10 Questions to Ask Before Buying a Condo

Buying a condominium unit can be more involved than buying a single family home because you have to worry about both the unit itself and the condominium project as a whole. To borrow from a famous phrase, "not all condominiums are created equally". Some condominiums are very well run; some are quite poorly run and underfunded. Buyers interested in purchasing a condominium unit must do their homework:  not only about the condition of the individual unit they are interested in purchasing, but on the financial health and governance of the condominium project 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 and your ability to re-sell. Here are the 10 questions buyers should ask when deciding to purchase a condominium unit: 1. What is the monthly condominium fee and what does it pay for? The monthly condominium fee can range quite dramatically from condominium to condominium inside the same complex. The fee is a by-product of 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 litigation. For budgeting and financing you need to know the monthly fee and exactly what you are getting for it. 2. What are the condominium rules & regulations? Condominium rules (commonly referred to as "CC&Rs") can prohibit pets, your ability to rent the unit, and perform renovations. Make sure you carefully review the rules and regulations as well as the by-laws, meeting minutes, financials (including the most recent "reserve study" and see #3 below), master insurance policy, and condo plan (obtained from title) before purchasing. 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 revenue 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.  Get a copy of the last 2 years budgets, 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 run in the thousands, others like the Boston Harbor Towers $75 Million renovation project, in the millions. 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 2 years of condominium meeting minutes to check what's been going on with the condomininium. 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.  In most states, you can run a search of the condominium association in the court database to check if they've been involved in recent lawsuits. 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 mandate a minimum owner-occupancy rates. If your buyer is using conventional financing, check if it is a Fannie Mae approved condo. If FHA or VA financing, check if it's an FHA and/or VA approved complex. 8. What is the condominium fee delinquency rate? Again, a signal of financial trouble and lenders want to ensure that the rate does not exceed 15%. 9. Do unit owners have exclusive easements or right to use certain common areas such as patios, decks, storage spaces and parking spaces? Condominiums differ as to how they structure the “ownership” of certain amenities such as roof decks, patios, balconies, 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.  Review the condo plan on this one. 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 a buyer's protection, they should always buy an individual HO-6 policy covering the interior and contents of the unit because the master policy and condo by-laws may not cover all damage to their personal possessions and interior damage in case 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 CC&Rs  Sometimes, there's language that would hurt a unit owner in case of a common area casualty.  Condominiums over 20 units should also have fidelity insurance to protect against embezzlement. Good luck and happy condo hunting!

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