One of the first things you should look at when evaluating a condo is whether it is in good financial health or not. In this edition of First-Timer Primer, we review five potential red flags you may encounter when reviewing documents for a condominium you are considering purchasing.
1) Use Restrictions That Don’t Align With Your Plans For The Condo
The Bylaws and any Rules and Regulations (also sometimes called House Rules) of a condo building will set forth restrictions on how you will be able to use the condo. Here are some of the more common restrictions to consider:
- If you have a pet, make sure there are no size or breed restrictions, and that your type of pet is allowed. Many condos only allow “ordinary domestic pets” (dogs, cats, and caged birds) and aquarium fish.
- If you think you may rent out the condo, check for any restrictions on leasing, such as minimum lease term or a rental cap. Most condos prohibit short term rentals such as Airbnb and VRBO, so if generating revenue from these platforms is part of your plan, you’ll want to make sure you’re allowed to do so.
- Many condos prohibit smoking in common areas like roofs and courtyards, and some even prohibit smoking (and vaping) within individual condos.
2. Lack of Meeting Minutes
While meeting minutes must be provided to potential purchasers in Virginia, they are not required to be provided in DC and Maryland. Ask for them anyway. If no meeting minutes exist (as is sometimes the case with small associations), that will give you insight into how the association is run. If they exist, but a DC or Maryland condo refuses to provide them, you should ask questions about the reason that minutes are being withheld and consider whether there may be issues reflected in the minutes that may turn off a potential buyer.
3. Outdated Reserve Study
A reserve study is an engineering inspection and analysis of a condo building’s common capital systems and elements, such as the roof, exterior walls, and mechanical equipment (like elevators and HVAC systems). It provides a roadmap for how much money the association should be saving in its reserve account based on the cost to replace these components. Best practice is to perform a reserve study or a reserve study update every three to five years. If a condo’s reserve study is older than that, the pricing in the study may be outdated or the study may not reflect current conditions like a roof that has started to leak since the last study.
4. Frequent Special Assessments
A special assessment is a charge to unit owners above and beyond the regular monthly assessment. Sometimes special assessments are necessary because of an unexpected cost that the condo building does not have the funds to cover. Especially in smaller associations (which tend to hold less money in their reserve account), special assessments are not necessarily a bad thing. However, if a condo has a history of multiple special assessments, you should investigate why, as sometimes special assessments can be the result of poor management or oversight by the association.
5. Low Condo Fees
One of the first things that buyers look at when searching for a condo are the condo fees, since they add to the monthly cost of ownership. You should be wary of condo fees that seem too low. If an association doesn’t generate enough money to both operate and save into a reserve fund, residents may face deferred maintenance, lack of preventative maintenance that can lead to increased costs later, and often the need for special assessments, which can have a huge financial impact on unit owners.
This article originally published at https://dc.urbanturf.com/articles/blog/five_red_flags_to_look_for_during_condo_document_review/21428.
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