A lot of people moving to Florida start their new home search with
condominiums. What could be better? Somebody else mows the lawn, cleans the
pool and even maintains the building, there is an element of comfort in
buying property where someone else will take care of it, especially if you
do not live there year round. But, communal living arrangement of a
condominium and someone else taking care of maintenance brings its own set
of concerns that might merit investigation. That could be especially true
for someone who has only lived in a single family home.
Having someone else take care of the building, lawn, pool and other amenities is not free. Condominiums assess unit owners to pay these expenses. The amount of expense can vary, even between comparable buildings. Operating expenses are a combination of maintenance, repair and management.
Buyers may want to examine condition of the building, and that means more than how it looks. Different materials may have extended life or lower maintenance expenses, but look the same to the naked eye. Hidden expenses can include internal plumbing, roofs and other items that are not readily observable. As buildings age, maintenance expenses tend to increase. Newer building may use upgraded components to reduce long term maintenance costs. Just as a buyer may shop mortgage rates, a buyer may want to shop maintenance expenses and possible future increases.
Buyers have an opportunity to review some of the condominium’s financials. Under Florida’s Condominium Act, a buyer is entitled to the most recent available financial statement. The statement should be carefully reviewed to determine if the association has been funding reserve accounts, which can be used to pay for non-recurring repairs and replacements. Some associations put away little or nothing for a rainy day, which means they will levy a special assessment on unit owners when repairs are needed. Fannie May, Freddie Mac and the FHA all want to see an association reserving at least 10% of its assessments for future replacements and expensive repairs.
A condominium with fully funded reserves as opposed to one that assesses for repairs when needed is almost always a better value. In effect, the unit owner is getting a piece of a bank account set up to pay for future repairs. While looking at the financials, consider expense of other “amenities.” If there is a golf club or similar facility, what does it cost? Is it mandatory to be a member? Is the condominium inside of a homeowner association that provides additional services and amenities and, if so, what does that cost? In some developments, a condominium owner can be subject to paying assessments to three or more associations. The associations may provide services and amenities that are well worth it to the owner, but there will be an expense.
Financial documents may not clearly disclose delinquency rate for the condominium. When some owners do not pay assessments, the other owners have to pay more of the expenses and may not ever get repaid by delinquent owners. If a mortgage is foreclosed on a delinquent owner, the mortgage holder is only liable for the lesser of 12 months of unpaid assessments or 1% of the original mortgage. Many associations are slow to file liens and take legal actions against delinquent owners, because of the expense and difficulty of collection. What is the condominium’s policy with respect to delinquency?
Amenities can be an important consideration, but they may not be as they appear. Are there sufficient parking spaces? Parking spaces in a Southwest Florida condominium are abundant in July, but at a premium in February. Are there enough spaces for everyone’s vehicles and guests?
If buyer is a boater, are there sufficient boat slips and are there rules about use? Are all the boat slips assigned for exclusive use or are they available for general use? How about the patio? Most condominiums prohibit alterations without a vote of the unit owners. That tiled and shaded patio extension might not be allowed.
The purchaser should confirm that the unit can be used as the purchaser intends. Rentals are restricted and even prohibited in many condominiums. Find out if the unit has booked future rentals that may interfere with the purchaser’s intended use.
While on the subject of rentals, does the purchaser plan on living year round in the condominium unit? If so, does the purchaser want to live in a building that is occupied by owners or renters? It might not make a difference to an owner, but many lenders apply different criteria for financing a condominium that is predominantly rental as opposed to owner occupied.
Many condominiums have restrictions on pets that could ban the family dog. Some condominiums ban different types of vehicles such as pickup trucks, commercial vehicles and motor cycles. Some prohibit recreational vehicles. Is there space to store RV’s, trailers, boats and the like? Sometimes, there is space, but it is already filled. If a purchaser buys thinking there is space to store their boat or trailer, they better be sure there is space available.
Florida’s legislature recognized the importance of providing condominium buyers with information long ago. The legislature started by mandating developer disclosure. The Condominium Act was amended to require non-developer disclosure (resale) as well. The Act requires every contract for the purchase of a residential condominium from a non-developer include a notice that the buyer is entitled, at the seller’s expense, to a current copy of the declaration of condominium, articles of incorporation, bylaws and rules of the association, most recent year-end financial statement or a document titled Frequently Asked Questions and Answers. The buyer has three days from receipt of those documents from which to terminate contract and obtain refund of any deposit.
Any contract that does not include the notice is voidable at the option of the buyer prior to closing. To be sure the documents are available to purchasers, the Act also requires associations maintain an adequate number copies of the documents to ensure their availability to owners and prospective purchasers, although the association may charge its actual cost for preparing and furnishing the documents to those requesting them.
Reviewing the documents made available under the Act will address a lot of the areas of concern to purchasers. But, those documents will not necessarily answer everything. The documents will not usually inform buyers if a building component is problematic and will be subject to an expensive repair or replacement in the near future. The documents will not address pending but not yet adopted special assessments. Rule changes, which are generally in the prerogative of the board of directors, may be pending but will not appear in any of the documents. Some of the information may not even be known to the seller and a condominium association is not required to give a prospective purchaser anything more than the disclosure documents mandated by the Act.
Thorough due diligence can require more than simply a visit to the condominium and review of documents mandated by the Act. A purchaser should also consider asking the owner questions concerning areas of concern and possibly getting the owner’s assistance in obtaining information from the association. Working with an experienced Realtor is also a good idea, as a Realtor familiar with the property may be a significant resource. Consultation with an experienced attorney will also prove helpful. All of these things should be done as part of purchasing decision and not after the contract is signed or after a “problem” pops up.
Avoiding surprise in a condominium purchase is not always easy. But, most surprises can be avoided if a buyer prepares a shopping list to make sure what the buyer sees is truly what the buyer wants and that what the buyer gets will make the buyer happily ever after.