Q: Is there a publication that covers all the things one would need to know when buying a condo? I have so many questions, such as: Why is there such a wide range of condo prices? The “Old World Charm” buildings seem to have more character than the new ones, but are they a good investment? What all does the homeowner’s association dues cover? How often can dues be increased, and who sets them? What about a large building vs. a small building with only a few units? Which is better, a corner unit, a ground floor unit or a unit on an upper floor? What about noisy, unruly neighbors — who controls them? How about the size of the unit or the number of bedrooms? As you can see, I could go on and on. I hope you can answer some of my questions.
A: There are several books available at your local book store or public library that give tips on how to buy a home. Unfortunately, most home buying books are aimed at the single family home market. They may cover the basics of condo buying, but not all of the specific questions you asked in your letter. I’ll briefly answer your questions, but I encourage you to seek out additional sources of information.
First of all, there is a wide range of prices in the condo market for the same reasons that there is a wide range of prices in the single family home market, namely: location, size and quality of construction. As in any type of real estate, location is the key determinate of value. A waterfront condo in Kirkland is much more desirable — and therefore much more expensive — than a condo overlooking a shopping center parking lot. Unit size is also an important factor for the simple reason that a larger unit is worth more than a smaller unit, just as a two-bedroom condo is worth more than a one-bedroom unit. Finally, the quality of construction can vary greatly from one condo complex to another. Condos in top locations typically are of higher quality, but this is not always so. For example, condos that have been converted from old apartment buildings located on the waterfront may not be of the same quality as units built specifically as condos, but they can command a high sales price because of their excellent location. As you might expect, the maintenance costs for the older units is typically higher than the maintenance cost for comparable units built in the last few years. But again, that is a generalization. A well-maintained old building can actually be less expensive to operate than a poorly-maintained newer building because “deferred maintenance” can result in very expensive major repair work down the road.
The “homeowner’s association” is a group comprised of all the condo owners in the complex. The association elects a board which oversees the maintenance of the building and grounds and enforces the condo community’s rules (such as dealing with “unruly neighbors”). The board plans an annual budget and sets the monthly dues for each condo owner. Dues typically increase once a year. The dues cover the maintenance and repair of the exterior of the building (the interior of the unit is the owner’s responsibility); water, sewer and garbage service; and insurance to cover damage to the building. It is up to the individual condo owners to purchase insurance to cover their personal property inside the unit.
In large condo complexes, the board typically hires a professional management company to help develop the budget and to handle the actual maintenance and repair work. In small condo projects, the owners may handle this task themselves. This may be a disadvantage because there are fewer owners among which to divide the maintenance and repair costs, and they may lack the financial management ability to properly budget for major repairs in the future. It is critical that you thoroughly examine the budget and cash reserves of any condominium complex. You want to make sure that the homeowner’s association has set aside enough money to pay for expensive future projects such as a new roof or paint job. Otherwise, you’ll be hit with a “special assessment” of several thousand dollars at some point in the future. Some homeowner’s associations make the mistake of keeping the monthly dues too low. That keeps the condo owners happy in the short run, but sets them up for an expensive shock when it comes time to pay for a major work project. It is far better to pay a little more each month so that there is plenty of cash in the reserve account when the roof needs to be replaced.
As for the size and location of a condo unit, that is a matter of personal preference. Many people like ground floor units because you don’t have to climb steps up to your front door. But other people prefer a top floor unit because it typically offers a better view and it’s quieter because you don’t have neighbors walking on your ceiling. Corner units are popular — and typically more expensive –because they have more windows and fewer shared walls. As an investment, I think you are better off buying a two-bedroom unit instead of a one-bedroom unit because it appeals to a wider range of potential buyers. A two-bedroom unit can be purchased by a young family with a child, two roommates, a single person who needs a spare bedroom for an office, etc. With a one-bedroom unit, you are basically limited to a single person or a couple. The fewer the number of potential buyers, the harder a unit is to sell.
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