Condo Buying Checklist
Originally appeared in Hills Publications, March 21, 2003 and ANG Newspapers, March 22, 2003
There are many differences between buying a condominium and a single-family home. Condo buyers must consider these items before committing themselves.
CC&R’s, Bylaws, Articles of Incorporation
As you will be sharing common areas and services with others in your development, a condition of buying a condo is your understanding and agreement to a set of rules applicable to all owners in the complex. If you rent out your unit, your tenant must adhere to association guidelines or else you could possibly be responsible for the tenant’s misbehavior or lack of cooperation.
CC&R’s (Covenants, Conditions and Restrictions), along with Bylaws and Articles of Incorporation are the basic structure and regulations for the association. For example, to maintain a uniform look, there is usually a restriction on exterior painting. This is performed by tradespeople hired by the association, not individual owners. Similarly, significant structural alterations to the interior are normally subject to prior approval by the association.
Other matters, such as limitations on running a business from the unit and loud noise after certain evening hours, are traditionally included. Exclusion of pets has been addressed by certain changes in the law, so be sure to check association written policy and laws affecting it if this impacts you.
Not paying full attention to required practices could cause headaches. Last year, a man purchased a condo and happily moved in with his longtime companion, a macaw. Shortly thereafter, a neighbor complained that he was violating association guidelines by having a large parrot. This resulted in a big upset that may still be unresolved.
Financial documents
Current budget. Go over the most recent budget for an idea of projected income and expenses. You might notice a large expense for pest control work or a new roof. Are there sufficient reserves for this?
Reserve analysis. By studying the amount of reserves and how much is planned for major repairs or capital expenditures, you may get a clue about an impending assessment of all owners to replenish funds. This could impact your desire to buy or how much to pay.
Income statements, balance sheets. Take a look at these documents to further gauge the financial health of the operation. If you were given the “latest” reports, e.g., dated September 2002 and you are reading them in March 2003, be concerned about how effectively the homeowner’s association is being managed. After all, once you close escrow, their problems become yours.
Number of rented units
Generally, those who own have a greater vested interest in maintaining the property and following the rules than do renters. Despite the fact that there are many wonderful tenants, banks look at a high percentage of rental units as a negative.
Although lenders vary in their criteria, too many rental units in a development could preclude it from being eligible for a loan. Additionally, when considering value, agents and appraisers factor in the percentage of rentals.
Dues delinquency practices
There should be a written policy regarding the handling of association dues and what happens if they are not paid on time. Moreover, ask if there are any further written rules not included in the CC&R’s, etc.
Other items
Be sure you receive the name and telephone number of the agent responsible for the association’s master insurance policy. Give this information to your insurance person so he can verify you have adequate coverage that dovetails with the master policy. Another name and telephone number to be sure to get is that of the association president.
Inquire if there is a “condominium plan.” This will show the entire complex and describe the various models.
Association minutes
Carefully read the past 12 months’ minutes of association meetings. If there are no regular meetings, and/or if current minutes are not readily available, be apprehensive. This could be an indication of a loosely run organization.
Reading a year’s worth of minutes will give you an overview of issues and problems confronting the complex. You might even learn that the reason the seller is moving is because the association has not taken action against a noisy and unpleasant neighbor who could now be your nemesis.
The seller is required by law to inform you of any current or settled lawsuits involving the association. Active or pending litigation may preclude obtaining a loan.
Final Thoughts
The information described above is vital to your condo buying decision. Sometimes, the seller does not have everything you need and the homeowner’s association may be less than helpful in supplying documents with alacrity. This is why the most professional listing agents work to receive necessary paperwork before the property is marketed.
Make sure your agent asks for and is given all items on this list early in the escrow. If you do not receive everything, instruct your real estate representative to send a written memorandum to the listing agent indicating which paperwork is still to be supplied.
As a buyer, you have a contractual right to approve or disapprove all condo-related papers. If you do not understand anything, ask your Realtor. Your unwillingness to accept one or more aspects of how the association is run is a valid reason to cancel the contract and request a refund of your deposit. The difference between being a happy or unhappy owner could be the time you take to review your condo checklist.