Q: I am sure you have written about this in the past but my girl friend and I plan to buy a condominium later this year. What advice can you give us? Fred.
A: The first advice is that the two of you should enter into a “partnership agreement” before you take title. I wish you all the very best, but things happen and you don’t want to be in a fight later over who gets what, who pays what, and what happens if one of you wants out of the relationship, or dies.
Condominium sales are very hot throughout most of the country. People want the advantages which a condominium can offer — such as not having to shovel snow, cut the grass or worry about making arrangements for maintenance and repairs.
But before you buy, you must do your homework. It is not the same as buying a single family home. All condominium associations have rules and regulations which must be honored by all owners; all associations have budgets which may or may not be adequate.
State laws differ as to whether potential buyers are entitled to receive certain information — before they go to closing — about the activities and operations of the association. In many states, a seller is required to provide potential purchasers with what is known as a “resale package”. If the buyer does not receive the package prior to settlement — or if the buyer does not like what he/she sees in that package — the buyer has the right (within a certain number of days after receiving the information) to cancel the contract and get the deposit refunded.
Regardless of whether your state has such a “resale” requirement, here are the basic things you should review before you actually take title to a condominium unit. Your sales contract should give you the right to obtain the following information, and give you the right to terminate the contract should you not like the information. Normally, you should have a minium of fifteen days from the time you get this information in which to make your decision as to whether you will go forward.
- Condominium Documents: most associations have a Declaration, Bylaws and house rules. Make sure they are current and that the Declaration and Bylaws have been recorded among the land records in your area. Plats and plans are also important because they identify what is a common element, a unit and a limited common element (lce).
- Budget: every year, the Board of Directors of the association must prepare a budget for the next year, showing potential income and expenses. Additionally, the budget must contain adequate reserves for future repairs and replacements. Insist on receiving the current budget, the proposed budget for next year (if it is available) and last years budget. You — or your financial advisors — should review this material carefully.
- Accountants Report: on an annual basis, the association obtains (or should obtain) a report from an independent Certified Public Accountant (CPA). This report shows the financial picture of the Association, as well as important comments from the CPA. The comments (usually called “notes” must be read carefully. They often raise concerns which the CPA has about the financial health of the Association.
These are the minimum documents you should receive and review. It is also a good idea to periodically visit the condominium — perhaps on a Saturday and Sunday — and talk with owners. Some will be guarded in what they tell you; others will be candid and tell you the good and the bad (if any) of their association.
Finally, you should consult your real estate attorney before you sign any contract to purchase a condominium unit. This is an important investment, and you want to make sure you fully understand your rights and responsibilities.
And if you have time, I suggest reading “Escaping Condo Jail”, by Don Debat and Sara Benson. Not all associations are as described in the book but you should be aware and prepared.