So, you’ve decided to buy a condo.   Your offer was accepted.   The seller did not even counteroffer.   You can’t believe the amazingly low price of the unit.   You can’t wait to tear out the carpet, install hardwood flooring, paint the living room, and choose furnishings and window treatments.     You can even afford to hire a decorator because you got such a great deal on the price.   This almost seems too good to be true.

It might be.

I’d hate to tell you the great deal you thought you were getting might be less so–or even a raw deal.   If you don’t do your homework on the financial health of your condo community, however, you are taking a very big risk.   You may pay a great deal more later if you go into the deal and let the dog eat your homework on this one.

Spare yourself the pain.   Don’t sign anything related to the purchase of a condo until you review the condo’s governing documents, bylaws and financial information.   It might sound tedious, but if you don’t, you could fall in with people who are perfectly good company as friends but may not be the best company financially speaking.   Simply, you may buy into a place where condo owners may be seriously behind on their dues-which will ultimately affect your expenses.

Let’s say you buy into a building where condo owners haven’t kept up with paying their fair share of dues.   You might face a very unpleasant surprise:   Significantly higher monthly dues, a large assessment, or maybe both, warns Richard Swerdlow of

You need to know about homeowner association rules and regulations, and more importantly, how the association handles their money (which will include your money).

So, what do you look for when you read a condominium’s governing documents, bylaws, and financial information?    You have a legal right to review (with great scrutiny) the following information before you decide to purchase, courtesy of Lew Sichelman:

Dues:   Monthly dues paid by condo owners support the upkeep of their communal property.  Typically, a third of that money goes into reserves.    Eventually, your roof will need replacement, the sidewalks and streets will need repair at some point, not to mention repair/replacement of the heating and cooling systems and such.   Funding those projects means money out of your pocket and your neighbors’ pockets.

Budget:   Get the most recent copy of the association’s budget.   Ask for copies of budgets from previous years so you can see how money has been spent.   Look for patterns.   Get a year-to-date income and expense statement so you can compare actual expenses against the budget.

Special Assessments:   Be careful with this one.   If your association has been run effectively, it should be saving and putting into reserves appropriate amounts from your monthly fees in an interest-bearing account.     Has a special assessment been discussed?   Is a special assessment pending?   Not knowing the answer could cost you hundreds, even thousands of dollars.

Governing Documents:   Can you live within the rules and regulations of this community?   Find out before you sign on, or you might live to regret it.

Reserve Study:   What are your community’s common elements?   Think of it as an insurance actuary–but for the aging of building components.   This 30-year maintenance and funding plan designates all of your common elements (e.g. roofing, heating units), provides an estimated lifespan for them, and projects when and how much money will be needed for their repair and replacement.

Level of Delinquencies:   Don’t fall in with bad financial company, defined as more than 15% of all condo unit owners in arrears.   Richard Thompson of the Association of Professional Reserve Analysts says if some don’t pay, the rest have to.   In other words, you.   The reasons dwellers are in arrears are probably very reasonable in this economy, likely ones of true hardship (but unfortunately beyond the scope of this writing).   Remember:   This is about you and your financial well-being.

Collection Policy:   Find out what the association’s written policy is on collecting what’s due from members in arrears. Does the association appear to play fast and loose financially?   If they don’t have a detailed written policy, be wary, says Richard Thompson.

Insurance:   What does your association cover?   You would get full details of your medical insurance coverage, right?   How about your auto coverage?   This is going to be your home:   Know your coverage, monthly payment, deductible, and the name and number of the association’s agent.

Rules to Live By:     Is smoking allowed?   How about pets?   Maybe you can have a dog, but are there canine weight restrictions?   What if you decide you want to keep the unit as a rental?   Is this allowed?   Find out before you sign on.

Mood:   Get a hold of newsletters and board meeting minutes.   You can usually intuit how the community’s degree of happiness with the association, as well as get an idea of how the association conducts itself.   You might get the inside scoop on special assessments here, too.

If you require a referral for a real estate lawyer, feel free to take a look at our preferred providers.   They are all people we’ve worked with personally and trust.

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