Understand the Condo Difference Before You Buy

You've been looking at condos, and you think you've found the perfect one. You like the size and layout of the unit, the purchase price suits your budget, and the monthly association fee seems reasonable. You're all set to seal the deal.

Not so fast, experts advise. You've barely scratched the surface of what you need to know before you purchase a condo. Here are some of the behind-the-scenes issues you need to investigate before you buy.

Check rules, restrictions

A common mistake prospective condo owners make is to assume they'll have the same freedoms they'd have as owners of a single-family home, says Kay Senay, founder of a condo management company in Willoughby, Ohio, and author of "Condo Buying & Ownership Made Simple: Tips to Save Time and Money." "They think, 'I bought this unit. I can do whatever I want with it,' " she says.

Holding that belief now can lead to becoming a miserable condo owner later, Senay warns, to say nothing of facing fines for rule infractions. You don't want to learn after you've moved into a complex that homeowner association (HOA) rules prohibit sharing your unit with a renter (or perhaps even renting the unit out while you live elsewhere), operating a business from your home, having a pet, installing a satellite dish, or painting your front door any color you choose.

But at the same time, take comfort in knowing that the rules prevent you and other owners from ending up with a neighbor painting his house day-glo yellow, or one who lives with six dogs and 13 cats.

Before you buy, obtain copies of documents listing all the current rules and restrictions�and read them carefully.

ID all ownership costs

One of the most important factors for a prospective condo buyer to keep in mind is that you'll be an owner, not a tenant, says Ryan Poliakoff, the inaugural president of a large South Florida condo association and co-author of "New Neighborhoods: The Consumer's Guide to Condominium, Co-op, and HOA Living."

Not only are you buying the condo unit, for which you have owner's responsibilities such as maintenance and insurance, but you also are buying in to common property, such as the physical structure's exterior, lobby area, swimming pool, and so on.

"You are buying property with sometimes hundreds of strangers," Ryan Poliakoff says. "That introduces a complexity of relationships among neighbors that doesn't exist in traditional communities."

You also will share the costs of maintaining the common property. That's where the monthly association fee comes in. Find out exactly what maintenance the fee covers. "People look at those monthly payments as if they were a fixed amount, like a mortgage payment," Ryan Poliakoff notes. "That is not the case. Maintenance payments are completely variable, depending on what happens." A record snowfall or damaging hailstorm, for example, can trigger raised dues or a special assessment to cover repairs.

Part of your association fee should go into reserves to pay for future major expenses, such as replacing a roof. But if a big expense arises and the reserves don't cover it, you may face a hefty special assessment. It's rare, but some property insurance policies cover special assessments.

Delve into HOA finances

All condo associations should have financial reserves; some states require that they do. Larger associations may hire an independent appraiser to do a reserve study, also required in some states, to determine if reserves are adequate to cover projected future maintenance expenses.

The association may not let prospective buyers see the reserve study�it's technically for owners' eyes only. If so, ask the seller of the unit you're thinking of buying to share the study with you. "If the seller is unwilling to give you that information," Ryan Poliakoff cautions, "that's a warning sign" that the reserves may be woefully inadequate.

And if a condo board has not commissioned a reserve study, you can ask to see copies of past board meeting minutes to learn what's been discussed and planned regarding reserves.

The reserve fund is just one indicator of a condo association's financial condition, which also partly depends on the finances of individual owners. If any have fallen on hard times, they may be facing�or already be in�foreclosure.

"If they're not paying their mortgage, chances are they're also not paying their share of the common expenses, which means there's a shortfall in the operating monies. That has to be made up by the other owners," says Gary Poliakoff, a Florida practicing attorney, adjunct professor in condominium law at Nova Southeastern University School of Law, Fort Lauderdale, Fla., and co-author of "New Neighborhoods" with his son Ryan.

Find out how many owners aren't paying their monthly fees. And if it's a new condo development, or a rental conversion, ask how many units remain unsold. That situation, too, could lead to a shortfall in maintenance money. Find out if the condo developer is chipping in to cover that until those units are sold.

The association's financial situation also can affect your ability to get a mortgage for your condo. "Lenders aren't just concerned about the individual buyer's financial wherewithal," Gary Poliakoff explains. "They'll also determine whether the community is financially viable. Does it have a lot of unsold units? How many are in foreclosure? Are there adequate reserves?"

Size up property managers

Your condo unit is surrounded by common areas. The quality of upkeep of those areas can have a huge effect on whether you'll enjoy living in your condo, and will significantly affect its future resale value. Before you buy, find out who takes care of common property. How good a job are they doing? The best way to find out is to ask other owners, Senay suggests.

Walk the property on a weekend when owners are likely to be out and about. Notice lawn and landscaping details in the summer, and how well sidewalks and driveways are cleared of snow in the winter. Look for signs of neglect such as torn screens, faded paint, missing shingles, and burned out light bulbs.

The condo association board may hire an outside property management company to handle upkeep of common areas. Find out if that contract comes up for regular review, such as annually, rather than being automatically renewed.

"If the board is the type of board it should be," Senay says, "it should send out a survey to find out what owners like or don't like about the management company before renewing the contract."

Learn about the board

The owners vote for people to serve on the condo association's board of directors, the decision-making body. Ask current owners about their perceptions of the board. And ask to talk to a board member. You'll gain more insights to help you determine whether you'll feel at home in this particular condo community.

As an owner, you might want to run for a board position or serve on a committee. "Some boards operate to the letter of the law and take care of everything as they should," Ryan Poliakoff says. "And some are crazy dictators who have watched too many movies and think they're supposed to operate like a banana republic. As a buyer, you have to try to get a feel for what the community and the operations of the community are like."

Published April 19, 2010