Buying a condo
Davis-Sterling.com
According to a Zogby poll 70% of homeowners are happy with their
associations. (So 30% are not happy
with their condos.—editor.) To help ensure you are one of those
satisfied owners,
there are risk factors you should look for before buying a condominium.
You should pay particular attention to the following:
1. Maintenance
Don't assume the association takes care of everything, it doesn't. Find
out what your maintenance responsibilities are so you can budget for
them. Inspect the common areas. If the paint is peeling on buildings,
trees are overgrown, lawns are shabby, sidewalks are tilting—roofs and
plumbing are probably in bad shape as well.
Poor maintenance means you
can expect stagnant property values. It also means special assessments
are looming as water starts infiltrating common areas through roofs,
windows, water lines and drain lines--leading to mold and litigation.
2. Reserves
This is an extension of the maintenance issue. Does the association
have healthy reserves so it can repair large ticket items? If not,
special assessments are inevitable. Reserves in the 70% to 100% funding
range are excellent. Reserves below 50% mean probable future special
assessments. The lower the reserves, the more imminent the special
assessment. If reserves are below 30%, look elsewhere for a condo.
3. Insurance
How much insurance does the association have? If it's at bare minimum
levels, you face a higher risk of a special assessment in the event a
claim is filed against the association. Is the development in an area
deemed high-risk for an earthquake? If so, does the association carry
earthquake insurance? If not, are you prepared to lose your investment
in the event of significant damage?
4. Litigation
Ask the seller about litigation over the past ten years. Also ask for
the past two years of minutes. A slip and fall lawsuit is not a
problem. If the association has had ongoing litigation with members
over the past ten years, run for the exit. The association is
dysfunctional. There will be no peace until the litigants all move or
die.
5. Rentals
Inquire about the percentage of rentals in the development. A high
rental population creates problems for rules enforcement, maintenance
and oversight of the property. If the rentals are nearing or exceed
15%, you should be cautious. If they exceed 30%, it does not matter how
beautiful the condo is, you're stepping into quicksand. It means
property values will stagnate or decline, making it difficult to sell
your unit, recover your investment and get out. At 50%, the development
is in a death spiral.
6. Pets
If they don't have pet restrictions, is the property a dog patch? If
so, barking dogs at all hours of the day and night plus dog doo in the
common areas will be a challenge. If they have restrictions, do you
have pets that violate those restrictions? If so, are you willing to
give up your loved ones for the condo?
If your Realtor tells you the
rules don't matter because the association will never discover the
violation, get a new Realtor.
7. Parking
http://tarleyrobinson.com/http://tarleyrobinson.com/Is there sufficient
parking in the development? If not, it will create problems for you and
your guests. Visit the property on a weekend when everyone is home and
see what the parking looks like.
8. Noise
Ask the seller about plumbing noise, crying babies, TV and stereo
sounds, etc. from surrounding units. If there is a unit above yours,
ask about noise from hardwood floors. If all the above can be heard
through walls and floors, it indicates cheap construction--a harbinger
of future maintenance problems. It also means you won't get any sleep
at night.
9. Finances
Ask for a copy of the budget and annual financial statement--and read
them. Ask about delinquencies. A delinquency rate above 15% means
higher dues to make up the deficiency are probable. Also ask about past
dues increases. If they proudly tell you that dues have not increased
for ten years, it means they kept their dues down by deferring
maintenance for ten years. It also means large increases and special
assessments are in their future.
10. Size Matters
While an 8-unit development is intimate and family-like, all financial
burdens are carried by eight families. Every expense hits a small
association harder than one with 200 units. Because small associations
have tiny budgets, they cannot afford professional management, legal
counsel, proper reserves, consulting fees, etc. If one or two owners
stop paying their assessments, the delinquencies hit hard. If an owner
is dysfunctional or litigious, the HOA lacks the resources to fight
him/her and it becomes a nightmare. There is safety in numbers, the
larger the development, the better.
11. Sales
Activity
If you see a lot of "For Sale" signs in the association, you better
find out why. Like rats fleeing a sinking ship, they might know
something your Realtor isn't telling you.
Recommendation:
Although difficult, you must balance the emotional component of wanting
a particular condominium with the risks described above. It does you no
good to sink your last penny into a condo and then lose it the next
year when you get hit with a large dues increase and special assessment
to cover delinquencies, litigation, artificially low dues and
underfunded reserves. Any Realtor can read the MLS and drive you around
to look at condominiums. What you need is a Realtor who is
knowledgeable of how associations work and respects them. A good
Realtor with condo experience will provide invaluable guidance.
From Davis-Stirling.com by Adams Kessler PLC.
If your association needs legal assistance, call us at: (800) 464-2817.
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