Five Things Before You Buy: Condominiums
By Corey Jordan, Boston's Luxury Properties
Due to lack of brand-new construction in Massachusetts, prices on condominium units have hit a record high. According to a report by Massachusetts Association of Realtors (MAR), the median price hit $413,000 in May of this year, despite an increase of available units on the market from the same time last year according to the report. However, buyers statewide are still jumping into the market, so developers should continue to expect to capitalize on this demand, the MAR report states.
So, before hitting the market, here are five things that you should find out before agreeing to buy a condo.
What does the HOA fee cover?
Condo association fees are calculated based on:
- How many units there are
- What it costs to maintain the property
- How the condo community is managed (professional vs self-managed)
- Any funds set aside for litigation and major repairs.
Get your hands on a breakdown of the monthly dues you’ll be responsible for. Make sure you can truly afford this extra payment, and that you understand what you’re getting for your money. Remember, condo association fees are not tax-deductible like your mortgage is.
You also need to look closely at the reserves. Every condo association must put a certain portion of dues aside for major repairs. If the complex is less than 10 years old, the repair fund should have 10% of the cost to repair major items (i.e. roofs, heating and cooling system, etc.). If your community is 10-20 years old, the reserves should have 25%-30% or more on hand for major repairs. If the community is more than 20 years old, 50% needs to be funded.
Many communities promise their residents “low fees” ….be wary. Although this may seem appealing, chances are it means the community isn’t funding their reserves as they should. If the roofs end up needing a replacement, you and all the residents could be hit hard with a major bill (a “special assessment”).
Find out the delinquency rates on monthly dues as well. When other owners fail to pay their monthly dues, this often leaves everyone else holding the bag. Good communities will have a delinquency rate of 15% or less.
What are the Rules and Regulations?
Most condominiums have a board of directors/trustees. These boards set regulations, typically aimed at increasing the value of the development, and improving the quality of life of the buyers. Make sure the rules and regulations are in line with your lifestyle, and have your attorney review these rules and regulations, as well.
Also, have your attorney review the financials of the HOA (profit and loss, balance sheet, bank statements, etc.). The management should provide you these statements, which help determine whether the income and expenses add up.
Any past (or pending) litigation or lawsuits?
Condo communities can often have litigation- owners sue other owners, and/or the management team or developer. Ensure there are no past or pending litigation in your community, as it is often a sign of a poorly run community (or one filled with litigious neighbors).
Also, ask about the property’s liability insurance. If it has hefty coverage, no need to worry.
Will I need to move in the next five years?
Condos usually appreciate slower than single-family homes. While it’s impossible to predict the future, make sure that you really want to live in this community before you decide to buy.
What’s the management team like?
Get your hands on the minutes from recent HOA meetings or talk to any of the current owners. If the association isn’t quick about fixes, you want to know about it before committing to live there.
Also, some condos manage themselves, i.e. there are no property managers, and the residents meet to make decisions together. The good side to this is that it often means lower monthly fees, compared to communities that are professionally managed.