After months of searching, you have finally found a condo you love. Before you sign on the dotted line, it is essential that you keep those highly-toned research muscles in practice. There are four questions you need to ask before taking a step that will have a major impact on you and your money for years to come.
Question 1.: What is the status of special assessments past, present, and future?
A special assessment occurs when the condo or co-op association approves an additional fee that is not included in the budget. This might occur if there are plans to upgrade the property in some way, perhaps by installing a swimming pool, but can also be levied for essential needs. There may have been a storm that caused damage that needs to be repaired, for instance. Understanding how often these additional costs have been approved in recent years, as well as if there are any potential “big ticket” needs in the near future can help you arrive at a true picture of what your expenses will really be.
Question 2.: What is the recent history of condo fees charged to residents?
In order to run a property, it is necessary for the condo association to charge monthly fees to residents. These allow for the payment of ongoing expenses such as landscaping, security, and maintenance. They often also include a reserve fund used to pay for large upgrades or repairs. In many cases, condo fees also pay for all or part of residents’ utility costs. Because of rising prices and economic changes, condo fees are often adjusted on an annual basis. Therefore, it is wise for you as a potential buyer to obtain information on what these charges have been over the course of the past five or ten years. To come to an even fuller understanding of your potential expenses, this is the best time to find out if the condo association is planning any costly improvements or repairs.
Question 3.: What is the overall health of the condo’s reserve fund?
As stated above, this “nest egg” is made up of the contributions of residents through their condo fees. When the cost of large projects needs to be distributed to all, this fund is often tapped. If the property has been managed properly, this pot of money may well be stable and growing. A red flag to watch for is a fund that is decreasing, especially if no major expenses have been incurred.
Question 4.: How much will insurance cost?
One of the most common mistakes made by first-time condo buyers is neglecting to factor the significant cost of insurance into their projected monthly expenses. It is mandatory in all states that condo owners have a personal insurance policy on their property. The condo association may determine set insurance standards to which you must adhere. Often, you are required to purchase a policy with an A-rated company and carry a certain value in liability limits in case you cause damage to another unit. In the most extreme cases, the condo association actually dictates from which company you buy your policy. In addition, the condo association holds a master policy on the entire property, the partial cost of which you are required to pay. By obtaining a copy of the condo association’s present budget, you can get a precise picture of what residents are expected to contribute toward this cost. Care should be taken to ensure that the cost of this master policy is neither too low nor too high. In the case of the former, coverage may not be comprehensive in the event of unexpected catastrophic damage. In the event of the latter, inflated prices may be a sign of poor management decisions on the part of the association. Since each property has unique stipulations, it is very important that you understand in specific terms how they apply to your property.
Doing the legwork necessary to obtain all of these data may seem exhausting. However, after all the time and trouble you have put into house-hunting, it is an investment that will pay off. Once armed with all of this vital information, you truly can decide whether the condo of your dreams is right for you.