Buying a Condo Checklist: Don’t Make These 7 Common Mistakes
Buying a condo is often more complicated than buying a house. When you buy a house the only things you’re really worried about are the appraisal and the inspection. With a condo you not only have these but also a host of other issues. To do it right you almost have to have done it before and learned from your mistakes.
Luckily for you, those who have tripped and fallen have shared their tales of woe. Here are the top seven mistakes past condo buyers have made and are now passing on to help people like you.
Mistake #1: Not Knowing How Many Parking Spaces You Get.
It’s a simple enough thing to look into and is easy enough to verify. How many parking spaces will you be guaranteed with your condo purchase?
Do you have a spouse? Does he or she drive, too? If he or she doesn’t, is it possible they will want to one day?
If you only get one guaranteed parking space, but you need two, it’s going to be a daily grind finding parking. Is the condo nice enough to warrant the added stress? Are you really that good at parallel parking?
Mistake #2: Not Understanding the Condominium’s Demographics.
Are you a professional with no intention of settling down and having kids? Do you have kids, but the condominium caters mostly to older retirees? Make sure that both you and your would-be home are compatible with one another. You want neighbors who are on a similar life path and journey as you. If you and your neighbors are too different, problems are likely going to arise.
Mistake #3: Not Walking Around the Entire Grounds.
Buyer’s remorse is often associated with buying the metaphorical ‘pig with lipstick.’ Escape this plight by doing your due diligence. Walk through the entire neighborhood and condominium. Is the condo you’re interested in the only good one? Why is that? What might that indicate about the neighborhood, condominium, and HOA? Yours may be the first in a revitalization effort, or it may just be a box with a fresh coat of paint.
On a similar note: Get a thorough home inspection and pay the inspector a few extra bucks to walk around the perimeter. If he sees any red flags with drainage, gutters, or with the building’s foundation, these are all things that will likely come up in future HOA fees! Meaning more out of pocket expenses for you in the near future!
Mistake #4: Not Reading Through the Condo’s CCRs
Conditions, covenants, and restrictions, aka CCR for short, are what you can and cannot do in your purchased condo. They are the rules you and your neighbors will have to live by. If you violate them you’ll be fined, or worse, have a lien placed on your home. Read through the CCR backwards and forwards. Is it something you can live with? Or do they seem a little too strict? If you’re on the fence about them, it’s likely you won’t feel at home there and should probably resume looking elsewhere.
Mistake #5: Not Verifying that the Building isn’t in Litigation
If some sort of legal action is taking place with the condominium complex, you don’t want any part of that. Whether owners are suing each other or management, you know the general environment is not going to be conducive to a relaxing evening. The most common type of litigation that takes place with condominiums is building defects (usually as a result of the owners trying to cut corners during construction). When this happens, lenders are usually reticent to finance any purchase there
Mistake #6: Not Looking into the HOA’s Financials
HOAs collect fees and make assessments of included properties. Any money spent by an HOA always comes first from the homeowners (meaning you if you buy the condo). How well an HOA spends and manages its money should be very important to you since, after all, it will be your money. Before you sign anything, look at the HOA’s annual revenue, monthly dues, average balance, pending lawsuits, and reserve funds for catastrophes. If there are any dips or spikes in the funds, request a full explanation as to why.
If the HOA doesn’t have a good hold on its financial obligations, the most likely thing that will happen is that your HOA fees will increase. If the condo is already at the higher end of your budget, spiked HOA fees might put it out of reach. The next likely thing to happen is that the HOA will take away or reduce certain amenities (such as pool cleaning and repair, lawn services, gym hours, etc.
Not all HOAs are created equal. Board members, believe it or not, often don’t know what they are doing. Sometimes they’re elected just because they showed up to a meeting.
So, it is not uncommon for HOAs to be unable to maintain their yearly expenses, nor is it abnormal for their reserve funds to be completely drained. Keep in mind that when fees are raised too high, foreclosures often happen, which reduces the value of everyone’s home in the complex. Not good news for when you decide to sell!
Mistake #7: Not Seeing Whether or Not a Reserve Study Has Been Done.
A reserve study can be thought of as a type of home inspection that tells you what elements of a building’s construction will likely have to be replaced in the future and, likewise, how much those replacements will cost. The study looks at a building’s physical state and then assesses its future financial needs. If you are planning on living in a condominium, a reserve study will tell you what future financial commitments you may have one day.
Advisers recommend that HOAs have, at minimum, 50% set aside for what the reserve study states will be needed in the future. Should a calamity befall your condo, and your HOA is not prepared, your fees will skyrocket overnight. As anyone who has owned his or her own home will tell you, Murphy’s Law is very much a reality. You should always be prepared for the worst.
Do your homework.
Buying a good condo isn’t rocket science. As with any home purchase, just make sure you do your homework so you’re not walking into a money-pit. A good realtor that has sold condos before and who is familiar with the area will help you avoid many of the above pitfalls. However, even if he or she has great credentials, don’t take their work for granted! Verify that whatever information comes your way is accurate and reliable. HOA financials from two years prior is a good place to start, but you need recent, up-to-date information!