The Pitfalls of Buying a Condo, Co-Op or HOA
What Your Clients Should Know Before They Buy
The bottoming out of the housing market has created prime conditions for bargain-hunters, but there are a few key things that any homebuyer needs to know before safely buying a home in a Shared Ownership Community (condominium, co-op or homeowners’ association). While SOCs can provide homeowners with a better quality of life than a traditional neighborhood, that lifestyle comes at a price—because in an SOC, while you may own your home, you also own community property together with dozens, or sometimes hundreds, of strangers who are all jointly responsible for maintaining the common property. If an owner fails to pay their share, the other owners are forced to pick up the slack. Buying an SOC is not identical to buying other property, and buyers should consider some drawbacks and caveats before they make that seemingly unbeatable condo deal.Maintenance Payments Are Not Rent, and They Are Not Optional
Because every community association is tasked with maintaining and operating the common areas of the property, they must collect assessments, or maintenance, from every single owner. These payments may seem like rent or mortgage bills, but they’re different. Unlike a mortgage, maintenance is not a fixed, guaranteed amount—it will vary depending on the cost of operations, the existence of emergency repairs and the amount of reserve funds held by the community. And owners are absolutely required to pay their maintenance, by law, every single month. If they don’t, the association can put a lien on their property and foreclose. It doesn’t matter if the board of directors is mismanaging the property or failing to maintain the common areas.
Before your client buys a unit in any SOC, they should check not only the current maintenance amounts, but also how much money the association keeps in reserve for emergencies, and whether there are any outstanding large repair projects that might require a special assessment. And always recommend that buyers budget for fluctuations in maintenance, especially in new properties. It’s not uncommon for a new neighborhood, recently turned over by the developer, to raise maintenance significantly in order to cover costs that were underestimated in the original budgets.
Owners Are Responsible for the Good Times—and the Bad Times
Life has its ups and downs, just like any neighborhood. Storms hit, roads crack, clubhouses flood and fires rage. And when disaster strikes, it’s the homeowners who are forced to foot the bill to rebuild the community. So buyers should investigate whether the community association carries sufficient casualty insurance to cover any emergency. Also, considering the lean economic times, it’s important to remember that if one neighbor doesn’t pay their maintenance, the rest of the owners must pick up the slack. Buyers should always check how many owners typically fail to pay their bills, how much bad debt the association carries and whether they’ve had any recent special assessments to cover shortfalls in their budget. Better to know the facts ahead of time than to be miserable with their purchase.
Whether They’ve Read Them or Not, Every Owner Must Follow the Rules
Every person who buys a home in an SOC has constructively agreed to be bound by a contract that lays out all of the guidelines that must be followed in the community (often called the documents or the covenants). By law, these documents are supposed to be given to buyers by the seller of the property, but they also are publicly recorded. Because of this, a buyer can never argue that he or she didn’t know a rule existed. If it’s in the documents, the rule can generally be enforced.
So what kinds of rules are common in SOCs? Whether or not pets are allowed, whether owners can have guests at night, where they may park, when they can use the gym or the pool, what they can wear, how their lawn looks, the color of their roof—pretty much any aspect of community life, really, can be governed by the documents unless the rule is discriminatory or violates public policy. So it’s critical to insist that every buyer reads the community documents before they sign their contract.
Sharing Walls Is Not for Everyone
While traditional homeowners have at least a few feet of breathing room between themselves and their nearest neighbor, residents of condos and co-ops have to accept that unpleasant sounds, sights and smells are often unavoidable. Maybe the cockatiel next door squawks every morning at sunrise, or the stuffed cabbage cooking downstairs makes them retch. But people who share walls have to accept that close-quarters living is different than detached homeownership, and that some small nuisances have to be tolerated. If your client is extremely sensitive or particular, a condominium or co-op may not be the best option.
The world of SOCs is a potential minefield, but the rewards of ownership can be just as great. Still, an educated buyer always makes the best client, so insist that they follow the above guidelines to find a clear path to their ultimate goal—a home they’ll be happy they bought.