So you’re thinking about buying a condo… in the District hmmm… DC or possibly even Montgomery County (MD).
Condominium [aka condo] living is a very popular option for many Americans. Currently, in some parts of the country and especially in the DMV (DC-Maryland-Virginia), more than 1-in-3 new homes built is a condominium.
Interest in condominiums tends to grow with the shortage of rentals, relatively low mortgage interest rates, and urban core renewal.
If this is your first time buying a condominium (typically shortened to just condo), you may be surprised by the various matters to consider. (Yikes!) Buying a condo is not the same as buying a house. You’ll likely have at least one adjoining wall with your neighbors, as well as other physical elements that are different from a single family detached aka freestanding home.
Then there’s condo financing. The process you need to go through to make your decision and obtain a mortgage for a condo may differ significantly.
We created The Ultimate Guide To Buying a Condo to help you become an informed condominium buyer. You will find all the basic background information you need to get started on your path to condominium ownership. Additionally, we’ll identify important questions to ask and the people you should be asking.
We hope you get lots of value about buying a condo. (And there’s a lot here!)
I hope you find this guide helpful!
Dana Ash-McGinty | Principal Broker, Realtor® (DC,GA,MD)
Note: Please see the glossary at the end for definitions of some of the terms used in this guide.
Part 1 – Just What is a Condominium?
- What Types of Condominiums Are There?
- What Do I Own When I Buy a Condominium?
- What Rules and Restrictions Might I Encounter in a Condominium?
- Living in a House vs. Condo Living
- Who Takes Care of the Building and Grounds?
- Getting a Mortgage for a Condo
- What Insurance Will I Need When Buying a Condo?
- Will I Be Able To Rent My Condo?
Part 2 – Is Buying a Condo Right For You?
- New, Re-Sale or Conversion Condo— What Are the Differences?
- Pros vs. Cons of Buying a New Condo
- Conversion Condominiums
- Buying an Existing Re-Sale Condo
- What Records Am I Entitled To When Buying a Condo
- What Are the Costs for Buying a Condo?
- What’s Included in Condo Fees?
Part 3 – Who Should I Consult About Buying a Condo?
- Do I Need a Realtor To Buy a Condo?
- What Does a Home Inspector Look For In a Condo?
- Working With a Condo Mortgage Lender/Broker
- Questions To Ask When Buying a Condo
- Condo Terms
Let’s get started…
Just What is a Condominium?
Most people have a general understanding of what a condominium (aka condo) is: you own your “unit” within a larger building or community of other condo owners.
Condominium living can offer the prospective homeowner various attributes, such as more affordable housing and low maintenance lifestyle. Many condominiums have enhanced security features over those found in single-family houses. Condominiums can be complete communities within one complex offering a wide range of social, entertainment and recreational activities.
But… here’s what you really need to know:
A “condominium” refers to a form of legal ownership, as opposed to a style of construction.
A condominium is a type of property ownership involving multiple-unit dwellings where a person owns his or her individual unit, but the common areas are owned in common. All members share in the costs and maintenance of the common areas.
Condominiums are most often thought of as high-rise residential buildings, but this form of ownership can also apply to townhouse complexes and low-rise residential buildings.
Condominiums consist of two parts. The first part is a collection of private dwellings called “units“. This is your own personal “condo” and everything in it.
Each unit is owned by and in the name of the purchaser of the unit. The second part consists of the common elements (sometimes called “common areas”).
One description of a condominium ownership is the air space of a unit in a multi-unit development. This is the air space within the four walls that divide a unit from other units or common areas in the property.
When buying a condo, owners receive a deed for their unit just like if they bought a house. They own their unit in fee simple, which is the least restrictive form of real estate ownership recognized by law.
Similar to a a single family detached house, a condo owner generally has the right to sell and use the unit as they see fit, unless there are covenants restricting such use or transfer. In simple terms, a covenant is an agreement that provides a right or imposes a restriction or condition that is binding on the owner of the condo. You’ll also see covenants on the use of the common elements.
Owning a condo unit is very different than owning a detached house. For example, you may own the interior walls to your unit, but you may not own the exterior walls. Consequently, it’s super important to carefully review the condo docs to understand what you own and what you can do. We’ll be discussing these documents in “What To Look For in the Condo Docs“.
General common elements are controlled by the condominium management. This may include lobbies, hallways, elevators, recreational facilities, walkways, gardens, etc. Common elements may also include structural elements and mechanical and electrical services. The ownership of these common elements is shared amongst the individual unit owners, as is the cost for their operation, maintenance and ongoing replacement.
Each unit owner has an undivided interest in the common elements of the building. The unit factor for any particular unit will generally be calculated in proportion to the value that the unit has in relation to the total value of all of the units in the condominium corporation. The unit factor will tell you what your ownership percentage is in the common elements and will be used in calculating the monthly fees that you must pay towards their upkeep and renewal.
Items purchased, installed, removable and usable only by individual condominium unit owners are not common elements.
Limited Common Elements
Limited common elements are those that less than all the owners have the right to use. Limited common elements may include things that are directly connected to individual condominiums such as outer doors, windows, and balconies. They may also include amenities which service every community resident equally. For example, use of a common patio might be limited to all the owners of a certain floor of the condominium building. Other examples of amenities that are limited common elements are: driveways, garages, elevators, clubhouses, swimming pools, and boat slips.
The condominium association manages the condominium and all of the condo owners are members of the association. Members will elect a board of directors and officers to run the association and make decisions on its behalf.
Keep in mind that condo owners are responsible for paying condominium fees that will be used to maintain the common elements and provide other condo services like landscaping and snow removal. These fees are often paid on a monthly basis much like a tenant pays rent. If your condominium association doesn’t maintain sufficient reserves, you may get hit with a special assessment for major or unexpected repairs.
Find out what’s included in the condo fees.
What Types of Condominiums Are There?
More than ever, people are choosing to live in condos, lofts, and townhomes. For some, this decision is about cost and convenience.
Condo vs. Apartment
While some condos and apartments may look the same, the difference is the type of ownership. A condominium is a unit owned by an individual homeowner (or investor) who is legally entitled to share the use of common areas with all other owners.
An apartment building or complex is usually owned by an individual or corporation, with individual apartment units leased to occupants. Apartment tenants may use shared facilities and amenities according to the conditions spelled out in their leasing rental agreement.
As a practical matter, builders tend to build condominiums to a higher quality standard than apartment complexes because of the differences between the rental and sale markets.
What is a Co-op?
Co-operatives, or co-ops are not considered to be real property. (Real property is fixed property, principally buildings and land.) Co-ops are owned by a corporation, and co-op buyers own shares in the corporation that entitle them to the exclusive use of their units. Co-ops tend to have fewer amenities than condos and are often located in older buildings. Most co-op associations require that prospective buyers be approved of a committee comprised of current co-op owners.
Types of Condo Styles
Condos, lofts, and townhomes are types of condominium ownership.
Condominiums come in various styles including, high-rise (7+ stories) or low-rise, townhomes, garden-style, etc. There are even mixed-use condominiums that are partly residential and partly commercial buildings. They come in various sizes with diverse features and they can be found in almost every price range.
Here are the various condo styles:
- high rise (7+ stories) – The term “high-rise” refers to a building that vertically rises seven or more stories; in major urban areas buildings can be 30+ stories
- low rise (6 or less stories)
- townhomes – this is different than a row home; typically 2 stories, but may have 3+
- garden style condo – is an outdoor style (garden) condo that is typically 1-3 stories. The complex has a garden-like setting, surrounded by lawns, trees, shrubbery, and gardens.
What Do I Own When I Buy a Condo?
When you buy a condominium, you own your unit, as well as a percentage of the common property elements allocated to the unit. The boundaries of each individual unit and the percentage of common elements you own may vary from condominium to condominium, depending on how they are specified in the condominium’s governing documents. Sometimes, the unit boundary can be at the backside of the interior drywall of the unit’s dividing walls. Alternatively, the unit boundary can be the centre line of the unit’s walls.
The boundaries of your condominium unit are an important consideration at the time of purchase— particularly if alterations and renovations are a potential part of your purchase plan.
The unit typically includes any equipment, systems, finishes, etc. that are contained only in the individual unit. The right to use one or more parking spots and storage areas may be included. While you may have exclusive access to parking spot or storage area, you seldom actually own the space itself.
Components of building systems that serve more than one unit, such as structural elements and mechanical and electrical services, are often considered part of the common property elements, particularly when they are located outside of the unit boundaries specified in the condominium’s governing documents.
There may be some parts of the condominium complex that are called “exclusive use common property elements“. They are outside the unit boundaries, but are for the exclusive use of the owner of a particular unit. Balconies, parking spaces, storage lockers, driveways and front or rear lawn areas are common examples of exclusive use common property elements. It is important to be aware of any exclusive use common property elements before you make an offer to purchase a condominium. While these spaces are exclusive to your use, there may be restrictions on how and when you use them. For instance, you may not be able to park a boat, RV or commercial vehicle in your assigned parking spot. There may also be restrictions on what you can place on your balcony.
What Rules and Restrictions Might I Encounter in a Condominium?
Before buying a condo, it is important to know all of the rules and regulations for the building or complex.
Every condominium is governed by its own unique rules, regulations and bylaws. These may be very strict or very relaxed depending on the nature of the condominium corporation. These are necessary to ensure that condominiums are properly operated and maintained and to define the rights and obligations of the individual owners. With respect to rules regarding the individual owners, condominiums may have restrictions regarding the number of occupants per unit, pets, noise, parking and when certain amenities may be used.
Many condominiums have strict rules concerning the alteration of the unit space or its appearance. For example, the condominium corporation may require all the exterior doors of units to be the same color to keep the architectural and community aspect of the condominium intact.
Additionally, you may have to get the permission from the condominium’s board of directors before you change exterior fixtures or install a satellite dish, especially as some changes may affect the condominium structure or safety. Noise is an important consideration, especially for people moving from a single-family dwelling to a multi-unit condominium. Many condominiums have rules regarding what noise levels will be tolerated and at what hours. For example, if you are hosting a party in your unit, you may be asked to turn the music down at a specific hour. You may wish to clarify the rules regarding noise, and if possible, talk to current residents about any noise problems they have experienced in the past and how they were handled.
Individual condominium owners may be obliged to attend condominium meetings or serve on condominium boards and committees. Almost all condominiums have requirements for the payment of monthly condominium fees. There can also be mandatory charges for unforeseen repairs to the condominium common elements.
Be sure to carefully review and consider all rules and obligations when considering buying a condo. They should be available from the unit’s vendor (the seller), the property manager or the board of directors. The rules of the condominium will be clearly outlined in the condominium governing documents, and you should become familiar with them prior to purchasing a particular condominium unit.
While the rules and regulations of condominiums may initially seem to be overly strict, particularly to those used to rental housing or owning their own home, they help to ensure that condominiums are safe and enjoyable communities to live in for all concerned.
Living in a House vs. Condo Living
Living in a detached single-family house can be quite different from living in a multi-unit condo building. Here are some points to consider if you’re thinking of making the switch from a house to buying a condo.
Noise – In a multi-unit, your neighbors are much closer, so you may hear them more. Many condominiums have strict rules regarding how much noise will be tolerated, and at what hours of the day. Noise can also come from the mechanical services such as plumbing, heating, ventilation and air-conditioning systems, elevators and garbage chutes. When purchasing a condominium, you may want to consider the location of these services relative to the unit you are thinking of buying. Additionally, when buying a new condominium, you may want to ask the developer if any sound transmission reduction measures have been used in the construction of the building’s walls, ceilings and floors. When buying an existing condominium, try to visit the unit during the evenings or weekend to get a sense of what the noise may be like at the time you are most likely to be in the building. Consider the location of the unit relative to elevators and garbage chutes. Check to see if the unit faces a busy highway. If so, air-conditioning might be a necessary feature so that windows can be kept shut in the summer.
Independence – Condominium living involves compromise. In return for having someone else fix the roof or cut the lawn, you will no longer have the final say in what color you want your shingles to be or the timing of yard maintenance. Your condominium unit will likely be considerably smaller than your current home. You’ll need to consider which furniture and appliances will fit and what you might have to leave behind. For instance, your unit may not be able to accommodate a washer-dryer set which may mean having to use a common laundry room.
Lifestyles – Many condominiums are specially suited for certain lifestyles, such as families with young children, or seniors. Any condominium provisions regarding pets should be known as well. It is important to ensure that the prevalent lifestyle of the condominium you are considering fits your lifestyle.
Security – Many condominiums offer increased security services, such as closed-circuit cameras in lobbies and parking garages and security guards, to ensure that only unit owners and authorized personnel can access the building. Your condominium may require that any guests to your unit sign in and out of the building. Make sure you are comfortable with the security arrangements before buying.
Unit Occupancy – While many owners of condominium units actually live in their units, some condominium buildings have a large percentage of the units rented out to others. If this is important to you, try to find out from the property manager what percentage of the building is owner-occupied. This is an important consideration, as a condominium building dominated by rental occupancies may not show the same pride of ownership and sense of community and security as a building that is fully owner-occupied. Additionally, absentee owners may not have the same maintenance and repair priorities for the building as owners who actually live in the building.
Who Takes Care of the Building and Grounds?
So, “How does a condo work“? Who handles the day-to-day operations?
Most condominium corporations contract-out the day-to-day operations of the condominium to a property management company under the direction of the condominium’s board of directors. The cleaning of common areas, payment of common area utility bills, operation and maintenance of the central space and domestic hot water heating and air-conditioning systems, snow and garbage removal and the collection of monthly maintenance fees may fall under the jurisdiction of the property manager. There are usually limits to the property manager’s authority. For example, anything that requires a major expenditure, or an expenditure not accounted for in the annual budget, may have to be approved by the board of directors. The property manager is not usually responsible for items or operational problems within individual units, unless they are related to the common elements (e.g., heating systems, roofs, windows, exterior walls).
The condominium unit owner is responsible for some maintenance duties and the condominium corporation for others. These responsibilities vary from condominium to condominium and should be clearly laid out in the condominium’s governing documents.
Maintenance duties for the unit owner can include:
- Internal unit plumbing, appliances, heating, air-conditioning or electrical systems that are contained in and serve only that unit;
- Cleaning window surfaces that are accessible from inside the unit;
- Cleaning some parts of the common elements, such as balconies and patios that are assigned to or exclusive use of, the unit holder
Maintenance duties for the condominium corporation can include:
- Common plumbing, electrical and heating and air-conditioning systems;
- Roof and wall repairs;
- Windows and doors—repairs and replacement;
- Grounds cutting, watering;
- Recreational amenities;
- Parking areas;
- Any other part of the property that is not part of a unit.
Sometimes the responsibility for maintenance and repair can be shared. For example, a heating and air-conditioning (HVAC) system may be part of the common elements, but the unit owner may be responsible for some tasks, such as changing filters.
Getting a Mortgage for a Condo
All of the major lending agencies — Fannie Mae, Freddie Mac, the FHA, USDA and VA offer home loan financing options for buying a condo. Fannie Mae, FHA and the VA have approved condominium lists.
Warrantable vs. Non-Warrantable Condominium
You’ll need to know the difference between a warrantable and non-warrantable condominium.
If a condominium is warrantable, it simply means it meets the guidelines set by Fannie Mae, FHA or VA for mortgage lending. By understanding the requirements for a warrantable condominium that meets these guidelines, you’ll understand some of the risks of purchasing a non-warrantable condominium.
If a property listing indicates the property can be purchased using conventional, FHA or VA financing, that’s a good sign it’s a warrantable condominium. (Other properties may be warrantable using Fannie Mae’s limited or full review process, but be prepared for a longer loan process.)
Non-warrantable condominium financing is more expensive, requires higher down payments and may not be offered by some lenders.
A conventional loan is any type of home buyer’s loan that is not offered or secured by a government entity. Instead, conventional mortgages are available through private lenders, such as banks, credit unions, and mortgage companies.
However, some conventional mortgages can be guaranteed by two government-sponsored enterprises; the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
Conventional loans typically require 5% down, however there are special programs allowing 3% down. This is one of the most popular mortgages chosen for a purchase in the mortgage industry and can be used to purchase almost any condo.
These loans typically require a borrower to have good-to-excellent credit (620+) with a proof of reliable monthly income.
Conventional loan interest rates tend to be higher than those of government-backed mortgages, such as FHA Loans.
How Do Conventional Loans Compare?
- Interest rates are typically lower for conventional loans (while LTV can be higher)
- More suitable for long term loans (typically 15-30 year mortgage term)
- Works better for owner-occupied, residential, non-commercial properties
- Requires more strict borrower qualifications with more underwriting guidelines and regulations
- Loan application approval is primarily based on household income, credit score, Loan-To-Value (LTV ratio) and Debt-To-Income (DTI ratio) and overall credit history.
Conventional vs. Conforming
Conventional loans are often mistakenly referred to as conforming loans or mortgages. While there is some overlap, the two are distinct categories.
A conforming mortgage is one whose underlying terms and conditions meet the funding criteria of Fannie Mae and Freddie Mac. Chief among those is the dollar limit, set annually by the Federal Housing Finance Agency (FHFA). In 2020, in most of the U.S., a loan must not exceed $510,400.
So, while all conforming loans are conventional, not all conventional loans qualify as conforming.
For example, a jumbo loan of $800,000 would be a conventional loan but not a conforming loan—because it surpasses the amount that would allow it to be backed by Fannie Mae or Freddie Mac.
FHA loans are mortgages issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). These loans are designed for low-to-moderate income borrowers. FHA loans require lower minimum down payments and credit scores than many conventional loans.
It’s important to note that the Federal Housing Administration doesn’t actually lend you money for a mortgage. Instead, you get a loan from an FHA-approved lender, such as a bank, and the FHA guarantees the loan. You pay for that guarantee through mortgage insurance premium (MIP) payments to the FHA. MIP is paid both up front and monthly regardless of your down payment or loan to value. Your lender bears less risk because the FHA will pay a claim to the lender if you default on the loan.
This is the perfect loan for the first time homebuyer with limited resources for down payment and closing costs. Ideal for the borrower with low to moderate income. A FHA Loan allows for the greatest credit and underwriting flexibility of just about any other mortgage loan program available. A final benefit of this loan is that it allows sellers to pay 100% of your closing cost, thereby requiring your 3.5% down payment as your only out of pocket money for closing.
However, FHA condominium loans can be more complicated than some other types of new purchase real estate loansdue to the FHA has requirements places on condo projects.
In order for a condo to be approved for a FHA Loan, it must be on the FHA’s list of approved condominium projects. FHA publishes a searchable list of approved condo projects.
VA Loans are government loans designed by the Veterans Administration for Military personnel, families and Veterans.
The VA allows for zero down payment loan amount with no monthly mortgage insurance fees.
Both Veterans and their widowed spouses are eligible for VA loans giving them access to this one of a kind loan program. The greatest benefits of a VA loan are zero down payment requirements and no monthly mortgage insurance. VA Loans don’t require mortgage insurance, potentially can save you $100 to $300 per month on your mortgage payment.
A USDA loan (also known as a Rural Housing loan) is a government loan and one of the most affordable home loans available. The primary purpose of the USDA mortgage is to promote home ownership in rural areas. The definition of rural is quite liberal. Many suburban neighborhoods are now eligible for USDA financing. This loan offers 100% financing with zero down payment and sellers can pay up to 6% towards buyers closing cost thereby making it possible for the purchase of a home with absolutely zero dollars out of pocket.
Mortgage Options For Purchasing a Condo
|Mortgage Loan Option||Minimum Downpayment||Credit Score|
|Conventional Fixed Rate Mortgage||5% of Purchase Price||620 minimum|
|FHA Purchase Loan||3.5% of Purchase Price||580 minimum|
|FHA Second Chance Loan||10%** of Purchase Price||500 minimum|
|FHA 203K Loan||3.5% of Purchase Price||640 minimum|
|VA Loan||N/A||620 minimum|
|USDA Loan||None; 100% Financing||640 minimum|
|Jumbo Loan||10%||660 minimum|
The maximum loan amount for each loan varies by County and State.
*Only required if less than 20% Down Payment
** 10% down payment required on any score between 500 and 580 or 3.5% down payment required on 580+ credit score
What Insurance Will I Need When Buying a Condo?
Both the unit owner and the condominium corporation must have insurance. Specific insurance requirements vary from state to state.
The corporation may be responsible for insuring:
- Common areas and units;
- The corporation’s property, such as furniture, equipment, vehicles, etc.;
- Personal liability—against claims for bodily injury and/or property damage occurring on the condominium property or caused by some act or omission of the condominium corporation;
- Boilers and equipment (for example, elevators, HVAC systems, etc.);
- Directors and officers insurance—to respond to claims made personally against a director or officer of the condominium;
- All perils as per the condominium governing documents.
The unit owner may be responsible for insuring:
- Personal property contents such as appliances, furniture and jewelry, and items stored in lockers
- Improvements made to the unit (for example; installing new cabinets)
- Personal liability
Will I Be Able To Rent My Condo?
Here’s a question you must ask, even if you are purchasing a condo as your primary residence.
You never know when a job transfer, marriage, family growth, etc may show up unannounced. This not the time to find out the condo rental policy for your building or complex. And yes, every property has some type of rental policy and procedures.
Many condominium buyers purchase their units as an investment with the intent of renting the unit out. While most condominium corporations allow owners to rent their units to a third party, you should confirm this through a review of the condominium’s governing documents.
Just in case you pride yourself on being an outlaw (lol), you probably shouldn’t plan to ignore the rental policy. Per your covenants, your HOA may be able to fine you daily until compliance or even force the eviction of an “illegal tenant”. So, find out the rules and follow them!
Is Buying a Condo Right For You?
Condominiums, or condos, can be great alternatives to single detached homes. City dwellers, singles, couples, and many others find that condos that suit both their needs and budgets. Others may simply prefer low-maintenance living. Buyers who feel “priced out” of single family detached homes may discover condos offer an affordable homeownership alternative.
For some buyers, a condo is a place to live for a few years. For others, a condo living is a lifestyle.
Condominiums come in all sizes and all kinds of building forms. There are newly constructed condominiums, condominiums that have been converted from office or warehouse space, and re-sale condominiums.
There are lots of benefits to buying a condo — chief among them the fact that you own your property. However, along with the benefits, there can be a few hassles.
When you’re in buying mode, it’s common to think only in terms of the amount of the mortgage payment and HOA dues — a condo is a huge purchase, after all. But it’s essential not to forget that a condo is more than a financial commitment, there is a social aspect of living in a condo as well.
The Social Setting
Different condo buildings and complexes work well for different kinds of people, so get to know your building as well as your prospective neighbors to make sure it’s a good fit for you.
Breaking Down The Condo Docs
All condominiums have bylaws that govern the owners and residents. These bylaws, also known as “covenants, conditions and restrictions” (CCR). In the condo docs you’ll find information about fees, parking, pets and any other rules you will need to know before purchasing a condominium.
In the condo docs, it is important to review the complex’s operating budget, subleasing and remodeling restrictions.
New, Re-Sale or Conversion Condo— What Are the Differences?
The term “new” is applied to condominium buildings that are either under construction or have been newly completed, while the term “conversion” can mean the building was previously used for something else but has been, or is to be, renovated for residential use.
For example, many loft-style condominiums are converted from former commercial or industrial buildings. Conversions may also refer to the changing of units from rental units to condominium units. Buyers typically purchase both new and conversion condominiums from a developer.
“Re-sale” condominiums are units that have already been occupied, typically in older buildings, and are offered for sale by the current owner.
Pros vs. Cons of Buying a New Condo
Newly constructed condominiums can be an attractive option for the prospective owner. They offer all of the benefits of a newly constructed building (fresh appearance, modern fittings, surfaces, elevators, appliances) while providing unit owners with the chance to customize their units.
You can purchase a new condominium from the developer either before or during its construction and well before the condominium corporation is formed. A developer may have some unsold units available after the condominium has been completed and registered. In some market conditions, a developer may wait to sell a majority (or all) of the units before registering the condominium corporation or starting construction. Deposits are typically required to secure, or reserve, a condominium unit in a new development.
When looking over the drawings and specifications, ensure that you are aware of the basis of any floor area measurements: do they reflect the actual floor area of the unit or do they include the exterior and interior wall floor space areas as well? You should also be aware of plans to reduce the ceiling height in any locations in the unit to accommodate ductwork and other mechanical and electrical services. This can have an impact on the esthetics of the unit and affect the eventual location of lighting fixtures and furniture as well as wall decorations and fittings. Similarly, be aware of the future location of heating and air-conditioning equipment, ventilators and hot water heaters as this can affect the availability and esthetics of the space in your unit.
Other important issues to consider in the purchase of a new condominium are related to construction quality. Some key questions to consider include: Are there any special provisions to limit noise between units? How are the units heated, cooled and ventilated? How are odours controlled? Is the building energy-efficient? Who operates and maintains the heating and air-conditioning systems? What options are available for suite wall and floor finishes, cabinets and fixtures?
You should also be aware that the view from your unit might be subject to change if the building is being constructed in a newly developed area or as a part of a larger complex. Be sure to ask about the future construction plans for adjacent open areas as your view may change significantly with the construction of a neighbouring high-rise.
When shopping around for a new condominium, it is important to ensure that you are aware of what is and what is not included in the purchase price. For instance, are there amenities such as pools and parking? How is access to such amenities paid for? Are finishes within the units included in the purchase price? Are there other charges over and above the purchase price you should be aware of? Are utilities (gas, electricity and water charges) covered in the monthly condominium fees or not? All such questions must be considered to ensure that you can compare the overall costs associated with different condominiums.
Rules and regulations for new condominiums vary from state to state. New home warranties are often available for newly constructed condominiums. Be sure to make yourself knowledgeable about what the warranties cover and for how long.
Quite often, there is a lengthy wait before a new condominium project is completed and you can move in. It is always important to evaluate the current state of the construction project. Consider whether or not it seems reasonable that the project will be completed by the date set out in the purchase agreement from the developer before making your moving and financing arrangements. Agreements of purchase and sale may contain provisions that allow the developer to extend the dates for making the units available for occupancy. This can be problematic if you have made arrangements to vacate your existing housing by a specific date based on the original closing date. If this is an important consideration for you, ensure that you are aware of any occupancy delay clause in your purchase agreement and plan accordingly. You should also check your state homeowner protection legislation to learn your rights in cases where agreed upon occupancy dates are missed.
In some jurisdictions, in compliance with legislation, the developer of a new condominium must provide you with a “disclosure statement” before the sale agreement is binding. This includes, among other things, a summary of the condominium’s features/amenities, the condominium’s governing documents and budget for the first year after registration. This should give you some indication of the rules, regulations and financial situation of the condominium corporation before you buy into it.
Your state may have legislation that provides a “cooling off” period during which buyers can review the information contained in the disclosure statement and rescind their agreement to purchase if they are not comfortable with their original purchase decision. Ensure you obtain and carefully review the disclosure statement within the specified time frame. If a cooling-off period is not provided for in your provincial condominium legislation, try making it a condition of your offer to purchase to allow you to have a few days to review this information.
New Home Warranties
Warranty programs are put in place to ensure that new dwellings are properly constructed and that they meet the construction specifications. Warranty programs provide for the reporting of defects in, or omissions of, warrantied elements within specific time frames. Often, the developer makes arrangements for independent inspection companies to audit the condominium, individual units and common elements within the first year of construction. The developer is responsible for correcting defects in, or omissions of, warrantied elements that occur during the warranty period. Should the developer default on this obligation, the warranty program can provide funding to correct deficiencies in warrantied elements up to a specified maximum dollar amount. All of the owners of new condominiums are expected to co-operate with the new home warranty inspections and to report any defects or omissions in their units. You should be aware that new home warranties do not cover every item that one might construe as a defect. Be sure you are aware of what the warranty does and does not cover, and for how long.
Advantages of buying a new condominium may include:
- A lower purchase price (depending upon market conditions);
- More choice of locations within the building (if applicable);
- A broader range of options and/or upgrades;
- Newer buildings have less risk of having to undergo costly, noisy and intrusive repairs and renovations;
- New home warranty protection.
Disadvantages of buying a new condominium may include:
- Because construction may not have started, you cannot “see” what you are buying and must rely on artist sketches and floor plans (which may change).*
- Your initial deposit will be tied up for the duration of construction.
- Financial institutions may not give you a mortgage until a certain amount of units are sold.
- Construction of your unit may not be completed by the expected date.You may move into your unit while construction continues in others—this can be noisy and disruptive.
*Be sure to have the location, finishes, materials, etc. clearly specified in the purchase agreement.
Buying a Conversion Condo
Buying a conversion condominium in the early stages of development is similar to buying a new condominium. The biggest difference is that the exterior of the building (or building envelope) already exists. The majority of the construction project usually consists of modifications to some of the common property components and the creation of individual unit spaces.
Advantages of buying a conversion condominium may include:
- Many of the same advantages of buying a new condominium apply to conversions, (e.g., choice of unit, opportunities for upgrades, etc.).
- Some conversions offer unique designs, (e.g., lofts).
- Converted units are often, but not always, somewhat less expensive than a comparable sized new unit.
- Conversions may be located in established and desirable parts of cities that are well served by entertainment, educational, transit and other amenities.
Disadvantages of buying a conversion condominium may include:
- New home warranty programs may not apply to conversion condominiums, there may not be construction warranties other than that offered by the developer.
- The building structure and perhaps some of its internal components will already be old, which may mean major (hence costly) repairs may be needed sooner rather than later. This could be problematic if the condominium corporation has not had sufficient time to build an adequate reserve fund. This may have an impact on condominium fees and charges to the unit owners.
- Occupancy dates can be changed due to construction delays.
What Records Am I Entitled To When Buying a Condo?
Condominium documents are complicated, but they provide you with important information about your condo association.
In most states, you are entitled to see the public offering statement if new construction or the resale certificate package if the property is being sold by an individual owner.
Both the public offering statement and the resale certificate package contain material disclosures that can help you make an informed decision about your purchase. The disclosures in both are similar and include the declaration describing your condominium development and the individual units, bylaws, rules, regulations, operating budget, management agreements, and other vital information. Read each document carefully. They contain provisions that will affect the habitability of your condominium, its ultimate economic value, and your arrangements for daily living.
The public offering statement is used for new condominium sales to the public, while resale certificate packages are used for condominium units that are being sold by the current owner of the unit. Therefore, disclosures in a resale package are usually based on the past experience and operations of the condominium, while the public offering statement will include disclosures based on projections, since past experience either does not exist or may change as new units are added.
In the public offering statement and resale package, you will find a description of the condominium property explaining the common elements and the individual units. All unit owners are entitled to use the general common elements, but there may also be limited common elements. These may include areas such as patios, balconies, and storage rooms that are reserved for the exclusive use of specific unit owners, although all share ownership.
Some units include ownership of such features as a yard area, roof, interior areas, or exterior siding. Find out exactly what you will be buying when you purchase your unit, and what repairs and maintenance you will be responsible for. The public offering statement and resale package should contain any agreement that the condominium has with a management firm and should provide specific details about the responsibility for the upkeep of the common elements.
Shared ownership gives you an undivided percentage interest in the common elements. The percentage of ownership will be set out in the declaration and may be assigned equally to all units or it might vary according to the size or monetary value of each unit. The information concerning the shares of ownership should also be disclosed in documents included in the public offering statement and resale package.
Plans for future development will also be included in the public offering statement and resale package. Keep in mind that if the developer plans to add more land or additional units to the condominium, your percentage of ownership interest may change. You should also be aware that if there will be a large number of units per acre, this high density could affect your living conditions, creating an undesirable level of noise and commotion. Be sure that the developer plans to maintain a balance between individual units and shared facilities so that these amenities will comfortably accommodate all residents.
The public offering statement and resale package will specify whether the condominium is incorporated, which may protect you from personal liability for any action taken against the condominium. Any pending lawsuits or judgments involving the condominium should also be disclosed in both the public offering statement and resale package. Some types of litigation are routine, such as assessments against unit owners or lawsuits regarding covenant violations and fines associated with the violations. However, if there are many lawsuits, or one or more major lawsuits, you should consider whether it may negatively affect the operating budget of the condominium or your ability to sell the unit.
For the initial sale, the public offering statement must be presented to you with your sales contract. After receiving this information, you have 15 days to cancel the contract and receive a full refund of your earnest money.
If any material amendments are made to the public offering statement, they must also be sent to you. You may then cancel your contract within five days after receiving the amendments.
Most State Law requires developers to place all earnest money funds in an escrow account, or post a bond, to ensure that funds will be available if a down payment has to be refunded.
Likewise for a resale, the association’s documents must be provided to you within 15 days of closing, along with disclosures about the operation of the condominium that are similar to those in the public offering statement. Make sure you take advantage of this 15-day “cooling-off ” period.
For example, when you buy a condominium in Maryland, the law gives you this period of time to reconsider your decision. Condominium documents are complicated, but they provide you with important information. Read everything before you sign the sales contract. The contract will contain a clause, over your signature, stating that you have received and read specific documents.
If you are buying a condominium from an individual owner, you must receive a resale certificate package containing the declaration, bylaws, rules and regulations, and any other important information required by law at least 15 days prior to closing. Any seller who makes an untrue statement of a material fact, or omits a material fact, is liable to the buyer for the resulting damages.
Look for the current condominium financial statements, which should include a balance sheet, income/expense statements, and an operating budget. The owner can get this information from the council of unit owners within 21 days of a written request and payment of a reasonable fee, including minimal copying costs. You may cancel your sales contract and get a full refund of your down payment up to seven days after receiving the resale package, or until settlement, whichever occurs first. Be sure that you are not required to settle less than seven days after you receive the resale package.
Questions about condo docs? Contact us.
Who Should I Consult About Buying a Condominium?
There are a number of professionals who can help you find the right condominium. Real estate agents, lawyers, developers and financial advisers all play an important role.
Because buying a condominium is different from buying a traditional house, it’s a good idea to enlist the help of professionals who specialize in condominiums.
Do I Need a Realtor To Buy a Condo?
A good real estate agent specializing in existing condominiums can help you save time and energy. You can choose to deal with the seller’s real estate agent (for currently listed properties), but you should really enlist one who will act only on your behalf. If you work with the seller’s agent (a.k.a listing agent), there should be no charge to you, as the agent will be paid a commission by the seller.
An agent acting exclusively for you should not charge a fee for his/her services, as he/she normally shares in the seller’s agent’s commission. Make sure you are clear on who is paying the real estate agent’s commission, and what your obligations are once you’ve signed an agreement.
When you meet with your agent, be specific about what features you’re looking for, location, and your budget. This will allow your agent to pre-screen condominiums on the market that are within your price range, in the neighborhoods you want to live in, with the features and amenities you want.
A real estate agent can also assist you in making an offer to purchase once you’ve found the unit that’s right for you. Remember for a re-sale unit purchase, make the offer conditional upon getting all condo documents available to the purchaser under state legislation. Making any sale conditional upon a satisfactory review of the condominium’s financial condition and inspection by a qualified professional is also highly advisable.
Find a Condo Specialist
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12 Questions To Ask Before Buying a Condo
When you’re considering buying a condo, there are so many important factors to consider. Here’s 12 questions to ask your realtor, lender, or condo association before owning a condo.
The most common concerns often include questions about financing, homeowners’ associations, special assessments, condo insurance, condo ownership, etc. We’ve answered the most frequently asked questions to help you make an informed decision about condo ownership.
Here are some questions you may want to ask or research before buying a condo:
Note: This is only a partial list to help you get started. If you have more questions, be sure to ask your lender, real estate professional, or the condo’s HOA.
How much can you afford to spend on a condo?
Your lender will look at what your total monthly housing costs would be, taking into consideration the condo fee, property taxes, PMI (if applicable), plus the principal and interest payments on your mortgage loan. One of the best ways to determine how much you can afford is to get pre-qualified before you go condo shopping—ask your lender how.
What are your legal rights and obligations under the condo bylaws?
As a prospective purchaser, you will receive a copy of the condo bylaws and other documents that you should review so you understand the rules about remodeling, leasing your unit, fees and penalties, parking restrictions, pet ownership, and other obligations. If you have any questions, you may want to talk with an officer of the condo association, or a real estate attorney with experience in your area.
In most cases you have a limited period to review the condo documents after your purchase contract is accepted by the seller. Talk to your real estate professional, know your rights.
What is included in the condominium fee?
Are utilities, hazard insurance premiums, or real estate taxes paid directly by homeowners or are they included in the condo fee? Is there on-site property management?
Is parking deeded and/or assigned?
Are there spaces for visitors? How many parking spaces are provided for the unit you want to purchase? Can spaces be purchased?
How are officers elected to the condo board or HOA?
How frequently are elections held? What are the qualifications to run for office? How long do officers serve? Are there term limits?
What kinds of modifications to the unit are allowed?
Is there a committee that reviews and approves changes?
Is it possible to talk to some owners in the community or building?
What is it like living there: for example, is maintenance handled well? Is there much turnover? Are there concerns about noise levels or other problems?
What is the remaining useful life of the community or building’s major components?
These components include the roof(s), sewer and water pipes outside individual units, parking lots or garages, elevators, and other major building infrastructure. Is there a potential impact on the value of your condo?
How much is in the cash reserve fund for future repairs?
Are there any pending assessments or major repair projects that exceed the repair fund at this time? Has the HOA’s accountant offered recommendations or has the HOA obtained a study on the adequacy of the cash reserve fund? Having adequate funds for both routine maintenance and cash reserves for major repairs or unexpected costs is critical. If necessary repair costs exceed the available funds, a special assessment can be imposed on all unit owners in the condo project, requiring a one-time payment or increasing the monthly condo fee for a period of time. Ask if the condo has any history of special assessments.
Does the master property insurance policy cover full replacement costs?
Does the policy have a building- ordinance clause to cover costs associated with bringing the building up to code in the event rebuilding is required?
Does the master insurance policy cover the interior of the units as well as “common elements” used by all residents?
If not, you will probably be required under the terms of your mortgage financing to purchase and maintain an insurance policy to cover your condo’s interior, commonly known as an “HO-6” policy.
Is the complex renter-friendly?
If you are looking at your condo as a long-term investment, you may not want any restrictions on your future ability to rent out or sublease the unit. But if you plan to make the condo your long-time residence, you may prefer that owner- occupancy is high, so you’ll be living among property owners (like you!). Inquire about all terms and conditions by which you can rent your unit, as there may be seasonal or other restrictions.
Questions? Contact us!
Revision of a governing document.
Once-a-year assemblage of unit owners required by the governing documents to conduct association business (such as electing a Board of Directors).
Articles of Incorporation
Formal document that sets up an association as a corporation under the laws of the applicable state when it is filed. It also describes the purpose, powers, and duties of the association.
Amounts charged against unit owners (according to their percentages of ownership) to fund the operation, administration, maintenance, and management of the community association.
See Community Association.
Examination of inventories, insurance policies, management, and financial records and accounts to verify their accuracy and determine if they adequately reflect an association’s financial status.
The financial statement that indicates the financial status of an association at a specific time, listing its assets, liabilities, and members’ equity.
See Board of Directors.
Any gathering of at least a quorum of the Board of Directors for the purpose of transacting the business of the association.
Board of Directors
Official governing body that is responsible for administration of the association. The Board of Directors is elected by the members of the association.
Breach of Covenants
Non-compliance with the governing documents of the association. Budget Estimated summary of income and expenses for a given period.
Bundle of Rights
The bundle of rights is defined in the deed to the property and typically contains all of the rights of ownership originally connected to that parcel. In a condominium association, the Declaration defines these rights.
Secondary laws of an association that govern its internal affairs and deal with routine operational and administrative matters.
Funds spent for additions or improvements to the common elements and facilities of the association.
See Liability Insurance.
Certified Public Accountant (CPA)
An accountant who has met certain state legal requirements.
Chain of Title
See Bundle of Rights
See Common Elements & Facilities
Common Elements & Facilities
Property owned jointly by all unit owners, that ordinarily includes land and structures not otherwise described as units.
Costs of managing, maintaining, administering, repairing, replacing, and operating the association.
Private organization, usually nonprofit, responsible for the total operation of communities such as condominiums, homeowner associations, and cooperatives. The individual owners are members of the association.
Form of ownership in a multi-family housing association that combines exclusive ownership of a dwelling unit and joint ownership of common elements and facilities.
Conflict of Interest
Situation in which a person has two or more interests that conflict.
The person or company who creates and files the governing documents and then develops and sells the condominium association property.
Declarant Expansion Period
The period of time, beyond the initial creation, that the Declarant has to add land, units, and other improvements to the condominium association.
See Declaration of Condominium Ownership.
Declaration of Condominium Ownership
The basic document recorded at a government office to set out property interests in a community association. It also describes each unit owner’s undivided share in the common elements and facilities and restrictions on the use of the units and common elements and facilities.
Overdue assessment payment.
Directors & Officers Liability Insurance
Protection against loss arising out of errors in judgment, breaches of duty and wrongful acts of a Board of Directors and officers in carrying out their prescribed duties.
A summary of the significant features of the condominium as well as the governing documents. This is the package normally presented to prospective buyers by the Declarant prior to binding the sale agreement.
Right to use or enter property by someone other than the owner for certain limited purposes.
An extra fee charged at the closing of a sale for rendering information on the status of the unit’s account, association’s insurance coverage, closing confirmation of the account, and processing of the unit owner’s record changes. This fee is charged by the association or management company, normally to the seller.
Exclusive Use Areas
Parts of the condominium’s common elements and facilities that owners have the right to use and enjoy privately, such as patios.
Meeting of the Board of Directors that owners are not permitted to attend.
This duty requires the Board of Directors to act for the benefit of the community as a whole. It is the Board’s legal obligation to protect the asset, which is the total community.
First Right of Refusal
A right that may be held by the association that gives it the first option to buy a unit that is being sold.
Twelve-month period for which an association plans the use of funds.
The taking away of the right of ownership of a condominium unit in order to pay the delinquency owed to the association.
Set of legal papers, filed by a declarant at the appropriate local land office, that submits land to use for, create, and govern a community association.
Organization of homeowners whose major purpose is to maintain and provide for the rights of owners and maintenance of the common elements and facilities.
Condition, usually contractual, of being protected against possible damage, loss, or lawsuit.
Protective measure that shifts risk of financial loss, due to certain perils, to an insurance company in return for payment of premiums.
Coverage for damages arising out of an insured person’s legal responsibility and resulting from injuries to other persons or damage to their property.
Claim or attachment, enforceable by law, to have a debt or other charge satisfied out of a person’s property.
Limited Common Areas
See Limited Common Elements & Facilities.
Limited Common Elements & Facilities
Physical part of a community association’s common elements that is reserved for the exclusive use of a particular unit owner or owners.
Simple majority vote is fifty-one percent (51%) of the owners or the Board of Directors.
Firm that specializes in community association management, hired by the association to carry out the board’s policies and provide the day-to-day operation of the affairs of the association.
Group of people formed to handle ongoing business on a certain subject, as required in the Bylaws.
Recorded instrument that describes the property involved in a community association.
Official record of the proceedings of a meeting.
Printed periodical report devoted to news of and for the association members and others associated with the community.
Portion of the budget that indicates the expenses of operation for the association, other than the replacement funds.
Order of Business
Formal guidelines for conducting a business meeting, usually Robert’s Rules of Order.
Meeting of the Board of Directors at which they elect the officers of the board.
Percentage of Interest
See Percentage of Ownership.
Percentage of Ownership
The ownership share in the common elements and facilities that is assigned to each unit by the Declarant in the Declaration. The percentage for each unit sharing the common expenses must be the same as the ownership share for the unit. The total percentage of all units must equal 100.
A single association created over time by the Declarant. New units are added to the project by amending the Declaration, thus changing the percentages of ownership as they are added.
A drawing that is recorded in the local land records office before any units are sold. Its purpose is to show the precise location of each unit, as well as the common elements, and define the owner’s and the community’s title to the property.
Profit & Loss Statement
See Statement of Income & Expense
Protection of an insured person’s real or personal property against loss or damage.
Authorization given to one person to vote in place of another at an association meeting.
Minimum number of members that must be present or votes that must be represented in or order for business to be legally transacted.
Costs to repair and replace existing property with property of the same material and construction.
Funds that are restricted and set aside for probable repair and replacement of common elements and facilities at some future time. These funds should be in an account separate from the operating funds.
See Replacement Fund.
Document prepared periodically by or for the association documenting the physical condition of the property that it is obligated to monitor, the funds allocated for its upkeep and maintenance, and the forecasted annual use of those funds.
Statements of required, specific behavior whose violation carries a penalty. Rules generally cover the use of and changes to the architecture or appearance of the property as well as behavior of the residents.
Fee levied against unit owners to cover unexpected expenses.
Unscheduled meeting called by the Board of Directors or owners to discuss specific, urgent business.
Statement of Income & Expense
Financial report that indicates how much income has been earned and what expenses have been paid over a certain period of time. This statement also usually compares budgeted and actual figures for the period in question and year to date.
The percentage of ownership in the common elements and facilities that is attached to a unit. This share passes with title to a unit and cannot be separated.
Part of the condominium property that is subject to exclusive ownership. The definition is specified in the Declaration.
Unit Owners Association
Authorization given to each unit owner to choose a specific course of action or elect a board member. Owners have either one vote per unit or vote according to their percentage of ownership in their unit according to the Declaration and/or Bylaws.
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