what to look out for when buying a condo?

September 26, 2006 8:54 PM

I have made an offer on a condo and it's been accepted. I'm in the contingency period and now is my chance to investigate/negotiate anything that might be a problem down the road. I'd like general advice on what to watch out for in a condo situation, and have included more specific details and questions inside.

It's the upper unit in a 2-unit building. There is a common yard, common laundry room out back, and a common storage room out back. There are deeded parking spaces for the unit on the lot.

Currently there is no permanent owner in the other unit. It's being prepped for sale by the same couple who are offering the upper unit. They say they are 2 months from finishing and selling it. This is my first home-buying experience.

1) HOA fees have not been established. My agent says that the estimated monthly is low, but I'll need to sort that out with the owner later. That seems odd to me. Why not sort it out now?

2) The common laundry room is currently non-conforming and was cited by the city. The plumbing was disconnected. As part of their counter offer, the owners disclosed this and said that while their intention was to complete the laundry room with permits, that might not be possible. In such a case, they say it might be completed in a non-conforming manner. I think they're being as honest and up front about it as they can be, but it feels weird to have that room be part of the offering, yet have its status still be in flux. I want to know what I'm buying, right down to the common laundry room out back. They wrote this uncertainty into their counter-offer, which I signed, but I'm wondering what I can do now to pressure for a resolution or concession on this point.

3) The CC&Rs stipulate tighter restrictions on cats than I'd like. Indoor-only, no more than 2... My agent says I'll have to negotiate an ammendment later and that it's not a big deal. But I don't want to commit to a rule I plan to break. How mutable / negotiable are CC&Rs in a situation like this, where there are only 2 units and the other one is presently vacant?

4) What else do I need to know about condos and what should I watch out for?

5) Any advice for the finance / lending side? My dad is a former lending banker and will be helping me, but advice is welcome.

THANKS!

posted by scarabic to home & garden (15 comments total)

this is in Alameda county, CA
posted by scarabic at 8:56 PM on September 26, 2006

I am not a real estate attorney, but I hope you are working with one!

Will you be in a two-person HOA, or is this a unit in a larger complex? If it really is just two units, are you COMPLETELY comfortable with the terms of dispute resolution that are set out in the HOA document? Will there be a property management group to take care of things like collecting HOA fees (and following up when they don't get paid!), running meetings, handling noise complaints, and finding vendors when the building needs maintenance? If it's managed by a 3rd party business, make sure you have thoroughly vetted them with the BBB and other references. If not, who will be doing these things? How would you feel about doing these things yourself?

I would suggest working to get #3 resolved with the current owner, since he/she has more of a motivation to make this change. How would you feel if your future neighbor didn't agree to amend the CC&Rs? Would this rule be a deal-breaker for you? Your real estate agent is telling you this is no big deal because he/she is wants a paycheck. Read the provisions carefully to find out how amendments would be handled if the two owners disagree.

Definitely consult with your lawyer about #2. I'm not sure how this might affect you in the future.

It's common for HOA fees to be set very low before all units are sold to attract future owners. Once you all decide on what services you want to pay for (landscaping, trash, etc) this figure will change. Keep in mind that, if emergency maintenance is required before the HOA has adequate funds, you might have to split a VERY large "special assessment" between the two units.
posted by Gable Oak at 9:31 PM on September 26, 2006

Get yourself a really, really good inspector. If the laundry room was cited, it means the builders/owners used unlicensed contractors, or did the work themselves. (And then never fixed it, as they were required to.) Who knows what other evils lurk behind those walls?

And for all such experts, please do not rely on your real estate agent for references. He or she may seem nice now, but their only goal is to get their commission -- so they'll steer you to experts who won't find nothing wrong (i.e., nothing that will throw a monkey wrench into the sale). Ask at the local hardware store, or consult friends who've bought property before.

"How to Buy a House in California" by Nolo press is indispensible. Buy it and read it!
posted by turducken at 9:31 PM on September 26, 2006

I mean, "won't find anything wrong." (Double-negative-and-jelly time.)
posted by turducken at 9:51 PM on September 26, 2006

Pay the money for an inspector. It will be between $200-400 depending on market.

Check the wiring!!! Unscrew the wall panels and make sure decent coax (cable TV) and phone cables were used. I can barely swing cable internet because of the crappy ass wiring in this place. It goes out a lot.

Give everything a reasonable stress test. My condo's previous owners left a few things semi-broken that just needed to be barely touched for it to fall off. Obviously don't be kicking stuff, etc, but at least touch things firmly enough that if they're hanging by a thread you'll know.

HVAC is key - make sure the heating and A/C work great. Be sure the inspector tests them thoroughly. If you cannot test one or the other due to weather, make the owners sign an affidavit stating that it worked upon last use and should still work.

If you like any of the paint colors in the place, ask the owners if they still have the cans / spare paint left so you can match it and touch up.

Lastly - I'll just reiterate: Spend the money on a good inspector. Seriously. Do it.
posted by twiggy at 10:06 PM on September 26, 2006

Whew boy,

As a former condo association president I see so many questions:

2 units??, more in a cul-de-sac or a planned community or what?

Is this just a duplex in a new suit?

But if the property is more than those 2 units what is going on with the no documents thing? Have other people bought under the same deal and how did they get financing with such a iffy deal? They had to prove details to their lender did they not?

That situation changes everything about the following caution areas I would be asking HARD questions about.

Who collects the dues? Who is the Board of Directors?
Where are those rules written down and who wrote them? If the departing owners wrote them they are admendable by the new owners.
Why is there no governing documents ready pre sale?
If the property is 2 units you are half the shareholders and can decide the pet policy, for example, any way you decide.
Who fixes the roof?
Flood and property insurance? Who is the policy holder? State regulated?

Who buys a shared agreement based property without the rules of the contract in place? You might never be able to sell it.

You seem unsophisticated as to the type of real estate this is, get online and search condo associations, condo minutes, declarations, budgets, find out what those owners are doing.
posted by Freedomboy at 11:02 PM on September 26, 2006

Ex-condo owner here. Don't buy without viewing CC&Rs and knowing what the exact HOA fee will be. If you want the cat rule amended, write that into your counter-offer too. Don't be lax because they seem nice, if you don't nail these things down now, you won't have any leverage later because you will have already signed off.

The laundry room thing worries me. Firstly, in what way is it non-conforming? Why would they build it improperly? Either they didn't do their research properly (bad) or they didn't care too much about it (also bad). What if there are other aspects of the construction that are improperly researched or non-conforming? When you decide to sell the condo later, you are going to have to disclose that the laundry room is unpermitted/non-conforming, and that will mean you cannot include it in the value of your condo. If you are OK with buying it knowing the laundry room is non-conforming, then you should expect the condo price to come down to a price as if there is no laundry room. This is how it is with unpermitted rooms when you sell, so don't get bitten in the ass later :) Permits are a serious deal if the city decides to be difficult about things.

And yes, find a good inspector. See if anyone you know used a house inspector they liked. They know what sort of things to poke around and look out for. Its very much worth the money. Finally, good luck and I hope everything turns out well!
posted by Joh at 11:05 PM on September 26, 2006

I thought I'd mention a few more things to look out for:

Check the condo docs to see if owners are allowed to rent their units out. Is any kind of approval required? Banks worry about non-owner occupants, and you should have a healthy concern as well. It is possible for an absentee landlord or a vindictive tenant to damage the property so much that your own property value would be affected. You may even have difficulty finding a lender.

If you and the future owner agree to split things like lawn care, remember that you'll have to be pretty chummy with them. (For example, they'll need to know if you go on vacation and for how long.) Be sure you're comfortable with this, especially not knowing your future neighbors!

For your mortgage, I would recommend calling or visiting at least ten banks in your area to find out what kind of "First-Time Homebuyer" programs they offer. Get the terms in writing, thank them, and then spend an afternoon going through all of the plans to find the best one. Look at the fine print. There may be income or home cost limits. The upside is that if you look hard enough, you can expect things like paying for part/all of your closing costs and very low interest rates. Whether or not you choose to move forward on this sale, this is something you should be doing NOW.

I assume your dad will be able to explain the different types of mortgages to you. If you're not putting at least 20% down, you can avoid wasting money on PMI by getting a soft second mortgage. It just separates the difference between your downpayment and the 20% into a second loan. Walk away from any bank that won't do this for you.

Most homebuyers will want a fixed rate mortgage. Adjustable rate mortgages may have lower rates to begin with, but if you aren't absolutely certain you'll sell the condo (or refinance) before the rate begins to adjust, you'll want to think twice.

Mortgage brokers are like the car salesmen of the banking world. If you're knowledgeable about mortgages, comfortable reading fine print on your own, and dealing with high pressure salesmen, then you might be able to find a loan that's amenable to you through one. However, I encourage you to pursue the "first time homebuyers" route through the banks in your area first.

Be wary of applying for rate quotes from internet mortgage brokers. It's very difficult to get their deals in writing and to "find the fine print" about what they're trying to offer you before it's too late. You'll also get a seemingly unending amount of solicitations by phone/email. Telling them you've decided to go with another company doesn't stop it-- then they switch to refinance solicitations. Never pay anyone a fee for helping you find a mortgage.
posted by Gable Oak at 6:40 AM on September 27, 2006

Having gone through the condo purchase process in CA as well, and ending up on the board of my 24-unit building, I know the feeling of uncertainty you can have when things aren't laid out well by the current Association (the garage in my building had been secretly condemned by the city due to fire code violations, which the previous board had ignored/hidden. Yikes.)

1) Is this a new complex? If not, why haven't the HOA fees been established? Have the details as to what items are covered in those HOA fees been determined, for instance -- landscaping, superintendant?

2) Who maintains the laundry facility? Is it coin-operated or free? If it's coin-operated, who operates and receives the revenue from the laundry? If it's free, is the cost of the power/water included in your HOA dues? Maintenance? If it's not permitted, it doesn't exist for the purposes of your valuation of the property. Assume it's not going to be there after you purchase.

3) There are CC&Rs but no HOA dues determined? That's, um, odd. Your realtor is lying to you about the ease of making that modification to try to close the sale. Basically, every word coming out of a realtor's mouth as a sale approaches should be considered dubious, if not an outright fabrication. Generally, pet rules were determined due to some sort of issue on the property and can be difficult to modify. I would petition the board prior to purchase if you think you're going to have more cats, etc to verify that this would be acceptable.

4) Find out when major maintenance items were last performed, as those can lead to emergency repair special assessments. Things like the boiler/heater, roof, and piping can cost a fortune to replace. Read the board minutes to 'read the tea leaves' as to whether or not any major upcoming maintenance is expected.

Find out about the board finances, as well.

• Do the HOA dues month-to-month increase the condo's reserves or merely cover expenses?
  
• What's the outstanding mortgage on the property, and how is it structured? (ie, does the HOA hold an ARM mortgage on the property that can adjust upwards, which will increase your dues?)
  
• How much does the HOA actually have in the bank in reserve for maintenance issues?
  
• Who does the financial planning for the HOA, and how has the HOA performed historically against having to deal with large-size maintenance issues?
  

5) Unless you have an income that's un-even or predicated upon large yearly bonuses, don't get an ARM. Mortgage brokers will try to squeeze you into a property you can't afford using exotic mortgages, which in this economy is dangerous as hell. ARMs work well if you can make large one-time payments occasionally, but for a general salaried type can be very dangerous. "Piggyback" loans (to cover a less than 20% down payment) can be ARMs, so watch out for the fine print on the rates if you don't have the down payment.

As a general note, with the housing market collapsing the way it is, be careful as to overpaying for your property. Do some research as to sales prices for the last 3-5 years in the area, and watch the trends. The seller seems eager to move the property (considering they own two units, one vacant) they're more than likely an investor. Don't be afraid to negotiate downwards, especially due to sketchiness in the offering.

Best of luck.
posted by fet at 8:00 AM on September 27, 2006

Current condo owner here.

Definitely nail down the exact monthly condo-fees. Find out the history too and see what the average yearly increase is.

Has the condo ever had an assessment? How much cash do they have in reserves?

Second the HVAC inspection recommendation above. My condo has separate HVAC and hot-water heaters for each unit. When I bought, the inspector said both HVAC and hot-water heater were the originals from when the building was built 20 years ago. I was able to negotiate half the price of a new HVAC and hot-water heater off of the mortgage price.

In Virginia, condo associations typically take care of everything exterior to the building including paint, repairs, roofing, lawn-care etc. Find out who is responsible for those things.

Having no formal condo rules and regulations sounds shady to me.
posted by BigVACub at 8:05 AM on September 27, 2006

Make sure you are working with a real estate attorney and that this attorney is not one who was recommended by your banker or buyers agent or anyone involved in the deal.

Once you get ahold of the vision of living somewhere (this condo is the perfect price! I could totally see myself in this kitchen!), it may be hard to divorce yourself from the emotions of the purchase and stay objective. But try, REALLY try. Sharing a building can be great or a living nightmare depending upon who the other tenant is and how the articles of building management are set up. You want all of this spelled out now. And the laundry room thing is a BIG red flag. Once these people sell these units, they are gone. Gone. Anything that doesn't work in the building will be your responsibility with the other tenant and will either be covered by your association fees or paid for with special assessments. If things get crazy and you want to get out and sell your unit, this may not be as easy as you think if the building isn't up to code or if there are major problems with the other tenant that you cannot resolve.

I don't mean to freak you out. For all I know, this situation could turn out fine. But always know that there are other condos all of the time that come up for sale and it is worth waiting for the right one.
posted by jeanmari at 8:09 AM on September 27, 2006

Make sure you have a thorough understanding of who is responsible for repairs in and out of the condo unit. For example, in a condo I lived in, a roof leak (their responsibility) caused damage to the ceiling above my shower. They kindly sent over the handyman to repair the damage at no charge, but it could very easily not be covered in your situation. The general rule is that you are responsible for everything between the studs (including the walls themselves). Are common areas attached to your unit (porches, decks, yard) the responsibility of the owner or the condo association?

When you're checking out the condo, run the water. Seriously. After walking in, go through the unit and turn on all the faucets, showers, etc. and let them run as you check out the place. After at least 10 minutes, go under each sink and look for any moisture. In a new construction, pipes installed incorrectly tend to leak soon after use but don't get noticed until damage has been done.

Find out what the HOA fees are going to be. Here in Missouri, we Realtors will have you sign an extra form when purchasing a condo that states you specifically know about condo related issues, such as the HOA fees, restrictions, etc.

Good luck, and don't let your Realtor convince you that things can neccissarily be taken care of later. If it is a dealbreaking item for you, do not sign it and expect to get it back later in negotiations. If you sign the contract with no HOA fees set, and the CC&R in place, that's what you agree to. You can't just say "Well, I didn't want that in the first place" down the road. Have your Realtor explain to you the options you have if you're not pleased after getting more information (inspection, financing, HOA, etc). Set up these conditions in the original contract, you need to protect yourself. (On preview, the contract has been accepted - which nullifies my suggestion on contingencies, but hopefully they are in place already). I hope that this is your agent, and not the agent selling the condos.
posted by shinynewnick at 8:41 AM on September 27, 2006

It's a brand new condo conversion - used to be a house which was mad into a duplex and now condos. There are CC&Rs which I will now spend more time with, following up on all these excellent questions. I'm also bringing in a raelly thorough inspector. They were recommended by family and I've seen their reports before. It sucks that you can't trust your agent... they're supposed to be representing you.

Thanks for all the advice!
posted by scarabic at 8:58 AM on September 27, 2006

Your agent should be representing you, and he or she is most likely being truthful about these issues in your market. That being said, strange situations come up constantly in real estate deals.

For example, I was acting as a buyer's agent for a couple, and in the last week before closing on the deal it got to be very difficult to work with the seller, even regarding issues that had been negotiated earlier. Once we got the deal closed, I found out that the seller was looking for ways to back out so he and his girlfriend could move into the house instead of selling it. So all the advice about how things "normally work" went out the window that last week.

If possible, see if you can be there for the inspection process. You don't need to walk through the home while he's inspecting, but immediately after he can show you the issues found in the home. That will give you a much better sense than looking through 30+ pages of the report a week later.
posted by shinynewnick at 12:09 PM on September 27, 2006

I will actually be there for the inspection, with my peeps to back me up. I have peeps. They rock.
posted by scarabic at 3:17 PM on September 27, 2006