Cara Ameer, a top-producing broker associate from Northeast Florida, writes about working with buyers and sellers, sticky situations and real estate marketing in her regular Inman column that publishes every other Wednesday.
Buying a condominium is an attractive option for many buyers: it can often provide affordability in value-challenged markets, it offers a turnkey lifestyle and it’s an ideal fit for a vacation or second home.
It all sounds fantastic, but before you help your buyers pull the trigger, don’t forget to ask these 10 crucial questions:
1. How much down payment is needed?
The answer depends on the buyers’ situation, whether it’s a first or secondary home and the kind of financing they are qualified for.
If a buyer can only do an FHA or a VA loan, then the available condominium options might become limited as complexes must be approved for this kind of financing. And because the list off approved communities might not be up-to-date, buyers can miss out on many complexes that could potentially qualify.
The costs and processes involved in becoming an approved community sometimes deter perfectly suitable condominiums from making the list.
It is possible that a lender could work to obtain a spot approval. There is a cost associated with doing so, and numerous documents must be submitted by the condominium complex, so buyers should discuss this process with their lender before embarking on the property search.
2. What is the percentage of owner occupants vs. non-owner occupants
This is a key piece of information buyers should obtain from the condominium association. The number of actual owners who live in the property vs. those who do not can affect a buyer’s financing ability and down payment cost.
Typically, condominiums can be financed in accordance with Fannie Mae and Freddie Mac lending guidelines if 51 percent of the complex’s units are owner occupied. This will typically ensure a more favorable interest rate compared to that of a complex with a high percentage of non-owner occupants.
3. What are the rental policies?
Buyers should ask about the condominium community’s rental policy. This is a critical piece of information, especially if the buyers plan to rent immediately.
Buyers may want the flexibility to rent out the property, even if they plan to reside in it now, so it is important to find out up front what is and what is not allowed. Consider if your buyers want to keep the unit as an investment or if they had to relocate and could not sell it due to market conditions.
If the property can be rented, it is important to find out if there are any procedures for approving potential tenants. This could involve additional time and expenses (i.e. application fees and security deposits) for the new owner and/or future tenant.
4. Are pets allowed?
Everyone loves their pets, but not all condominiums welcome all types or sizes of animals, and some communities may not allow pets at all.
It’s important to find out what the complex will and will not allow. The rules vary and there is no standard: Some communities only allow dogs that are 30 lbs and under, some allow up to two pets, some do not allow cats.
Dogs labeled as an aggressive breed are typically prohibited. And as for unusual household creatures — the rare exotic bird, iguana, pot belly big or chicken — well, they may need to take up residence elsewhere.
5. What do monthly condominium fees include?
It is always good to get an understanding of this before signing on the dotted line. Some complexes include water as part of their monthly fees, while others do not.
Then you have those that bundle cable and internet into the mix (some even let owners choose their providers). Typically, electric and gas are never included, but every complex and locality is different. Buyers must do their due diligence.
6. Is there any anticipated or pending litigation?
This is a big one. One lawsuit can derail the marketability of the complex and cost current and future owners money in the way of special assessments needed to help fund the cost of the litigation.
Typically, a mortgage cannot be obtained when a condominium community is embroiled in a lawsuit (unless it is something minor or nuisance type of situation, e.g. slip and fall). If the complex is suing a developer or contractor with regard to any type of work that was done and was rendered defective, the buyer pool will be limited to cash buyers and those putting down a substantial down payment until the litigation is resolved.
7. Are there any special assessments?
Buyers need to find out if any assessments are underway, planned or even being discussed. Assessments can often cost a substantial amount of money and can impose a financial burden on current residents and future owners.
Before pulling the trigger on a purchase, buyers need to make sure they are aware of anything that can impose a future expense on them and plan accordingly or consider negotiating with the sellers as part of their offer to cover the expense.
Buyers should speak with the association property manager and community officers. Also, obtaining a copy of the minutes from several of the past meetings may also reference any discussions pertaining to them.
8. Can I obtain a copy of the condo association’s budget?
As part of the due diligence process of buying a condominium, buyers must be provided with certain documents, including a copy of the most recent budget and year-end financials.
Buyers will want to review the budget to understand how funds are apportioned across the complex for items like maintenance, management, repairs and reserves for replacement. It is also important to note what the reserves look like — is the complex underfunded?
Also, are there any delinquencies with condo dues, and if so, what percentage of owners are behind? The financial health of the association is also an issue that mortgage lenders look at when determining their ability to finance a unit
9. What are the rules and regulations?
Buyers must familiarize themselves with the “rules of the road.” What does the condo association allow with respect to repairs and remodels? What are the rules regarding contractor access, moving trucks, noise restrictions and access to amenities?
What type of window coverings are allowed, and can you have a barbecue?
10. What are the noise levels?
Checking the noise level is an absolute must. One or two viewings may not reveal a true picture of day-to-day life from the walls in. If buyers see the unit during the day, when many people are at work rather than home, it could seem extra quiet.
The evening hours, however, might tell a different story. Sounds of televisions, footsteps and water running (from appliances or the shower) lend themselves to a completely different atmosphere.
Is there any soundproofing between the walls? What is the structure of the complex? Was it an apartment that was converted to condominiums or was it built for use as a condominium building with specific soundproofing and insulation geared toward a multi-dwelling living arrangement?
Understanding this will also go along way toward managing buyer expectations upon move in.
While purchasing a condominium can seem simplistic, the reality is there is often more due diligence involved than there is in the purchase of a single-family home. With an association, budgets, policies and procedures and rules and regulations in place for everything from where to park to what kind of pet you can have, there is a plethora of information to sift through.
Knowing what questions to ask will help buyers determine if condominium living is a match for their financial situation and lifestyle.