My wife and I visited a condo during an open house recently. I’m honestly not sure we’re condo people – but it was a nice-looking place in an area we’re considering, so we thought why not? After walking through, it helped to reinforce some of our beliefs (we really don’t want people living below us) but also challenged others (we might be okay in a townhome).
Interestingly, we happened to overhear a conversation between the realtor and a member of the condo HOA (homeowners association) regarding the monthly condo fee. The HOA rep mentioned a fee, then noted that they had implemented a special assessment several years ago. When the realtor asked when it had ended, the HOA rep said it was open-ended. My wife and I were surprised; first that you could have an open-ended assessment, but even more that we had never really considered the differences between a condo and home purchase. Below are some questions you may want to consider before purchasing a condo.
What are the condo fees?
You’d think this would be an easy question to answer, but on the day we visited the condo the fee was listed at $250. The next day I checked the listing and the fee had changed to $350; several days later it was $500. As I mentioned, the condo wasn’t right for us, but the seemingly changing HOA fee would have given us pause anyway.
While you’re asking about the fee, make sure you have in writing what the fee covers. We’ve seen condo fees that cover only common area maintenance and landscaping, while others have included cable, internet, heat, water, and trash collection.
Note: Many people may minimize the impact of condo fees when they are comparing homes. However, it can add up. Here’s an example. The condo we saw cost $400,000. Using a recent 30-year fixed rate mortgage at 6% (with a down payment of 20% and not including interest or taxes), the principal would be $1,918 per month. If you add the $500 HOA fee to your monthly payment, you’re paying $2,418 per month. For that payment, you could afford a home worth $500,000. You could actually buy a home worth $450,000 and pay less per month when you compare it to the $400,000 condo and include the HOA fee with the monthly payment!
What is the financial condition of the condo HOA?
Current budget. Ask to take a look at the current budget for the HOA to see how much they are taking in versus their spending. Is money going into the reserve fund? Are normal maintenance and landscaping charges coming from reserves or through monthly fees?
Reserve fund. What is the current balance of the reserve fund? Condo HOA’s should have a document showing what their reserve fund should total; do they have at least ¾ of that amount in reserves? Also ask if you will need to contribute an amount upon closing to the reserve fund, and how much that will be.
Current owners in arrears. Unfortunately, not everyone will pay their fees on time. Ask how many owners are in arrears on their condo fees.
Tell me about any special assessments
I’ll admit I don’t know a lot about condo HOAs, but the fact that the person was admitting to an open-ended assessment that had covered the last five years surprised me. They explained that there was a fire in an uninsured condo and that they had done some repaving in the community. It sounded like the HOA had not bothered to confirm insurance and also neglected maintenance, and current owners were paying.
It made me curious, so I checked online when I returned home to find out about special assessments. Most websites agreed that well-managed HOAs rarely need a special assessment. They are able to take care of the vast majority of projects from their reserve fund.
What are the rules regarding pets and kids?
When considering a condo, make sure to find out the condo rules regarding pets and children. One place to start is when you drive into the community. We passed several older people, two of whom were walking dogs. Now three people doesn’t tell you everything, but seeing people of retirement age along with the absence of basketball goals and front yard toys may mean it’s not a child-friendly community.
When you talk to the realtor, find out if pets are allowed, and if there are certain breeds of dog that are forbidden. Speaking of pets, are there restrictions on noise during the day?
How can I use the property?
Like neighborhood HOAs, condo boards may also have policies limiting how you can use your property. While you may have more freedom to make changes inside your condo, chances are the outside will be mostly hands-off. Condos often have restrictions on whether you can paint outside walls, decorations you can have at different times of the year, if you can grill on your deck, etc.
Similarly, whether you can rent out your condo could be forbidden or limited to a certain percentage of units within the community. In other words, if it’s allowed, the percentage of rentable condos may have been reached. To rent yours, someone would have to stop renting their condo.
What does the insurance cover?
Quite often, the condo association will purchase insurance that covers the building(s) as a whole; you are required to purchase insurance to cover your belongings. However, make sure you request a copy of their insurance to find out the particulars. For instance, if the roof leaks, do they pay for damage or do you?
I’m glad that we overheard the conversation in the condo we visited. I had no idea there were so many variables in purchasing a condo versus the single family homes we’ve lived in. If you’re in the market, take the time to research the condo association to make sure it is financially sound. Don’t assume anything when you’re reviewing the rules, whether it’s pets or visiting hours or even your parking place. If anything confuses you, get a clear response in writing. These steps will help ensure that the condo is the right move for you now and in the future.
Photo by Jovydas Pinkevicius