Common Condominium Issues
When purchasing a condominium, many believe it’ll be just like owning a home. Yet, from obtaining a loan to dealing with close-by neighbors and a homeowners’ association, the experience can prove to be quite different. Here’s what you should think about before going through with your purchase decision.
Although more and more suburbs have condo communities, the typical condominium building is still in an urban area. For many, this offers convenience, such as stores and public transportation within walking distance. On the flipside, you must contend with noise and brightness – both from surrounding buildings and your direct neighbors. As a tip, real estate experts recommend stopping by at different hours during the day to check out the environment.
The Homeowners’ Association
Popular belief illustrates homeowners’ associations (HOAs) as organizations that dictate what you can do with your property. While there’s a bit of truth to this, HOAs serve a specific purpose in condo communities: To enforce bylaws, ensure they don’t conflict with legal statutes, monitor common areas and grounds and collect, distribute, and monitor association fees. Due to these factors, your potential HOA has a list of restrictions and responsibilities you’re expected to follow. Otherwise, ignoring or disobeying them could lead to a breach of contract and resulting legal troubles.
Further realize that not paying your dues can place you in additional legal or financial trouble, including possible unit foreclosure, reports to a credit bureau or a lawsuit from the HOA. As a result, you could be facing high expenses to get the issue resolved, all while your credit score takes a hit.
Your dues are also essential for maintenance and, for this purpose, your HOA should have at least 25 percent of its gross income set aside. Should they fall behind – for instance, unit owners not paying or internal budget mismanagement – the lender may halt the purchase of units, which affects the property’s resale values. Additionally, you could be hit with a tax assessment.
To determine if the HOA is a good fit, consider sitting in on a condo meeting and asking neighbors if they’re satisfied with the building’s management. Also, look into the community’s bylaws and dues, particularly to see how fees have increased in recent years.
In addition to the issues potential homeowners face when looking for financing, those considering a condo need to also consider:
- How much of the building is owner occupied? Lenders typically look for a larger percentage.
- How much of the building is owned by one investor, with 10 percent being a standard baseline.
- How many units have been sold?
- A higher loan-to-value (LTV) ratio.
Similar to getting a loan, insurance for your building and your unit involve a few different factors:
- The HOA is expected to insure common areas, the surrounding property and any improvements and similar projects.
- Unit owners are expected to insure the unit, all personal property within their dwelling and unit improvements.
- Flood risks. Your HOA is expected to have a Residential Condominium Building Association Policy (RCBAP) for the building and the unit owner should have a Dwelling Form to cover personal property.
Have you been shopping around for condo insurance, including flood coverage? To find out how these policies work and to explore your options, give us a call at 203.439.2815.