With today’s refreshed interest in new urban living, especially among young adults and Millennials, condominiums are seeing a surge in popularity these days. Indeed, in major urban centers like Atlanta, New York and San Francisco, new high-rise condo developments are popping up everywhere, often changing the skyline in the process. However, buying a condo is a bit more complicated than buying a single-family home, and there are more considerations to condo living than you might have realized.
Living in a condominium can be a perfect fit for your lifestyle. Still, if you aren’t fully informed when going into the buying process, you might encounter some unexpected headaches down the road.
Let’s discuss some of the unique aspects of buying a condo and some basic questions you should always ask before signing on the dotted line.
Condos, Explained
A condo is a privately owned unit within a larger complex or building where residents share certain common areas and amenities, but how is a condo different from other types of multi-family dwellings like apartments or townhomes? Structurally, there might be no difference at all. Condos can be apartments, and they can be townhomes — but not all townhomes and apartments are condos. The difference is in what you actually own when you buy one.
When you buy a townhome, you technically own the land on which the townhome is built, even though you may have a shared roof with other units — and you’ll pay property taxes accordingly. With an apartment, the ownership may vary — you may actually be a co-owner with other apartment owners in the building (i.e., a co-op). However, with a condo, you legally own only the airspace within the walls of your unit. The building, complex and grounds are either jointly owned by the owners or by a condo association. Residents pay dues to the association to keep up with maintenance, property taxes, etc. This might not sound like a big difference, but it does affect how titles are written, how taxes are assessed and what kind of financing you can receive from lenders.
With a clearer understanding of what condos are and how they work, let’s explore some important questions that condo buyers should always ask.
1. How is the Condo Managed?
Condo buildings and condo complexes are generally overseen by a condo board consisting of elected representatives among the condo owners. The board essentially acts the same as a homeowner’s association (HOA) does in certain neighborhoods, and the condo board may be referred to as an HOA. Sometimes, the condo board oversees the management of the property, but other times that task is outsourced to a professional management company. There are pros and cons to each management structure, and one is not necessarily better than the other. But you need to understand the structure so you know how things get done and how to address any issues when they arise.
2. What Are the Condo Fees?
The monthly mortgage payment on your condo is only a part of what you’ll pay each month to live there. Condo owners also pay regular condo fees (sometimes called HOA fees or association fees) to contribute to upkeep and maintenance (e.g., landscaping, painting, lawn care, repairs) and amenities. Be sure to ask about these fees upfront, what the condo fees cover and ask how often the fees are increased. If they are particularly high, you may find yourself in a condo that stretches your budget too thin.
3. What Are the Amenities?
Most real estate agents will list the amenities (e.g., swimming pool, fitness center, concierge parking, etc.) as incentives for you to buy. But remember — you are actually paying for those amenities with your condo fees. If the condo you are looking at has a long list of amenities you will never use, you will be effectively wasting money each month. Make sure the list of amenities is compatible with your lifestyle so you can take full advantage of them and get your money’s worth.
4. What Are the Rules?
Just as you may encounter HOA covenants in a neighborhood or subdivision, every condo community also has a set of rules. These rules are agreed upon and occasionally amended by the condo board, and all owners and residents are expected to abide by them.
Every condo has different rules. Sometimes condos are fairly flexible and light-handed, but occasionally the rules are strict and arbitrary, ranging from rules about noise to what kind of plants you can put on your balcony. Obtain a copy of the bylaws and read it carefully to make certain you are okay with the rules as they are laid out.
5. Are There Any Special Assessments Expected?
Condo communities sometimes call for special assessments — large, one-time expenditures for major repairs (for example, replacing the roof). Condo owners are asked to share these costs, which may occur as a one-time lump sum fee or a temporary increase in the monthly association fees. Be sure to ask if any special assessments are planned within the next couple of years. Also, be sure to observe the condition of the property itself – for example, the age of the roof, condition of the paint and parking lots, etc. If you notice signs of age, these could be special assessments waiting to happen.
6. How Much Is in the Reserve Fund?
Condo associations typically keep a certain amount of money in reserve. This amount is set aside for unexpected expenses or major repairs — for example, storm damage that may or may not be covered in the condo’s insurance policy.
Well-operated condo associations will have a reserve study conducted every few years to determine how much money they should reserve. As long as the reserves are at least 70 percent of the recommended amount, your condo community is relatively healthy financially. If reserves are low, it increases the chances for an unwanted special assessment down the road.
7. What Is the Policy for Renting Condos?
One rule to look at carefully is the condo policy on owners renting out their units to other people. This issue is a mixed bag of pros and cons. On the one hand, if you want to keep your condo when you upgrade to a single-family home someday, having renters gives you an additional income source. On the other hand, if the condo community has a liberal rental policy, it may be a deterrent for some lenders because foreclosure rates tend to be higher in those complexes.
To strike a balance, most condo communities require a minimum percentage or number of units to be owner-occupied, and the rest can be rented out. If you intend to rent your unit out, be sure to ask about this policy and find out how close the condo is to its maximum number of rentals. You won’t be permitted to rent your unit if this threshold is exceeded.
8. What Repairs Am I Responsible For?
When you own a condo, you own your unit’s interior, so you take care of repairs and upgrades within your unit (e.g., fixing/replacing appliances, repainting). The HOA takes care of what is outside (e.g., community grounds, exterior maintenance). However, there are a few gray areas to consider. For example, who is responsible for a broken window since it’s both inside and outside? Who does maintenance/repairs on a balcony or terrace? When it comes to maintenance and repairs, find out the specifics of who is responsible for which task so you don’t face any unwanted surprises after you move in.
If you are considering a condo purchase in the Atlanta area, Atlanta Fine Homes Sotheby’s International Realty can help you find the perfect unit for your needs and lifestyle. To schedule an appointment, contact us today.