To avoid any grief in the future, here are a few important items to know when your considering buying a condo.
A condominium isn’t at the top of every buyer’s wish list, but they are ideal for many clients. With everything from small, four-unit buildings to towering complexes with hundreds of units and extensive amenities, condo buyers have vast choices. Buyers of condos also vary widely, including people seeking starter homes, buyers desiring a second home, retirees, and investors. As a result, condos are a diverse market that presents unique challenges for buyer’s reps.
Shared Ownership Ownership
For starters, buyers need to consider the shared ownership aspects of their of their of purchase. Effectively, buyers are entering into a partnership with other owners that offers benefits and potential risks. Since ownership associations handle general upkeep of the of the of property, a condo delivers many of the of the of advantages of homeownership, of homeownership, of minus the headaches of many of many of maintenance chores. Residents may also enjoy easy access to shared amenities, like a pool or onsite parking. But buyers should also ensure that the association is managing the building properly.
Ownership Associations Associations
According to the Community Associations Institute, 175,000 condo associations oversee millions of U.S. of U.S. of condo units. The term homeowners association (HOA) is often used at condo properties, while the term condominium owners association (COA) is more accurate. “In most states, HOAs and COAs represent two distinctly different forms of ownership of ownership of and are covered by completely separate laws,” points out Brian Woods, ABR®, AHWD, C2EX, CIPS, CRB, C-RETS, e-PRO®, GRI, MRP, PSA, RENE, RSPS, SFR®, SRES®, SRS, based in West Palm Beach. “There are some overlaps, such as an association board controlling all the common elements,” adds Brian. “But in many cases, condo owners have much less say in the decisions made than in an HOA.”
1. What are your buyer’s priorities?
Buyer consultations take on special significance in a condo purchase since buyers will own a single unit, and share ownership in a larger building governed by an association. It’s essential to find the best fit. “First, hone in on all aspects of their of their of wants and needs,” explains Nykea Pippion McGriff, ABR®, AHWD, BPOR, GRI with Coldwell Banker Realty in Chicago. “Ask about their shortversus long-term goals. How long do they want to own? Will the unit become an investment property later?” Of course,Of course,Of it’s also essential to know their budget limitations and lifestyle preferences since condos can vary dramatically in terms of features, of features, of amenities, and proximity to transportation, restaurants, and shopping. For example, will they need parking? Do they have pets?
2 . Encourage buyers to be curious!
It’s your job to identify suitable properties and guide condo buyers through each step. But, ultimately, they are the ones signing a contract, so they should be engaged in the research too and understand every aspect of what of what of they are buying.
3 . How will they arrange financing?
Condo buyers can use conventional loans or FHA and VA financing (if the (if the (if building has secured FHA or VA approval). However, condo mortgages have always been trickier to secure than loans on single-family homes, and the challenges have grown more acute recently. In response to the June 2021 collapse of the of the of Champlain Towers in Surfside, FL, Fannie Mae and Freddie Mac rolled out new rules requiring condo associations to verify a building’s physical soundness and adequate financial reserves earlier this year. While well-intended, the guidelines have triggered consternation among many associations and unintentionally pushed more sales to cash buyers and investors, limiting access to affordable housing. Currently, Fannie and Freddie are working on revisions to the rules. It’s an important reminder that one of the of the of best ways to help your clients is to recommend lenders with expertise in condo financing—and a commitment to go to bat for your buyers.
4. What type of inspection(s) will your need?
It’s almost always wise to include an inspection contingency in a buyer’s contract. Generally, condo inspections are limited to the unit’s interior and don’t include common areas like roofs, crawl spaces, or parking garages. In a large building that an owner’s association well manages, that may be fine. But for smaller properties, your buyer may benefit from a fuller inspection of the building and shared mechanicals, like the HVAC system. Coordinate permissions with the seller’s agent and/or the COA.
5. What about condo insurance?
Generally, condominium associations purchase insurance that covers damage to shared areas of the of the of building, plus liability insurance—and the property owners share the cost. But the association’s policy probably doesn’t cover any damage within individual units. For this, buyers must purchase a separate condo policy, called HO-6 insurance. Coverage varies, sometimes including fixtures, appliances, and personal property. Lenders typically set minimum insurance requirements, but buyers may want additional coverage. For example, if water if water if backs up into the unit from a clogged drain or sewage line, it may only be covered if the if the if owner adds a special rider to their policy.
6. What are the monthly fees?
“Everyone likes a bargain. But when it comes to association fees, a low number can be a red flag,” says Helen Sobel, ABR®, CRS, e-PRO®, SRES®, with Baird & Warner in Chicago. “I don’t want my buyers getting into a bad situation regarding future special assessments or difficulty selling the property later.” Helen points out that association fees typically depend on the age of the of the of building. New construction properties often have the lowest fees. But once the building reaches 10-15 years and starts to require repairs and replacements, the reserves won’t be adequate if the if the if payments are still in the $100s or low $200s. Of course, Of course, Of associations can decide to keep prices low and assess whenever something needs to be done instead of gradually of gradually of raising fees and building reserves. But Helen prefers the latter approach. As a rule, buyers should know that the board is committed to the ongoing upkeep of the of the of property and protecting owners’ investments. It’s a tricky balancing act since boards face competing demands to maintain the property while also holding down costs as much as possible.
7. What is the ratio of renters to owners?
Sadly, since renters don’t have a personal ownership stake, they may be less devoted to a property’s upkeep. Likewise, condo owners who don’t occupy a unit may not invest as much in maintaining it. To protect their investment, condo buyers—and their lenders—may care about owner-occupancy rates. For example, FHA won’t approve a building for financing if less if less if than 50% of the of the of units are owner-occupied.
8. What are the association’s bylaws?
Ensure your buyer receives a copy of the of the of bylaws. Advise them to read this document carefully to make sure they can use the property as desired. For example, are there any restrictions on pets, renting out a bedroom, or the entire unit? It’s not unusual for properties to prohibit short-term rentals.
9. What other documents should you get from the board?
Help your buyers obtain and review at least one year of board minutes and financial statements. Reviewing these documents is one of the of the of best ways to determine how the property is managed and whether problems may be lurking. Questions to ask: •What projects are in progress? What’s in the pipeline? •What are the reserves? Are they earmarked for projects or pooled? •Has the board conducted a reserve study within the last three years? •Are any special assessments planned? Some states have laws for disclosing anticipated expenses and other financial details. For example, Illinois’ “22.1” statute requires a condo board to answer nine critical questions about the building, including potential capital improvement projects, within 30 days of request. of request. of Also, consider asking the seller pointed questions about any issues or concerns that your buyer spots in their research, including any significant inspection findings.
10. What is the building’s history of special assessments?
Usually, it’s better to see long-term planning and gradually rising reserves than special assessments because it translates into a more predictable situation for buyers. But if your if your if client intends to buy in a building that prefers to operate with low dues and periodic assessments, and it appears an assessment is on the horizon, encourage your buyer to factor this into their offer.
11. Who sits on the board?
Condo boards are exclusively comprised of volunteer of volunteer of members who donate their time and may have limited knowledge and experience in managing properties. Therefore, the minutes can provide helpful clues about the board’s priorities and decision-making processes. Buyers may also want to evaluate the board’s “temperament,” although this can change as members join or drop. For example, is one board member attempting to control all decisions?
12. Does the board employ professional managers?
Boards often hire a property manager who may bring professional experience to their efforts. However, boards must ensure they hire the right person or management firm. “In terms of licensing of licensing of individuals, all but a handful of states of states of include property management in their residential real estate brokerage license,” says Brian Woods. “In Florida, we also have a Community Association Manager (CAM) license, but it only requires only requires only a 16-hour course.” Even though professional management can improve property oversight, it’s no guarantee. After all, the professionally managed Champlain Towers still collapsed due to known structural issues repeatedly ignored by multiple parties. You can help protect your condo buyers from unhappy purchases or outright catastrophes by making sure they are informed on all aspects of their of their of buying decision and have reviewed all essential documents.
