This checklist for buying condos ensures that you go beyond a review of the rules and regulations of the association. If you’re buying a condo, you’ve probably reviewed the rules and regulations of the condominium association to confirm they don’t conflict with your planned use of the property. But did you check out the association itself? Failing to ensure that the association’s finances are healthy can lead to huge bills for unsuspecting unit owners.
Why You Should Follow this Checklist for Buying Condos
If you’re buying a condo, you’ve probably reviewed the rules and regulations of the condominium association to confirm they don’t conflict with your planned use of the property. But did you check out the association itself? Failing to ensure that the association’s finances are healthy can lead to huge bills for unsuspecting unit owners.
The worst-case scenario is that a buyer could have a special assessment in the thousands of dollars. Examples of events triggering a special assessment include necessary repairs like a new roof, rebuilt elevators or new balconies or decks. Should any of these things need to be replaced, you could end up with a very high special assessment if the association does not have good reserves.
What Can You Learn from the Budget?
Owners of condominiums pay regular assessments, usually monthly or quarterly, to cover the operating expenses of the association, as well as reserves — funds stashed away for future capital projects. But condo associations also can charge unit owners special assessments for emergencies or unusual circumstances, such as damage to the building caused by a winter storm or rotting retaining walls throughout the community.
Condo buyers should review more than just one year of a budget. Ask your Realtor to include a contingency in your offer allowing you to review the minutes of association board meetings for the past two years and the budget for the last two years. You could read in the minutes from a year ago that there’s a problem with the roof. That could signal that a special assessment is in your future.
Other Components of the Checklist on Buying Condos
Review the past two operating budgets, as well as two years’ worth of board and annual meeting minutes. Be wary if assessments haven’t increased over time; since the cost of goods and services have gone up, maintenance fees should have followed.
Review the reserve study of the major capital components of the building, and make sure there are adequate funds to replace them on schedule.
Ask questions such as the routine maintenance of the building, whether the board expects to increase assessments, and whether there is a current special assessment or one pending or imminent. Try to talk to the seller, the property manager, and board members.
Be skeptical about the operating budget for new construction. Developers often subsidize the expenses of the association by paying costs such as landscaping or snow removal, so it’s common for assessments to increase once the unit owners take control of the association.
Don’t ignore insurance. As a condo buyer, you should determine the insurance obligations of both the association and the unit owners. Typically the association insures the building, while owners are responsible for everything inside their units. Have your insurance agent or lawyer review the association’s insurance to make sure it’s sufficient to rebuild the structure. All unit owners should carry an HO-6 policy that covers the interior of their units and liability.
Don’t waive your right to review association financials. That way, when you do become an owner, you’re not surprised by the amount of money you may have to put in to solve a problem.
