.

The association is responsible for the areas beyond the finished walls, typically the structures themselves, the plumbing, the common sewer lines, etc.

In addition, there are common elements that are controlled by the association. Typically, this might include pathways, recreation facilities, swimming pools, tennis courts, and anything else that is for the benefit of the association.

Associations may have common areas and limited common areas. A common area might be something like what was described above: a park, an internal street, a pool.

A limited common area might be a part of the lawn that's fenced off for the use of a particular unit owner.

These are general observations. Before you purchase you must read the master deed, the bylaws and every other governing document to find out what you will own and what you will not own.

It can make a big difference. As an example, some coastal condominiums have docks for the unit owners. A unit owner needs to understand who will own the dock he or she will be using. This issue is important for resale purposes, maintenance issues (which can be very costly in this example) and riparian ownership concerns.

Condominium projects, with little exception, look wonderful when first built. After they are occupied by property owners, control shifts from the builder to the individual unit owners. At that time, the unit owners run the condominium association and begin full control and responsibility for the common elements.

The success of the condominium association is directly related to the caliber of the association. If the association board of directors is functioning properly and has good legal counsel and other professionals, then the entire community may be an exciting, desirable place to call home.

On the other hand, if the association is falling apart, if nobody wants to volunteer, if it's not governed by capable, caring people, if it doesn't retain quality professionals, or it isn't properly collecting the monthly assessments from the unit owners, then the community probably won't be a desirable place to live. And people are probably not going to continue to live there.

Another concern is the extent to which the condominium is owner occupied. If most owners rent the units out, they may be collectively less concerned about day to day issues than if it is largely or entirely owner occupied.

All of this means that when you purchase a condo, you can’t just look at the quality of the construction, or whether the heater works. You cannot just do the kinds of things that you would do if you are purchasing a private, single-family home.

Above and beyond the normal kinds of things that you need to do, you absolutely must look at the condominium records and documents. Take a look at the minutes. Is this a properly run, stable organization? Are there constant resignations; does it appear that little ever gets accomplished?

In reviewing the association documents, find out if they permit special assessments if there are one time large expenditures. The association should be able to special assess if problems arise. Watch for association documents that unreasonably restrict the right to special assess. While this restriction might seem desirable, in reality an inability to special assess can ruin a condominium development.

Things that must get done might never get done properly.

Ask whether the association has a functioning covenants committee? These are the internal volunteers who enforce the rules and regulations. Are they fair and reasonable people? Do they go out on a regular basis to ensure that the rules and regulations are being followed? Or is this the condominium version of the wild west where unit owners do as they please and are never asked to follow the rules.

Rules are necessary in these communities and they must be fairly, even handedly enforced on a regular basis.

In addition to a thorough document review, talk to people who own units. What do they have to say. Look around the development. Does it appear to be well maintained? Are their annoying signs posted everywhere suggesting dysfunction?

There is no getting around the fact that due diligence in the case of a condominium purchase requires an examination of the Association records and legal documents. Examine them and ask questions before purchasing. I suggest having an attorney help you understand the association and its workings. This is an inexpensive service, and may prove down the road to be a very worth while investment.

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