Love Buying a Home – Week 11
This step-by-step series will take you through the entire home-buying process — from finding a buyer’s agent to settlement day, and all the details in between. Every first-time buyer will find this information-packed series easy to follow and understand. Make sure to tune in for the next few weeks!
Even though you’re buying a home when you purchase a condo unit, you’re actually buying into a “business.”
That’s why it’s so important for you to determine how stable and financially sound this “business venture” is before taking it on. And that’s where reviewing condo docs comes in.
What Happens When You’re Under Contract
You’ll have the chance to review a stack of “condo docs” or condominium documents once you’re under contract to purchase a unit. These documents will give you a better idea of the financial outlook of this particular condo community.
And yes, it does seem backwards to review these docs after your offer has been accepted, but that’s how the process works!
Both you and your lender need to know what you are getting into with this purchase. This is a very important step when purchasing a condo unit. You will share in the financial responsibility of this condominium community with your neighbors. And your lender won’t give you a loan if there’s something amiss.
Take every ounce of that time to review these important documents and show them to a lawyer:
Condo Docs 101
Condo docs include but are not limited to the following parts:
Declaration;
By-laws; Rules/Regulations;
Financial Statements;
Budgets; and
Minutes from Meetings.
Let’s go over some of these below and point out what you should focus on during your review.
Financial Statements and Budgets
Basically, these documents provide crucial information on the financial status of your building. Most importantly, take a look at the condo’s reserve funds and operating budget.
If your condo has a low reserve fund, it will require a special assessment (additional fees) when a major repair or renovation is needed. It’s something to consider if you’re looking at an older building, especially ones that are around 25-30 years old. Keep this in mind for older apartment buildings that have been condos for only a few years.
A good rule of thumb is at least 10 percent of the condo budget should be going to the reserve account. This is also what lenders require before they will give a loan for a condo unit.
See how your condo fees are allotted each month for employee paychecks, utilities, trash pick-up, etc. Remember, somebody has to pay for those hallway light bulbs!
Plus, if your condo has a 24-hour front desk, swimming pool, elevators, full-time engineer on site … these expenses add up and so will your fees.
Keep in mind that your condo association shouldn’t be dipping into the reserve fund for basic maintenance like trash removal, recreational facilities, common-area landscaping, etc. That’s a big warning sign!
Rules, Regulations and By-Laws
You want to check these out to see if you will be able to live by the rules and regulations of your condo community. Remember, you’re living with many other people, and there will be certain expectations and restrictions. Do these suit your lifestyle?
These rules can vary widely from community to community. In general, these documents could specify a range of items, including its pet policy, whether you need to have carpeting, can you install hardwood floors, or if you can rent out your condo at any time.
Also, review any grandfather clauses since you might not have the same “rules” as an earlier buyer.
Other Important Questions to Ask
Definitely contact board members or the property manager to ask questions. This additional information can help round out your review of the condo docs. Here’s a “must ask” list:
We’re heading into the final weeks of my Love Buying a Home series and also for your final steps to buying a home. You’ll get the nitty-gritty in the next article, Almost There … Pre-Closing Details for Buyers. It provides a breakdown of what to expect so you’re ready for the big day.
Amy is a real estate professional who has been helping buyers and sellers make homeownership a reality since 2005 in the DC metro area.
Let's Connect