The condo owners association will generally collect monthly dues for exterior maintenance, common ground maintenance, insurance for the exterior of the complex, insurance for the board of directors & officers of the association, insurance for liability if something was to happen on the complex grounds, landscaping of the grounds, trash collection, and contribution into a reserve fund to pay for maintenance or repairs in the future. The dues can also cover things like water, cable, internet, etc. depending on the complex. You should look into how much the COA dues are and what exactly the dues cover at each complex. This will likely be different at each complex and could help you in narrowing down your choices by what the cost of the dues are versus what is provided.
When you are attempting to purchase a condo and submit an offer, it’s important that a request is made to obtain the COA documents (this is a standard option in a condo contract available to Realtors). This usually includes the resale certificate (a brief overview of the financial condition of the COA and a current budget) and the COA declaration, bylaws, and rules & regulations (these documents will explain the rules by which the association functions and what you are allowed to do and not do while living in the condo). These documents are essential in making an informed decision on whether the condo is a good fit for you. Here are some questions that the resale certificate should answer but are extremely beneficial to know before submitting an offer:
How much in reserves does the complex have?
These reserves are extremely important to pay for maintenance and repairs in the future. If the association does not have adequate reserves and something happens that they can’t afford to fix, the association can levy a special assessment on the owners. A special assessment is a mandatory fee paid by each owner to pay for an expense that the association does not have the funds to pay for. These assessments can happen at any time if the association does not have reserves saved up. So, it’s important that the association be saving for anticipated expenses in the future and have adequate funds for the unexpected. Each complex is different in how much of a percentage of the monthly dues go into the reserve fund, but from my experience at least 30% of the monthly dues going to the reserve is a healthy amount. Some complexes are different and prefer to keep their monthly dues low and have special assessments when something happens that’s unexpected. I believe this to be a risky way to operate, and much prefer to recommend complexes to my clients that save for the unexpected. That way, if something happens the owners aren’t asked to pay an unexpected amount above their normal dues…the unexpected is already included in the monthly dues that they pay.
Are there any special assessments currently, or anticipated in the future?
This is a great question to ask to see how the COA operates and if there are dues that are above and beyond the normal monthly dues currently or anticipated in the future. Any well-run complex can still have special assessments if something catastrophic or major happens that wasn’t anticipated. But, a complex that saves for the future has a much better chance of avoiding these fees than a complex that just keeps their dues artificially low.
What is the Owner/Occupancy Rate in the complex?
That is, how many owners in the complex live in their condo as their primary residence? This question answered will give you a good idea of how many owners are occupying their condo, and how many are occupied by tenants. Generally, owner/occupants are preferred because they tend to have more pride in ownership and keep their place up. Also, owner/occupants tend to obey the COA rules and regulations better than tenants. The owner/occupancy rate is also very important to lenders who will provide financing (your mortgage) to purchase a condo. They almost always require over 50% owner/occupancy in the complex to finance the property these days. If the owner/occupancy rate is under 50% it will likely extremely limit what financing options there are. More on financing later…
Are there any pending law suits that the COA is involved in?
A great question because a law suit can obviously cost a lot and that money needs to come from somewhere. Even if the association wins the suit it’s possible that the association will still have to pay legal fees that will draw down the reserve account. Or the association could lose which could be terrible for the reserves and might cause a special assessment to be levied on the owners to pay insurance premiums, legal fees, and other expenses related to the law suit.
Who is the management company for the complex?
Every complex either self-manages or has a management company that takes care of the day to day affairs of collecting dues, keeping up the common grounds, and contracting for general maintenance. Having an outside management company is definitely more common. This is a good question to ask because not all management companies are the same! Some are very responsive and on the ball when it comes to their duties…and some are not! A good Realtor will know about these management companies and will be able to provide an opinion on how well the management company will perform.
Is the complex FHA approved?
If you are looking to purchase a condo or loft with an FHA loan, the complex that you purchase the condo in must be FHA approved. If the complex is not FHA approved this type of loan won’t work, and you might need to look into getting a conventional loan which typically requires more money down. FHA approved status can be looked up on the HUD website but FHA rules have been changing quite a bit lately so it’s important for your Realtor to verify the approved status of the complex with the listing agent and management company. Here’s the link to the HUD website: https://entp.hud.gov/idapp/html/condlook.cfm
I’m a Realtor in Austin Texas that has experience in condo sales and purchasing and also manages condo complexes. There is more information on this topic available on my website.
thanks,
John Spae
http://www.eastaustinishome.com
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