There are many things that a condo buyer needs to be aware of when considering a condo. You are not just buying an apartment. You are buying into a shared responsibility.
When you buy a condo you will also own a percentage of the common areas. That includes, for example, hallways, lobby, elevators, amenities and the care and management of the outside of the building and the land it stands on. The common area maintenance is funded through the condo association monthly dues which are paid by every condo owner.
It has always been prudent for buyers, their real estate agents and attorneys to examine the financial reports for a building before closing a sale. Everyone must review all other documents that go along with the governing party. The Rules and Regulations vary from building to building. Be sure to check out the pet rules, remodeling rules, etc. Are the building rules suitable for you? Does your dog weigh too much?
It pays to read everything carefully!
In these times, where there are so many short sales and foreclosures, the financials are particularly important. It is important to note the number of distressed units for sale in the building you are considering. It stands to reason that an owner who isn’t able to keep up with their mortgage payments may also fall behind in monthly assessment payments. Watch for “fire sale” listing prices which indicate a desperate seller who could quickly become a non-paying owner. If too many of your new neighbors haven’t been paying their share of the costs to operate the community, run for the hills! If your neighbors aren’t keeping up you could get hit with a big and unexpected special assessment. You can also expect your own monthly assessment dues to increase.
If only a few of your neighbors are behind on their association dues in the building you are considering, it is still possible that the place is under-funded. Be sure to look at the following:
Dues: Be sure that about one-third of the dues being collected monthly are earmarked for reserves.
Budget: At a minimum, obtain a copy of the most recent budget. Also a copy of the budget from the previous year. Ask for year-to-date income and expense statements that include actual expenses as compared with the budget.
Special Assessments: Find out whether one is being discussed or has been announced but not yet put into effect. It could cost you plenty!
Reserve Study: This is a 30-year maintenance and funding plan for group owned components like the roof, heating system and sidewalks. The study will identify the common elements, assign a useful life expectation to them and determine the cost to repair or replace them, when and how much money needs to be set aside.
Collection policy: Be sure they have a comprehensive written policy detailing what steps will be taken if members don’t pay their fair share. No surprises!
Level of delinquencies: A large percentage can mean big trouble for paying members. Also, under the current rules by which most lenders abide, no more than 15% of all unit owners can be in arrears.
The standard Chicago Association of REALTORS contract for the Purchase of Real Estate requires that buyers be given the declarations, the bylaws, rules and regulations, and the prior and current years’ operating budgets during the attorney review period of the contract. In the event that the documents would unreasonably restrict the Buyer’s use of the property, or there would be an increase in the financial consideration which the Buyer would have to extend in connection with owning the property, then the Buyer can opt out of the property with written notice to all parties.
So pay attention to dates and provisions written into your contract and use them well.
Now that you have been warned to be diligent, it is still a great time to buy a condo. Ownership comes with responsibility, but reaps great rewards!
Posted By: Randee Simborg.