What Buyers Should Know about Condominiums
People buy condominiums for a variety of reasons, including affordability, location, building services, security and professional management.
Here are some factors that condo buyers should consider:
1. What are the most important criteria in purchasing a condominium? Location, building services, "air," "light" and "space" are the top aesthetic criteria, according to Neil Binder, a principal of Bellmarc Companies, a residential brokerage and management company in New York City. His definition of air, light and space encompasses a dynamic floor plan, a feeling of openness, a desirable view and the size of the unit's main living areas.
2. What are the most important financial criteria? It is important to weigh the total monthly cost of ownership, rather than the price of the condo unit. In addition to mortgage payments, condominium owners are responsible for property taxes, insurance, monthly maintenance or homeowners association fees and any special assessments. One ingredient is the amount of cash you'll need to buy the home and the other ingredient is how much you'll need each month to own it. Don't be deceived by a low purchase price with high HOA fees.
3. What are the pros and cons of condominium living? A condominium can be attractive and affordable, yet buyers should understand the drawbacks. One of the great attributes of a condominium is that you don't have to mow the lawn or fix the building's plumbing. However, often times people are living in close quarters.
4. Who pays for the insurance? An owner's financial interests should be protected by two insurance policies. The homeowners association policy should cover the structure of the building, the common areas and liability for any injuries that occur in the common areas. The owner's policy should cover personal property and liability for any injuries that occur inside the unit. Always consult an insurance professional for advice about your personal situation.
What about the CC&Rs?
1. What are CC&Rs? The covenants, conditions and restrictions (CC&Rs) are the governing documents that dictate how the homeowners association operates and what rules the owners and their tenants and guests must obey. These legal documents might also be called the bylaws, the master deed, or the houses rules. These documents and rules are legally enforceable by the homeowners association, unless a specific provision conflicts with federal, state or local laws.
2. Suppose I don't like the rules. Can they be changed? Most rules are easy to accept, but some may strike a nerve. Such issues as pets, parking spaces, recreational facilities and subleasing can prove quite controversial. The procedure for changing the rules should be explained in the governing documents. A majority vote or, in some cases, a super-majority, will be required.
3. What are the consequences of breaking a rule? Penalties might include fines, forced compliance, a lawsuit by the association, the misery of being at odds with your neighbors and emotional distress. For example, suppose an owner attempts to sneak a large dog into a condominium unit despite a rule specifying a maximum weight for pets. He or she might be forced to get rid of the dog in addition to facing fines and a lawsuit. Read the rules thoroughly before you buy an association-governed home.
4. What are the most important provisions in the governing documents? Review the association's operating budget and make sure the HOA is financially solvent. Ask for copies of any engineering, architectural or structural inspection reports. Pay attention to provisions governing the election of board members, subleasing and restrictions on remodeling your own unit.
5. Do I need an attorney to explain the CC&Rs to me? It's always a good idea to seek legal counsel if you have questions about the governing documents or rules. Read the documents yourself and prepare a list of questions, then ask your attorney to interpret anything you don't understand.
The Community Associations Institute (CAI) is a national resource for finding professionals that can help you understand the CC&Rs.
The Oregon chapter of CAI is located at 7327 SW Barnes Road, Portland, OR 97068. Phone: (503) 224-4100. Web Site: www.caioregon.com
What is a Condo Homeowners Association Fee (HOA)?
HOA dues are assessed monthly and often are based on square footage of the owner's unit. Fees are normally set by the HOAs board of directors and adjusted annually.
The HOA dues typically pay for water, sewer, trash, management, insurance and exterior maintenance. Some HOAs also cover such things as cable TV, electricity, security services and other items. Any excess HOA fees that exist after paying for pertinent services as described above are stored in an account and called reserve funds. Dues must be factored into the equation when a lender decides how much you can borrow.
HOA dues don't cover anything inside your unit, such as water damage from a leaking hot water heater. You will need your own homeowner's insurance policy for the interior contents of your unit.
What are Condominium Special Assessments?
Occasionally, Homeowners Associations need to levy what are called special assessments. Special assessments are a one-time expense that the building (or more appropriately, the homeowners) needs to pay for, such as significant maintenance or repairs (i.e. a new roof, siding repairs, etc.). Low monthly HOA fees, or inadequate reserve funds, have the potential to lead homeowners into a situation where a special assessment is necessary to cover large expenses.
When purchasing a condominium, HOA fees, as well as the status of special assessments, need to be factored into the purchase price and ongoing cost of living. Make it a point to review existing financial information for the building, including reserve fund levels and special assessment information.
Oregon Law for Reserve Fund
HOAs are required by law to set aside a certain amount from each month's dues for a "reserve fund" meant to cover future problems and major maintenance such as painting and re-roofing. A new Oregon law that took effect in January 2006 requires new HOAs to include a maintenance plan as part of their reserves. |
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