Buying a Condo: All About that Baseline
With little or no maintenance, urban access, and modernized looks, buying a condo can be a great option, depending on the association’s rules and fees.
For many people, condos offer all of the good things about owning your own home, without the hassles and risk. Somebody else shovels the snow, mows the lawn, and fixes the roof leaks. But the reality is that you’re still taking on responsibility for all of these things, just throwing money at it instead of time.
Financing a condo is much the same as a single-family home. You’re buying a property with a mortgage at a given interest rate. That, you can control. What you can’t control so easily are the monthly fees paid forever to maintain the building properly. These wild cards to watch out for are somewhat hidden, buried in the paper trail of the condo’s history.
Deb Tomaro sells condos in South Central Indiana: “I tell my buyers that buying a condo is like going into business with your neighbors,” she says. “One thing I don’t see buyers do enough is review the condo association finances prior to buying.”
Why Appliance Suites are Sweeter
Rather than simply accepting a developer’s ideas for your kitchen gear, make it your own, and lower your eco-impact.
Whirlpool’s Small Spaces appliance suite includes all the appliances you’d expect of a full-service kitchen: refrigerator, freezer, cooktop, dishwasher, microwave and wall oven, but in smaller, condo-appropriate sizes. In addition, the suite goes beyond the kitchen, with a space saving, stackable laundry pair.
Often, if you’re buying a condo or new house, you can choose whether to purchase the “standard” appliances chosen by the developer, or pick your own. Our advice is to seize the chance to buy a “suite” of new appliances, and here’s why:
Dinosaur dependent. Many properties still specify gas cooktops and gas clothes dryers by default. If you want to use green, renewable power in your new digs, you’ll want to go electric instead.
Oversized. Large, double-door refrigerators and giant clothes washers are popular at the luxury end of the market, but may eat up way more space than you need for your small family. Why not right-size instead?
Inefficient. Developers know that the stainless-steel, commercial look for appliances is “in,” but many knock-off brands don’t have great energy performance. Instead, you want to select ENERGY STAR brands that optimize electricity.
Rather than simply checking the “standard” appliance box, take a look at appliance suites. You may find, for example, that a specialized set of appliances such as the one shown not only meets all of your needs: it also saves you water and utility dollars every month. Plus, the matching look complements your eye for décor and fashion.
She’s talking about the fund that condos are supposed to save, to pay for major repairs down the road. Without it, you can get hit with a monster bill when the roof or something big fails.
“Look for a reserve account,” she says. “Are they putting money in reserves each month? How often have they had assessments?” If they haven’t kept an accurate account of the building’s state of repair, she says, that’s a red flag.
“The easiest way to ensure your condo fees stay low is to be on the board of directors of the condo association,” she adds. “It’s kind of a thankless job, but so important—and the easiest way to not run into any financial surprises.
“Many of the condo associations have their meeting minutes online,” she continues. “I’d ask for the last several board meeting minutes. Good minutes will recount if there were any building complaints lodged by owners, and that can be telling.”
Jason Gelios, a realtor with Community Choice Realty in Southeast Michigan, notes that another thing to look for in condo sales are whether or not the association charges for small things. These can add up.
“For example,” he says, “what we see with condo associations are additional fees to receive a copy of your by-laws, welcome packet and even special assessments for major repairs such as roof replacement and repaving of roads.”
“There really is no solid way of preventing your condo fees from increasing,” he adds. “But when a first time home buyer becomes an owner of a condo, they should have a say in certain decisions.” In other words, you want to make sure you have a place at the table early on.
Make it part of your sales negotiations.
Ultimately, I got a really good deal on my condo, and spent about half as much as I would have on a home with a similar square footage. As a result, I save hundreds of dollars each month that I can put into other things. I also don’t have to worry about doing landscaping, painting the outside of the building, etc, which saves a lot of time versus living in a house.”— Ben Tanner, Physician’s Assistant, Guitarist
Beware a deal with the devil.
Ultimately each owner of a condo in a building has a voice and a vote. A condo fee is collected, some of it put in escrow for building maintenance, and sometimes a property manager is employed. These fees often do not cover utilities, taxes, or any of your other big ticket costs.
I recently reviewed the Condo documents put together by a neighbor selling his three-unit building. They’re full of unpleasant little surprises. For example:
75% or nothing. Condo buyers do not gain voting rights until 75 percent of the units have sold. But there are only three units, so if two units sell, only 66 percent of the properties have sold. This suggests that ALL THREE units have to have sold before the buyers of the first two units get any vote in how the building is managed, or whether fees are raised, or…anything.
Silent servitude. Say one unit sells and no other units are sold. You, the newcomer, remain a voiceless tenant in perpetuity. “Put your trash here, not there. No guests after 10 p.m. No dogs in the building. Guests can’t stay more than one night.” It’s frightening to think of what kind of arbitrary rules your autocratic landlord might impose on you.
Taxes to the max. When an occupancy permit is listed for a new or converted condo, it’s typically appraised at 100 percent market rate at the time of the conversion. That means if you’re buying right now, when the housing market is hot in most parts of the United States, you’ll pay high taxes on the property forever. Don’t be surprised if a single condo’s tax bill matches or exceeds the tax bill for the entire apartment building, prior to the condo conversion.
AirBnb snuffed. The condo rules in the document I read also include a 30-day minimum period for sub-letting the property. This is code for “no AirBnb” (few AirBnb renters want 30 day or longer rentals). So forget subletting your property; if you thought you might raise a few thousand extra bucks in the summer to pay for some new furniture, forget it. The seller wants to dictate to you how to use your new home.
Unwanted advances? In the case of the condo contract in question, the owner also happens to be a property manager. It’s no surprise that he has arranged for his company to manage the building, in part because, as controlling owner, he gets to pick the property manager. Remember, if he owns even one unit, he retains total control over the property.
Details matter. And finally, beware of typos in the association document. Make sure the same seller is listed in every instance, not some third party. Hire a lawyer if you don’t feel confident editing the document with precision.
It’s your money. Don’t accidentally give away your rights to live as you wish.
Read the condo document carefully, and renegotiate the terms. Make sure you have voting rights immediately that mean something. Remember that you now own part of the building. You’re not a tenant.
You’re going to pay top dollar for taxes, on top of utilities, so for a 1,000-square-foot condo, you’re looking at an extra $650 per month on top of the nearly $300 condo fee. That’s in addition to your mortgage. Make damn sure you’re obtaining a property over which you have some rights.
Publisher’s Note: This content is made possible by our Today’s Home Buyer Campaign Sponsors: Panasonic, Whirlpool, Rockwool, and Lee Industries. These companies take sustainability seriously, in both their products and their operations. Learn more about building and buying homes that are more affordable and less resource-intensive on Today's Home Buyer.