Financial Resource Center


Recognize the Condo Difference Before You Buy

by Dianne Molvig / August 10th, 2020

You've been looking at condos and you think you've found the perfect one. You like the size and layout of the unit, the price suits your budget, and the monthly association fee seems reasonable. You're all set to seal the deal.

Not so fast. You've barely scratched the surface of what you need to know before you buy a condo. Here are some behind-the-scenes issues you need to investigate first.

Check rules, restrictions

A common mistake soon-to-be condo owners make is to assume they’ll have the freedoms they’d have as owners of a single-family home, and can do whatever they want with it. Not so.

You don’t want to learn after you’ve moved in that homeowner association (HOA) rules prohibit sharing your unit with a renter or perhaps even renting the unit out while you live elsewhere, operating a business from your home, having a pet, installing a satellite dish, or painting your front door any color you choose.

Before you buy, obtain copies of documents listing all the current rules and restrictions—and read them carefully.

ID all ownership costs

One of the most important factors for a prospective condo buyer to keep in mind is that you’ll be an owner, not a tenant. Not only are you buying the condo unit, for which you have owner’s responsibilities such as maintenance and insurance, but you also are buying in to common property, such as the physical structure’s exterior, lobby area, swimming pool, and so on. You'll be sharing them with sometimes hundreds of strangers.

You also will share the costs of maintaining the common property. That’s where the monthly association fee comes in. Find out exactly what maintenance the fee covers and whether it's fixed or varies each month. A record snowfall or damaging hailstorm, for example, can trigger raised dues or a special assessment to cover repairs.

Part of your association fee should go into reserves to pay for future major expenses, such as replacing a roof. But if a big expense arises and the reserves don’t cover it, you could face a hefty special assessment. It’s rare, but some property insurance policies cover special assessments.

Delve into HOA finances

All condo associations should have financial reserves; some states require that they do. Larger associations might hire an independent appraiser to do a reserve study, also required in some states, to determine if reserves are adequate to cover projected future maintenance expenses.

The association might not let prospective buyers see the reserve study—it’s technically for owners’ eyes only. If so, ask the seller of the unit you’re thinking of buying to share the study with you. If the seller is hesitant, that may be a warning that reserves are inadequate.

And if a condo board has not commissioned a reserve study, you can ask to see copies of past board meeting minutes to learn what’s been discussed and planned regarding reserves.

The reserve fund is just one indicator of a condo association’s financial condition, which also partly depends on the finances of individual owners. If any have fallen on hard times, they may be facing—or already be in—foreclosure.

If owners are not paying their mortgages, chances are they’re also not paying their share of the common expenses, which means there’s a shortfall in the operating monies. That has to be made up by the other owners.

Find out how many owners aren’t paying their monthly fees. And if it’s a new condo development, or a rental conversion, ask how many units remain unsold. That situation, too, could lead to a shortfall in maintenance money. Find out if the condo developer is chipping in to cover that until those units are sold.

The association’s financial situation also can affect your ability to get a mortgage for your condo. Lenders aren’t just concerned about the individual buyer’s financial wherewithal. They’ll also determine whether the community is financially viable. Does it have a lot of unsold units? How many are in foreclosure? Are there adequate reserves? Talk to a mortgage lender at your credit union for guidance.

Size up property managers

Your condo unit is surrounded by common areas. How well those areas are kept up can have a huge effect on whether you’ll enjoy living in your condo, and will significantly affect its future resale value. Before you buy, find out who takes care of common property. How good a job is being done? The best way to find out is to ask other owners.

Walk the property on a weekend when owners are likely to be out and about. Notice lawn and landscaping details in the summer, and how well sidewalks and driveways are cleared of snow in the winter. Look for signs of neglect such as torn screens, faded paint, and burned out light bulbs.

The condo association board might hire an outside property management company to handle upkeep of common areas. Find out if that contract comes up for regular review, such as annually, rather than being automatically renewed.

Learn about the board

The owners vote for people to serve on the condo association’s board of directors, the decision-making body. Ask current owners about their perceptions of the board. And ask to talk to a board member. You’ll gain more insights to help you determine whether you’ll feel at home in this particular condo community.


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