If you’re thinking about buying a condominium, investigate carefully before you purchase. Failure to do so can cost you plenty.

Condo living can be a great lifestyle choice. For some first-time buyers it’s the only choice. Condos also make great second homes or retirement properties. They are also great for those who don’t want to cope with exterior maintenance. Before you purchase a condo it’s important to know the benefits as well as the potential pitfalls. 

1. What type of ownership are you purchasing?
The term "condominium" normally refers to the style of ownership. For example, when you purchase a single-family residence, you normally take title to both the land and the improvements. In contrast, condo ownership normally involves more than just the unit you will occupy.

The most common style of ownership grants you an undivided interest in the entire property, a right to occupy a specific portion of that property, and shared use of the common areas. "Common area" refers to the shared public areas in the condo project. This can include a pool, recreation room, gym, dock area, or other amenities. Thus, if you purchase a condo in a 10-unit building, you will have the right to occupy one of the 10 units. You will also have a 10 percent ownership in the entire property and the right to use the common areas.

Another style of condo ownership grants you the land on which your unit is built. Depending on how the homeowners association (HOA) is set up, you may be responsible for the exterior maintenance of the property or the HOA may handle it for you. When this style of ownership includes single-family residences plus the ownership of the streets, this is called a "planned unit development" (PUD). In a PUD, the owners are often responsible for maintaining the streets.

A third type of ownership is called a "co-op." In this case, the property is owned by a stock cooperative. When you purchase, you buy stock in the building. Instead of receiving a deed, you will receive a stock certificate.

Consequently, one of the most important questions to ask is: How will you take ownership? The answer to this question will determine the type of insurance you will need to purchase, the type of improvements you can make to the property, plus the availability of financing.

For example, a PUD will be fairly easy to finance because it is similar to a single-family residence. There can be challenges obtaining lender financing if the number of owners actually occupying the property drops below a certain level. Co-op financing can be quite difficult to locate. …CONTINUED

2. What obligations and restrictions do the CC&Rs place on me?
A homeowners association normally governs most condos. The rules that govern the HOA are known as covenants, conditions and restrictions.

According to Realtor.com: "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, the houses rules or another name. These documents and rules are legally enforceable by the homeowners association, unless a specific provision conflicts with federal, state or local laws."

Whenever you purchase a condo, it’s critical that you include a contingency period for the approval of the CC&Rs. Take the time to read them carefully and look for restrictions that may conflict with your lifestyle. For example, some HOAs may prohibit you from leasing your unit.

Others prohibit pets or impose a maximum weight limit. If you violate this restriction they can force you to get rid of your pet. Other HOAs enforce age restrictions. This is particularly true in retirement communities. In fact, some CC&Rs are so restrictive that you cannot have children under the age of 16 spend the night.

Sometimes the HOA’s administration of the CC&Rs is punitive. I stayed at a friend’s townhouse where the HOA assessed a $100 fine if you put your trash can out early or didn’t put it back in your garage the same day as your trash collection. Other HOAs will fine you for leaving your car in your driveway overnight. They may prohibit you from parking a boat, trailer or RV in front of your property. One HOA in Florida fines its homeowners if they don’t wash off their driveway regularly.

While these may seem unfair, it is your responsibility to read the CC&Rs and to determine whether you are comfortable with these restrictions. If not, look elsewhere. It’s virtually impossible to change the CC&Rs. An HOA I belonged to decided they wanted to make a change in the CC&Rs.

The board of directors consulted with an attorney who advised us that we could make the changes we wanted. However, once the HOA approved the changes, they would have to be recorded, changed on each individual owner’s deed(s), and probably submitted to their lenders for approval as well. The sheer cost in attorneys’ fees for just the title work was enough to kill the issue.

These aren’t the only issues that you will need to address if you buy a condo. Look for Part 2 for more important questions to ask if you are purchasing a condo.

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com and find her on Twitter: @bross.


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