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Condo Buying Basics
Before buying a condominium
You are not looking at a house, but a home, it’s important to understand the different types of condo ownership, what to look for when buying a condo, and most importantly how buying a condo is different from buying a home. You will live in a community of owners and share the expenses of the building in varying degrees depending on several items. Let's learn a new word "Declaration" or "CC&Rs (Declaration of Covenants, Conditions, and Restrictions). As you look to find that right condo and the important part is the agreement you will enter into as an owner and this will be referred to. Let's start...
Evaluate if a condo is right for you!
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When you live in a condo, you will likely share at least one wall with a neighbor, perhaps a unit above or below you; and for some people, that’s a deal breaker. For others, the benefits of buying a condo outweigh this and actually enjoy the community aspect for a number of reasons.
What are the benefits?
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The first is that the maintenance of the building is handled by the homeowner’s association (HOA), which means that the costs and responsibility are shared among all residents of the building (no need to own a lawnmower!). But do not be fooled, most of us are. Unless you live in a condo that has a full time maintenance manager, either members of the board, officers or even some owners may be indirectly or directly involved in managing or doing some of the required maintenance. If this is important to you, add this to your list of questions - how do you handle your maintenance and repairs and who manages this?
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Why is a Condo different?
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Many condo buildings offer amenities you couldn’t get with a single-family residence in the same price range, like a pool, gym, and rooftop deck. In addition, condos are often less expensive than single-family homes, and they can be located in metropolitan areas where there are few single-family homes available. In Edmonds, where I live, there are some condos with pools, not sure about a rooftop pool, and some may have a gym, but we have a choice of the bowl and being right in the Edmonds City or not too far from it no matter where you are in the greater Edmonds area. Edmond is a suburb of Seattle, an oasis of sorts, not far from the hustle and bustle; whereas Seattle is bursting with new urban apartments and condos. Depending on your lifestyle and place in life you can find a condo to be a refuge within an urban area, or further out.
Cost differences!
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In addition to a mortgage, if you plan to have one, you’ll have to pay homeowner’s association (HOA) fees, so you need to understand what the fees are made up of. Some are utilities, something you would have to pay in a single family home. Others like maintenance, are future reserve costs are something a single family owner can defer. You can find information on HOA dues (and what they cover) underneath the description of every condo listing. Be sure to work them into your monthly budget to figure out how much you can afford to spend. One more thing about maintenance, condos are not suppose to defer their maintenance long term. That is why the reserve report is so important. When you share the property with many owners maintenance and repairs are to be done as needed and not deferred.
Understand the different types of condo ownership
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There are several different residential building types; the key differences are how much of the land and building your own. Your responsibilities as the owner will vary based on each type, we have discussed some of the legal differences on the governing documents page. Be it a condominium, a cooperative (co-op), town house, or planned unit development (PUD) they all share some items in common and have a homeowners association. Our focus topics are most relevant for condos, co-ops and townhomes. In the end, know what law covers the property and carefully read the Declaration (CC&Rs) and other governing documents. It's as important as finding the right home.
Make a checklist
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Knowing condos are different from a single family home means more than looking at the basic checklist of bedrooms and bathrooms, but also do you want to consider items such as what floor you want to be on, can I have hardwood floors, what about pets. Many condos have limitation and or restriction, so ask.
Find the right agent/broker
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It is recommended you choose your agent/broker carefully. Just like any other professional, the right one will have experience in working with a condo sale, it is just different and the right agent broker can make the difference. Just because an agent/broker is a friend or a member of your church does not mean they are best for you. Consider: how many condos have they listed or sold, do the work in the area you want to buy, how much are they going to assist you in your looking, and are they representing you - the buyer and not the seller. Do not work with an agent who is selling a particular condo if you are buying that condo.
Start searching for condos for sale
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You can find condo on most any real estate site in your desired area. Most allow for the use of a filter options to narrow the search results by property type. Once you find a condo, you’d like to see in person, you can schedule a tour of the property with a real estate agent.
Take a close look at the homeowner’s association
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One thing that all shared buildings have in common is a homeowner’s association. Once you find a condo, you’re interested in buying, it’s a good idea to meet with the president of the homeowner’s association, ask a board member or even stop an owner and ask questions. DO NOT BE BASHFUL - TAKE THE TIME TO DO THIS. YOU ARE GOING TO BE LIVING THERE.
When you receive your resale certificate, you should get a number of meeting minutes to understand exactly what you’re getting into. Ask for board and owner meeting minutes. This will give you insight into how the association handles issues that come up and what it’ll be like to live under the association’s rules. Ask to see a Declaration, the governing documents that control the rules and regulations of ownership responsibilities.
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Ask them how often HOA fees are increased, and why. Again, when you get a resale certificate the budget will be included, but it would be available in the condo unit that is for sale. See how much is in the HOA’s reserve fund and if any special assessments for repairs are planned. If you come across a current resident, ask them about their satisfaction with the association.
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A condo can be self managed or have a property manager. There is nothing wrong with self management if things are done correctly. And just because you have a property manager does not always mean everything is right or taken care of. Some condos manage the property and have a financial manager. What is important is the management being done properly.
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Reserve Report
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Many states now require a reserve report. A reserve report should identify the life of the many components of the building such as painting, carpet, windows and so forth. They all have a life of some amount of time. For example, it might show carpet with a 15 year life, this the report is suggesting the carpet be replaced at that time period. It also means the HOa should be reserved 1/15 a year over the 15 year cycle of that item to have the money in their reserve account to pay for new carpet.
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A reserve report can also call out items in poor condition, for example, water rot, the building needs painting with no life left, thus does the HAO have the money in the bank to pay for this. If not and this item fails, the condo will likely have to assess the owners. An assessment means divide the cost among the owner and make them cumulatively pay for it. Remember, normally the owners are the only source of money to pay for these types of items. And then there is the ROOF, pay special attention to this factor, especially if you are in a very hot, humid, or wet climate. This is a very big ticket item. Has the HOA saved for this?
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Find a lawyer who knows condominium law. Reviewing your Declaration and any paperwork, it is worth the cost of a few hundred dollars. After all, you are likely spending a few hundred thousand to millions and you need to understand the requirements and obligations. So many condo buyers are first time condo buyers and owning one can be a great thing, but it is different than buying a single family home. Know the facts and protect yourself.
Getting a mortgage loan
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If you are applying for a mortgage lender will take a close look at the condo association to assess whether or not to give you a loan. They’ll look at the amount of insurance coverage the building has, the number of renters, fee delinquencies, cash reserves, and any lawsuits the association may be engaged in. You may not be able to get a mortgage if the association doesn’t meet the lender’s requirements. Much of this depends on the lender itself. This is actually a good thing for you. All of this plays into the importance of due diligence when buying the right condo.
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Remember, if you are buying a condominium, you are not just buying a percentage of the building. Again, not just a unit / apartment (the same thing). Make sure the inspector is qualified to inspect the building, not just the unit or see if the HOA has had a recent building inspection. A reserve report may be all you need, it depends on how the report articulates the condition of the building. Most units may have small items to be concerned with, but having a well kept unit and a poor building can put you in the poor house. Get more details by clicking on the home inspection.
This website offers several topic suggestions on the various pages and other important issues and factors. We suggest you review each of them, building your knowledge on buying a condominium. We have more detailed information in our table of contents on the basics; and if you have a question, lets us know we will try to answer it. In addition, we will begin our blog and continue to add new information on a regular basis.
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