9 questions to ask before buying a condo
Experienced buyers and investors already know what to look for when buying a condo, but first time home buyers might miss to look for some crucial information. Because buying a condo is different than buying a house. When buying a house you are responsible for maintenance, utilities, and more. With condo, you are responsible for interior maintenance, but someone need to take care of exterior. That "person" is Homeowners Association, known as HOA. They collect monthly fees for upkeep the common area. So we've come up to first question to ask:
#1 WHAT ARE THE MONTHLY DUES AND WHAT IS INCLUDED (COVERED)
Monthly dues set by HOA vary from property to property, so make sure you are aware of the amount. They usually go up from time to time, like property taxes or rents. Take that in account.
Not all HOA bills include the same coverings, so make sure whether dues cover sewer, water, garbage, pool maintenance, etc.
#2 ARE THERE ANY SPECIAL ASSESSMENTS AGAINST PROPERTY
Many associations do an excellent job of planning for replacement costs and are adequately prepared when, for example, their roofs are in need of replacement. However, others accumulate funds based on outdated or unrealistic cost estimates and discover when the day comes for a major repair or replacement that they do not have the funds to pay for the project. Such associations need to levy the entire cost of certain job and charge the individual units and their homeowners, YOU. There are two options how assessments are going to be paid: first, you will get a whole sum to pay at once; or second, you will have to paid monthly charges for certain amount of time until paid in full.
Example: HOA needs to repair the roof that costs $100,000, but it only has $20,000. There are 10 units to share that expense of $80,000, which means every homeowner will owe $8,000 as special assessment. Those $8,000 will be paid either in full, or in years for $333 monthly. In either option, YOU as new homeowner will likely inherit all that debt.
#3 IS CONDO DEVELOPMENT FHA APPROVED
Condos are great option for first time homeowners (they are cheaper to buy), who rely a lot on government backed loans - FHA. With only 3.5% down payment and low credit score required, this type of loan is great opportunity for new homeowners-to-be. So even if you're not interested in such a type of loan, think ahead. If you need to sell it, it will expand the number of potential homebuyers for your home.
#4 IS THERE A RENTAL CAP?
When you want to buy a condo, you need to abide the HOA rules. You cannot go somewhere for year or two and rent your place. Rental cap is the maximum number of units in a condo development that be rented at one time. All other units must be owner occupied. For condominiums with caps, 20% is a common. If you are buying a condo only to be able to rent it, then it is critical to you to check that option - rental cap!
#5 WHAT IS THE CONDO'S PET POLICY
Whether pets are acceptable or not, vary from association to association. Better check it out before keys are handed to you, and then discover that your lovely dogs are not welcome. Check even for fish. Some HOA ask for additional fees or they allow pets up to specific size.
#6 DOES THE CONDO COMES WITH DESIGNATED PARKING
If it is important to you how many designated parking slots will you have, or whether it will be covered, uncovered or street parking, you better check that out. Never assume that the condo comes with an allocated parking spot.
#7 ARE THERE ANY CURRENT LITIGATIONS
When purchasing a condominium you want to avoid ending up with one that is involved in litigation,the most common of which is where the Home Owners Association is suing the builder. Most new construction condos come with a 10 year builders warranty and warranties are only as good as willingness of the builder to stick with that warranty. The classic items that will fail fist are the siding, the windows, the roof and the decks. They are exposed to the wind, rain and elements. So if the builder wins the case or weasels out by declaring bankruptcy, homeowners, or saying YOU, will be responsible for their debt.
#8 WHEN WAS THE LAST TIME THAT RESERVE STUDY WAS DONE
Condos, as any other types of property, need maintenance. Being prepared and always having enough funds to address the maintenance needs, HOA must hire, from time to time, an independent agency to do and write a Report Survey. They conduct the inspection and write in the survey what of the projects requires immediate attention and what should be done in the next period. Like your car: you need to do regular maintenance and take it to the mechanics for oil change, brake inspection etc. And they hand you a report what's good, what should be changed on the next visit, and what is urgent. well run condo association will have healthy financial reserves and be able to cover the recommended updates without having to start tapping the individual owners. A badly run association will probably be scrambling to make up the needed funds and likely have a history of one special assessment after another. These are the condominiums you want to avoid or seriously reconsider before making an offer.
#9 IS RESALE CERTIFICATE AVAILABLE BEFORE MAKING AN OFFER
Many answers od the previous questions lie in the Resale certificate, which the seller is obligated to give you, as part of the condo purchase process. This is a very voluminous document containing HOA rules, Covenants, Conditions and Restrictions (CCR's), a copy of the most recent Reserve Study, etc. Seller is required to pay a fee for Resale Certificate, and when orders it, it may take up to 10 days from the mutual agreement for RC to be delivered. A lot of rules are unknown, and the deal can fall apart when RC arrives.