Buying a Condo: What to Check Before You Commit
With a condo you are buying into a small government as well as a home. Its balance sheet matters as much as the unit.
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A condominium purchase includes a share of a jointly owned building and membership in an association that can bill you for its decisions. The unit inspection matters. The association's financial condition matters more.
The documents to demand
- Current operating budget and the last two years of financial statements
- The reserve study, including its funding percentage and recommended contributions
- Board and annual meeting minutes for the past 12 to 24 months
- The declaration, bylaws, and current rules
- Any pending or threatened litigation disclosure
- The master insurance policy declarations page
- A statement of any approved or contemplated special assessments
What the master policy does and does not cover
Master policies come in "bare walls" and "all-in" varieties. Bare walls stops at the studs, leaving you responsible for insuring interior finishes, cabinetry, and fixtures. Your individual HO-6 policy needs to be sized to the gap, plus loss assessment coverage in case the association levies a claim-related assessment.
Lender warrantability
Conventional financing requires the project to meet agency standards: limits on investor ownership, no excessive commercial space, adequate reserves, no disqualifying litigation, and no single owner holding too many units. A non-warrantable project narrows your financing options and, importantly, narrows the buyer pool when you sell.
Rules that affect how you can live and rent
Check rental caps and minimum lease terms if you might ever rent the unit, plus pet restrictions, short-term rental prohibitions, parking assignment rules, and renovation approval requirements. These are enforceable and change by vote.
Frequently asked questions
What is a special assessment?
A one-time charge levied on owners for a cost the reserves cannot cover, such as a roof replacement or facade repair. They can range from hundreds to tens of thousands of dollars per unit.
Are condo HOA fees negotiable?
No. They are set by the association's budget and change by board or member vote.
Do condos appreciate as well as single-family homes?
Historically they have appreciated somewhat more slowly on average and can be more sensitive to local supply, though location remains the dominant factor.
Editorial note. This article is educational and is not legal advice. Real estate contracts, disclosure requirements, and landlord-tenant rules differ by state and locality. Consult a licensed attorney about your situation.
