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Evaluating a condo association when buying

Jan 24, 2013   //   by Rory Gill   //   All Posts, Condominiums, Real Estate, Tips  //  1 Comment

When you purchase a condo, you’re also buying a stake in the larger condo building or complex.  More than anything else, your neighbors and the association will determine your happiness and return on investment.

While home shopping, you’ve probably evaluated the closet space and checked out the bathrooms.  More importantly, though, have you audited the association?  No?  Well, here’s how to get started:

  1. Get the records.  In the Offer to Purchase (or at least the Purchase and Sale Agreement), require the seller to provide the condo association’s documents, rules, and financial statements by a certain date and at their expense.  In this step, you’re not only interested in the documents’ contents; you’re also interested in how easily you obtain the records.  If a condo association delivers incomplete records or delivers them late, it may be a sign of poor management.
  2. Evaluate the financial statements.  Take a good, hard look at the bank statements and budget.  Verify that it’s reasonable and complete.  Then, take a look at the association’s savings reserve.  As a general rule, an association should have savings equal to at least 10-15% of its annual budget.
  3. Evaluate the documents and bylaws.  In this step, you are looking for two issues.  First, make sure that there are no restrictions that would make your life difficult there – bans on dogs, bans on smoking, etc.  Second, consider what rules are not enforced.  If you see a rule that is openly violated by other unit owners, it may be a sign of weak management.
  4. Verify any special assessments.  When a condo association undertakes a large project, it usually pays for it through special assessments.  In those circumstances, each unit owner is charged their share of the project in a mandatory bill.  This can often be a very large expense.  Get signed verifications from the association and the seller that no special assessments are currently being considered.  If there are special assessments to contend with, factor that into the purchase price.
  5. Verify any litigation.  Like special assessments, you should get verification from the seller and the association that they’re not engaged in or facing any litigation.  Otherwise, you’ll be indirectly dragged into the fight.  Also, ask your attorney to review court dockets and deed records to ensure that no significant legal battles are overlooked.

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