Feb 9, 2021 Shopping for a Condo? Consider These Factors.
A condo has a home owners association (HOA) with Covenants, Conditions and Restrictions (CC&R’s) and bylaws in which the owners of a condo will need to follow.
- Review your Covenants, Conditions and Restrictions.
- Review the last 12 months meeting minutes of the HOA.
- Get the number of Primary Residence & 2nd home owners vs. rental properties
- What’s the balance in the reserve of the HOA, how much are they saving into their reserve accounts?
- Is it a professionally managed or self-managed HOA?
- If self-managed, do they have insurance covering the check writers of the HOA?
- Do they have any upcoming repairs to the HOA?
- Do they have very many delinquent HOA owners?
Before making an offer make sure you understand:
- HOA Dues: Generally, these dues cover the following: Water/Sewer/Garbage, insurance for the building structure, exterior building maintenance like, paint, roof, windows and doors, exterior landscaping, snow removal. It may also include a contribution to build up the reserves to pay for future building and road maintenance. One reason why one complex may have higher HOA dues, even though the condo purchase price may be similar, is because some HOAs have large reserves and some have very little. A healthy HOA should have a well-established budget and reserves. A HOA that has lower reserves, often approve many “one time” assessments to the home owner. For example, when they need exterior paint on the buildings, everyone is billed an exterior paint assessment. This is similar to how some people run their home budget, you just pay the expense as they come and don’t build up a home improvement reserve account.
- Reserves: Reserves were addressed above, you can ask about the reserves to gauge the health of the HOA. Once in contract you can request financials and see the budget and reserves.
- Restrictions: There may be restrictions as part of the HOA. See below where you’ll request the physical document.
- Occupancy: Get an understanding of occupancy stats. What percentage of the HOA are owner occupied properties vs. rental or investment properties? The HOA puts almost everything to a vote to approve budgets, expenditures and rules of the HOA. Renters may treat the property (and surrounding area) differently than owners would. Occupancy stats are also useful because people that own a condo in your complex as an investment property may be less likely to vote for expenses to upkeep or maintain the property. You don’t want one individual to own multiple properties in your complex either. They may be less like to vote for positive changes or improvements because those costs will affect their return on investment.
- Professionally or Self-Managed HOA: Some HOA’s are self-managed and some may be professionally managed. When it comes to self-managed HOAs, it is important to know who all has check writing abilities and weather they are covered by an insurance policy. You’d hate to see the treasurer of an HOA fund their retirement with the funds from the HOA account. There is insurance available to cover the check writers of an HOA against things like this happening
Once in contract, you’ll want to request and review the following:
- CC&R’s and Bylaws: Request and Review (we mean actually read them) the CC&R’s and the bylaws. Sometimes this is referred to as a re-sale certificate and can cost somewhere between $100-$300. They may have age restrictions, pet restrictions and parking restrictions to name a few.
- HOA Meeting Minutes Review: You have the right to review the last year of meeting minutes. This is a great way for you to get a sense of the current matters and affairs of the home owners association. You might find plans to replace the roof of the complex or exterior paint. The HOA may not have the proper reserves built up to pay for these upcoming expenses and charge a per unit assessment to cover the expenses – something that would surely be nice to know before buying a condo. You can request the financials of the HOA to find out if there are enough reserves to make ongoing repairs and maintenance. Typically, you’ll find a HOA with higher monthly dues to have more set aside for repairs and maintenance (this is a good sign). An HOA with lower dues may have less in the form of reserves and therefore look at assessments to cover future repairs.
- Past due HOA dues: One last item is a list of HOA owners that are in arrears on the dues. How many are there and how much money are they behind? More money that is behind may likely lead to short falls in the budget and the money has to be made up by someone or by the HOA as a whole, which would include you.
What Else about Condos:
- You’ll need to get interior insurance coverage to replace all the items and fixtures that are attached to your walls and floors, cabinets, vanities, lighting and potentially flooring. It’s more or less an extended personal property policy for your condo.
Buying a new construction condo or one that is 5 years or younger:
- Please beware of future HOA and builder litigation. It is nearly impossible to sell/buy or finance a HOA that is in litigation. New construction can encounter some construction or installation flaws. In these cases, the HOA may request or sue the builder for the corrections. Once in litigation with the builder, the correction typically has to be done before 7 years of it being built. This can be carried on for 2-3 years where transactions can’t be completed within the HOA or condo complex.
Financing your Condo:
- If you are using a mortgage company or bank, most of the above items will be included in a condo questionnaire that is sent to the HOA company to be reviewed by your lender (sometimes the HOA charges $150 to fill out such questionnaires). Not all banks verify these items and if you’re paying cash, you may not think to ask about these items either.
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