10 Questions to Ask When Purchasing a Condominium

All sales contracts for condominiums should include a provision that a buyer’s attorney is to review and approve the condominium association’s documents, including master deed, bylaws, minutes from most recent annual meeting, current financial statements, annual budget and a statement of fees payable to association at the time of sale. Nevertheless, there are important questions a buyer can ask that will help to determine whether a particular condominium is a good investment.

1. What is the total number of units in the condominium association?

It is important for a prospective purchaser to understand that each owner of a condominium unit shares equally (or sometimes proportionally based on a unit’s square footage) the association’s expenses as a whole for repairs and maintenance of the common areas and parts of the units that are the association’s responsibility. In addition, sometimes special assessments are needed for an association to pay for major repairs and projects that are not covered by the monthly dues. Smaller associations will have fewer co owners to share the costs for general repairs and maintenance as well as for special assessments. Of course, this depends on the size and condition of the association’s common areas and amount of maintenance and repairs that are needed.

2. What is the percentage of units in the association that are non-owner occupied and rented?

A prospective purchaser should understand that it may be more difficult to obtain financing for a condominium purchase in an association with a high percentage of units that are non-owner occupied and rented. If a condominium association has a high percentage of rentals, a purchaser’s lender may consider it “non- warrantable”. Most mortgage lenders will not lend on a non-warrantable condominium because the loan is not eligible to be sold to Fannie Mae or Freddie Mac. Fannie and Freddie will not purchase mortgages secured by non-warrantable condominiums because they are considered more risky and so the interest rate and down payment are typically higher. Another reason for a condominium project to be considered non-warrantable is if one person owns more than 10% of the total units. Even if financing is not an issue, a prospective purchase should consider whether a high percentage of rentals in an association will affect its management and the general quality of life for those owners occupying the units.

3. What utilities are included in the monthly assessment?

Many condominium projects include some of the utilities in the monthly assessment which is offered as an additional benefit. However, remember that all co owners share the cost for those utilities. Sometimes it may be better to pay your own utilities directly than to equally share the cost for everyone’s’ heating or air conditioning.

4. What are the total number of units in the condominium project that are delinquent with their monthly association dues for more than 30 days?

If the number is high in comparison to the total number of units, there could be serious issues with the management of the condominium association.

5. Is there any pending litigation involving the condominium association or the developer?

If so, what kind of litigation? Pending litigation, including foreclosure actions, could indicate issues with the association’s management or a potential for substantial costs for the association.

6. How is the condominium association managed?

Usually, the larger condominium associations are managed by management companies whose costs are a big part of the association’s expenses. In addition, board of directors will sometimes give the management company extensive authority over the day-to-day operations of the condominium association. It is important to understand how the condominium association is managed and the type of management company you will be dealing with as a co owner.

7. Are there any pending special assessments or special assessments under consideration?

In addition, have there been any special assessments or increases in the monthly dues over that past five years? It is not uncommon for a condominium association to have special assessments for unexpected expenses or for major repairs and projects, such as a roof replacement or extensive road repairs. However, multiple special assessments or increases of the monthly dues over a relatively short period to time can indicate that there is a problem with the condominium association’s finances or management. Be sure to check the balance of the condominium association’s capital reserve account. If the condominium association does not maintain a sufficient capital reserve account or does not have a capital reserve account, there is the potential for recurring special assessments and increases in the monthly dues, depending on the condition of the common areas and buildings under the control of the association.

8. Was the condominium association formed from a recent conversion of an existing building or buildings, such as an apartment complex?

If it was a recent conversion, you should obtain a list of improvements and major repairs completed at the time of conversion. This information will provide a general understanding of the condition of the buildings and if any major repairs or projects might be needed in the near future.

9. What is the condition of the common areas and portions of the condominium units that are the association’s responsibility?

A prospective purchaser is certainly interested in a unit’s condition and determining what repairs and maintenance will be his or her responsibility. Do not forget to consider the general condition of the association’s common areas and buildings that are the association’s responsibility. As a co owner, you will be paying for repairs and maintenance for your own unit as well as for repairs and maintenance of the condominium association’s common areas and buildings.

10. Who will be your neighbors and are they satisfied with how the condominium association is managed?

Take time to talk to a couple of your potential neighbors, particularly if your condominium unit is not a detached unit. In addition, talk to a member of the association’s Board of Directors. Do the co owners have any concerns or complaints about how the association is managed? Is the association’s Board facing any important issues in the near future, such as major projects or unexpected expenses? In addition, review the minutes from the last couple of Board of Director meetings as well as the minutes from the association’s annual meeting. Note that many condominium associations have their own web sites where they post important information and documents which you can access.

Our Experienced Ann Arbor Condo Attorney Can Help

An experienced real estate attorney can help navigate buying a condominium. Consult with Bill Ager today! Call us at (734) 649-0784 for a consultation.