BUYING A CONDO?
FOCUES ON THE NUMBERS, NOT JUST THE AMENITIES!
In the last 30 years, condos have become familiar sights on the real estate landscape but they can look and operate very differently from one another. There is a wide spectrum of what constitutes a condo, including:
- The 1960’s apartment complexes that have been spruced up and the ownership legally changed to condos
- The thousands of mills, schools, and churches that have been adapted and reused as condos
- The turn of the century 3 family homes wherein one unit can now command $500,000 or more in some cities
- The upscale townhouse communities with every amenity aimed at the successful young suburban buyer
- The age- restricted development with no children but plenty of senior oriented social programs.
- The second home community with marinas, ski trails, golf courses, and upscale clubhouses
It is easy to find the right lifestyle fit for your buyer clients-whether they are looking for their first home or they are downsizing from the large home in the suburbs to a “maintenance free” home. The units for sale can be staged, the parking lot filled with cars, and the location is perfect! Your client chooses a unit, you encourage an offer “subject to the condo docs” and you feel that your job is almost done. Unfortunately, condos are among the most misunderstood properties by both buyers and real estate agents and having a laissez-faire attitude about the condo documents can get an agent into trouble. 75% of the time, the agents don’t even know if they have all of the condo docs and once the offer has been made, the buyer agent emails whatever the listing agent has sent to him or her- hoping that the buyer’s attorney does not make an issue out of anything.
The condo documents are not the same as the operating instructions for the dish washer and heating system that agents put into a nice notebook to provide at closing. In fact, before an agent encourages his/her client to view some units in a particular community, that agent should have read through all the documents and financial statements to determine if it is the right community to recommend for the client.
New England has many different types of condominium developments, and Planned Unit Developments (PUDS) are often confused as condos. The agent needs to know the difference upfront. In a PUD, the unit owner has a single family detached or townhouse style unit and owns the land under his/her unit. He or she often may be responsible for the maintenance and replacement of the roof, siding, windows, etc. No one else can use the area around their unit vs. a “regular” condominium unit that has limited common areas such as patios, decks, storage units, garage spaces, etc. A limited common area is a part of the complex that is owned by all the unit owners in common; however, the use is restricted to a specific unit owner due to their unit’s proximity to the area. A balcony off a living room is a great example- all the unit owners own the balcony but only one unit owner can use it.
The most important of the condominium documents are the financial statements= not the budget. The financial statements show the actual financial history of the property and may have absolutely no relation to the budget (or projected income and expenses). You and your client need to review the financial statements to see how many unit owners are paying their condo fees late (or are delinquent), what the management fee has been ( it should not be more than 10% of the total budget in a well- run association, whether or not the onsite people have been keeping up with the maintenance (including changing lightbulbs in outside lights and hallways, cleaning indoor common hall carpets, filling in potholes in the parking lot, and paying attention to any pools, tennis courts, and clubhouses. Does the pool have a handicapped lift? This is now a requirement in MA for all hotel, apartment, and condominium complex pools to enable access to the pool for people who have mobility problems.
You and your client need to review the reserves. Many agents believe that you can just hand these statements to their clients, but as a buyer agent, you need to be able to analyze and explain them as well. The capital reserve is the “bank account” that holds the money for the large ticket item replacement such as roofs, septic systems, wells (in NH), parking lot paving, sidewalks, and other capital projects. Look at the list of the capital projects that have been done in the last few years and what the management team has planned for the current year. Ask how old the major systems are and when they need to be replaced. There are many condo projects that are in trouble due to common septic system or well failures, roofs that need replacing, and other expensive issues. Harbor Towers in Boston had huge HVAC issues and had to special assess each owner over $100,000 because the capital reserves did not have enough money in the budget.
Review the Master Deed and the Unit Deed for the complex. Who is responsible for maintaining and replacing the windows? Older condo developments defined a unit as a “cube of air space” with the boundary being the inner surface of the inner most side of the exterior wall. Many unit owners have been surprised to learn that they are responsible for broken glass (especially problematic in a golf course community). Who is responsible for the duct work and the piping that runs through the unit? They may be part of one large system, but once they go through a demising wall into your client’s unit, the client may be responsible. What happens if someone’s tub above your client’s unit overflows and floods your client’s unit? Does the client seek payment from the master policy or from their unit owner’s policy and are they insured sufficiently?
New England experienced an Arctic winter a couple of years ago with 7 feet of snow. Practically every complex’s budget ran a deficit due to snow plowing expenses- which is understandable. You and your client will need to check the Operating Reserves to ensure that enough money has been budgeted for unforeseen expenses.
Become familiar with the Rules and Regulations so that you can discuss smoking, flag flying, yard sales, and other possibly regulated activities with your client before he/she makes an offer. You will protect yourself legally, and instead of discouraging a sale, you will look like the local condominium expert to your client and he/she will be more loyal to you!