Buying a condo is a lot different than buying a house. Not only do you have to find a place you love in a good location at an affordable price, you also have to make sure the entire complex is up to snuff. A condo that looks like a steal can quickly turn into a money pit if the homeowner’s association doesn’t have the funds to maintain the building and grounds.
What can go wrong?
When you buy a house, you are responsible for the costs associated with maintaining your property inside and out. This isn’t the case when you buy a condo. One of the reasons homebuyers are attracted to condos is because the maintenance duties are handed off to a homeowner’s association, or HOA. The HOA collects fees from all of the residents to pay for routine upkeep and improvements to the building.
Sounds pretty nice, right? It can be, unless the fees aren’t properly managed. If the HOA doesn’t collect enough money to take care of immediate issues, chances are they don’t have a reserve fund for major repairs and upgrades down the road. This can present big problems once you’ve invested a unit and are jointly responsible with other residents for covering dues for unsold units, shared utilities, and special assessments to fix shoddy construction.
To prevent getting screwed over by a bankrupt HOA, it’s of utmost importance that you carefully review its financials before you decide to buy into the building. Typically, you’ll be able to see the HOA’s balance sheet, yearly revenue, and the reserve fund balance. “Buyers should be looking for a steady financial picture,” says Allison Scollar, a real estate lawyer at Guzov Ofsink in New York. Emergency borrowing by the HOA and frequent special assessments are huge red flags, as they indicate the building is in trouble.
Even if an HOA’s financials check out and it appears they have the funds to cover future operations and repairs, it’s still a good idea to spend some time in the building looking everything over. It’s nearly impossible to decipher how well a complex is maintained by breezing through the lobby on the way to your showing appointment, so plan to spend a good hour nosing around and asking questions. In particular, here are a few things to thoroughly inspect before signing on the dotted line:
Amenities that are kept in good working order are signs that the building is in good shape. If the complex has a pool, take a peek to see if it’s taken care of. The elevator and fitness center are other key places to look. If an HOA is running low on funds, amenity maintenance is often the first thing to get cut.
If the lawns surrounding the building look like they haven’t been cut in weeks and there are dead leaves covering the sidewalks, these are red flags. An HOA with sufficient funds will be diligent about scheduling routine upkeep so the building always looks and functions at its best.
Obvious problems like poor lighting, broken windows, and overflowing trashcans are easy to spot. If you notice these things, try to talk to a condo owner in the complex to find out what they think of the HOA and the building’s maintenance in general. You may not like what they have to say, but their honesty could end up saving you from an expensive buying mistake.