Resources For Buyers and Sellers

The 10 Key Questions Condo Sellers Hope Buyers Don’t Ask
A special report from Real Estate Expert Bob Bruss

Have you noticed the “boom” in condominium sales? Have you noticed the substantial market value price appreciation for most condominiums? Have you noticed the tremendous increase in condo conversions and new condo construction?

In almost every community there is a big surge in condo sales. Recently, a local Realtor told me why, based on her everyday observations. She said “Condos are ideal for first-time home buyers and last-time home buyers.”

That summarizes the condo sales market very well! Of course, she meant condominiums are a great first home purchase for young buyers as well as a last home purchase for retirees. Yes, there are a few “in between” middle-age condo buyers, but most condo purchasers are either young or elderly.

Incidentally, in this special report, the term “condominium” includes townhouses which, as we will see, are a unique variation of condos (often called “planned unit developments” or PUDs). Later, we will also look at cooperative apartments and tenant-in-common (TIC) units to see how they vary from condominiums.

In addition to the first-time and last-time principal residence market, there is a huge “second home” condo market for those of us who want a vacation or secondary home which is not our primary full-time residence, but a “get away” condo where all we have to do is turn the key in the door and walk away without any worry.

EXAMPLE : That’s what I do almost every month when I visit my second home condo for a few days of vacation. For about 15 years, I’ve been enjoying my second home condo. I call it a “forced vacation” because I buy my discount airline tickets several months in advance when the price is rock bottom. Only a few times have I not used my tickets because then the nasty airline charges me a $100 refund penalty - I hate to lose money!

Although a bit off topic, if you want to buy a vacation or second home condo and rent it to daily, weekly, or monthly tenants for extra income, there is a great new book you must read. It is Profit from Your Vacation Home Dream by Christine Hrib Karpinski (Dearborn Publishing, Chicago, 2005, $19.95), available in stock or by special order at local bookstores, public libraries, and www.amazon.com. In her excellent new book, Karpinski explains how to find and buy a profitable vacation house or condominium with an eye toward renting to tenants when you don’t want to personally use it.

While I do not recommend this strategy, for many second home buyers the extra rental income often means the financial difference between buying and not buying . Also, as Karpinski emphasizes in her book, many buyers purchase vacation homes for occasional personal use now and eventual future principal residence retirement use. In the mean time, these buyers want or need rental income to help pay the mortgage payments.

The Dangerous “Unknown” Condo Speculator Investor Market. In addition to the condominium “users” described above there is a dangerous “unknown” condo speculator market. Sometimes known as “flippers,” these buyers of brand-new “to be built” condos purchase with no intent of occupying.

These profit seekers help condo developers by signing purchase contracts during the pre-construction phase. Many developers welcome these speculative buyers who are hoping the market value of the new condos will substantially appreciate during the 12 months or so needed for construction.

Meanwhile, the developer can show the construction lender “Hey, Mr. Lender, we’ve already sold 50% of the units before construction even starts!” However, the full truth is many of these speculative buyers have no intent of ever moving in since they plan to “flip” their units for quick resale profits and sell just before the condos are ready for occupancy. According to the National Association of Realtors, this market of speculative condo investor buyers may be as high as 15% to 20% of condo buyers in some cities.

Many responsible developers refuse to sell to these speculator buyers because when those units come back on the market for sale, often all at about the same time, it will at least temporarily depress the market for that condo complex, especially if the developer then still has other unsold units. These speculator condo markets are especially obvious in South Florida and Las Vegas, but they are also occurring elsewhere.

Owner-occupant buyers, especially in the new condo complexes, should ask, “How many of these units are being sold to non-owner occupant speculator buyers? Be wary if there are large numbers of speculator investors buying in a condo complex because such a situation increases the risk those speculators will dump their units on the market at the same time, thus depressing values and causing homeowner association (HOA) cash flow problems for the developer and the other buyers. Later, we’ll look at the major drawbacks of condo owners who rent their units to tenants rather than occupying them.

BUYING A CONDOMINIUM IS MUCH DIFFERENT THAN BUYING A HOUSE. Buying a detached single-family house is relatively easy. For details, please read my special reports “How to Avoid Buying a Bad House” and “The 10 Most Important Questions Home Sellers Hope Their Buyers Don’t Ask.” Yes, you should be aware of house defects, and hire a professional inspector, but that’s about it. You might be subject to the CC&Rs (covenants, conditions and restrictions) of a neighborhood homeowner’s association, but the rules usually are not nearly as restrictive as when you buy a condominium where you will be living very close to your neighbors.

Condominium advantages. There are many reasons for buying a condominium instead of a detached single-family house. Primary benefits and reasons for buying a condominium include (1) usually less expensive than purchasing an equivalent square footage house; (2) exterior maintenance is the responsibility of the condo homeowner’s association (the condo owner monthly fees pay this expense); (3) security of being able to leave your condo for an extended period without worry (called “lock and leave”); (4) tax benefits similar to single-family houses; (5) security (and pride) of ownership rather than being a renter; and (6) potential resale profit as the condo appreciates in market value.

Before proceeding, let me inject a note about the potential advantage of condo resale profits. When I bought my first condo way back in the Dark Ages of the mid-1970s, condominiums were not well-known for appreciation in market value. In fact, condo market values were rather stagnant. The reason was as soon as a local condo market started appreciating in market value, developers would often quickly flood the condo market with lots of brand new condominiums and apartment building condo conversions, thus depressing condo sales prices and market value appreciation due to an oversupply.

I fear this might be happening in several major condominium markets today. Supply and demand is what causes houses and condos to appreciate in market value and there is usually a much lower number of prospective condo buyers than potential purchasers of single-family houses. Most prospective home buyers prefer houses and will look at condos only if they realize that is all they can afford, or they are unable to maintain a house, thus limiting potential market value appreciation.

Condominium disadvantages. But there are many potential drawbacks of buying a condominium. They are (1) a homeowner association (HOA) board of directors which makes decisions you might not like, including expenditures for “improvements” you think are not necessary; (2) unexpected increases in monthly fees and/or special assessments for surprise costs such as a leaky roof or an elevator needing major repairs; (3) policies and rules you don’t like (such as no pets or no rentals); (4) poor quality maintenance and/or management which hurts condo enjoyment and resale values; (5) noise from adjoining units (THE NUMBER ONE COMPLAINT OF CONDO OWNERS); (6) lack of freedom to do as you wish, such as having noisy parties or turning up your TV as loud as you want; and (7) neighbors you don’t like or who don’t like you.

As my good friend Jimmy Napier, a former condo owner, once told me “I don’t like strangers voting on how I must spend my money!” Needless to say, he sold that condo and never bought another.

WHAT IS THE DIFFERENCE BETWEEN A CONDOMINIUM, TOWNHOUSE, COOPERATIVE APARTMENT, TENANCY IN COMMON (TIC), AND A PLANNED UNIT DEVELOPMENT (P.U.D.)? As we will see, there are major differences between these types of “common interest developments” (CID). Please be sure you fully understand the distinctions because your legal rights will vary depending on what type of unit you decide to buy.

Condominiums are just airspace within the unit surfaces. When you buy a condominium, all you are really buying is very expensive airspace! Condo owners own only to the inner surfaces of their walls, ceilings, and floors. The building structure is part of the “common area” owned by the homeowner association (HOA) of which all the condo owners in the complex are automatically members.

That means the HOA owns the walls, foundation, roof, plumbing, wiring, the land (although a few condo buildings are constructed on leased land – usually a very bad situation because when the land lease expires, the condos then belong to the landowner), parking areas, hallways, elevators, and other areas shared with other condo owners. Individual condo owners often have an exclusive right to occupy part of the common area, such as a patio or balcony, and an assigned parking space or two.

In some condo complexes, the recreation area is owned by the developer who signed a “sweetheart lease” with the HOA. Due to abuses by some developers, these sweetheart leases are now either forbidden or greatly restricted by law in several states. Prospective buyers should inquire if any part of the condo complex is leased and not owned by the HOA, such as the recreation center or parking area.

A Planned Unit Development (PUD) is a Condominium Variation. PUDs are usually townhouse developments where each townhouse owner owns their structure and the land beneath it. But the HOA owns the common areas and is responsible for exterior maintenance, such as mowing the lawns, and repairing the roof. If you are considering buying in a PUD, be sure to understand what is your maintenance responsibility and what the HOA maintains.

Cooperative apartments are rare, except in New York, Florida, Georgia, California, Illinois, and Washington, DC. A co-op building is owned by a non-profit corporation where each co-op stockholder owns a proprietary lease for their apartment unit. Although co-ops involve the sale of a personal property stock certificate rather than real estate, Congress has made co-op ownership virtually the same as condominiums for tax deductions and the 24 out of last 60 month principal residence $250,000 exemption resale tax benefits of Internal Revenue Code 121. Up to $500,000 tax-free resale profits are available for a qualified married couple filing a joint income tax return.

Co-ops are often created because they are usually exempt from condominium ordinances. To illustrate, suppose you own a luxury apartment building which you want to convert to condominiums so you can earn huge profits. But you discover the city condominium ordinance requires two parking spaces for each condo unit and your building doesn’t have that much parking. Unless you can get a parking ordinance variance from the city, your best viable alternative is probably a co-op.

Because there is usually a master mortgage on the co-op structure, when a co-op project is new it is relatively easy for the first buyers to purchase with an affordable cash down payment, such as 10% to 20%. However, as time goes on and the master mortgage balance is gradually paid down, each co-op owner’s equity slowly rises. Except in New York and a few other areas, it is often very difficult for a co-op buyer to obtain resale financing because the lender’s only security is the personal property stock certificate.

For this major reason, many co-ops have converted to condominiums which can be financed almost as easily as single-family houses. As a result, when a co-op converts to a condominium, the market value often rises 25% to 50% or more because of the easier marketability.

Another major drawback of co-ops is the dreaded interview of prospective buyers by the co-op board of directors. This interview is easy and painless at some co-ops. But other co-op directors demand detailed financial statements from buyer applicants. There are many co-op interview horror stories, including radio personality Rush Limbaugh, ex-President Nixon, and many others who were rejected by New York City co-op boards of directors.

No reason for the co-op rejection need be given, thus sometimes leading to subtle racial discrimination. The alleged reason for the interviews is to determine if the co-op buyer applicant can afford the monthly payments, plus any special assessments, because the remaining co-op shareholders must make up any missing payments or risk default on the master mortgage.

By comparison, most condominium associations do not have the right to approve or disapprove prospective buyers. However, some condo HOAs have a “right of first refusal” to match any purchase offer received from a condo buyer – but this right is rarely used.

Tenancy in common (TIC) is jointly shared co-ownership. Residential TICs are a variation of both condominium and cooperative ownership. TICs usually involve a small group of owners buying a building together, such as a four-unit apartment building, as tenants in common with rights of each co-owner to occupy a specific apartment exclusively. There is one mortgage on the entire TIC property and all tenants in common are legally responsible for the mortgage payments. TIC owner-occupants receive tax benefits similar to other principal residence owners.

TICS have primarily arisen in jurisdictions where condominiums, cooperatives, and/or PUDs are difficult or very expensive to create. Examples include San Francisco, Berkeley, and Santa Monica, California where rent control makes apartment conversions to condominiums very difficult.

Although most TICs work out quite well, some have fallen on “hard times” where the owners disagree, or one or more tenants in common can’t or won’t pay their share of the mortgage payments and operating expenses. If one co-owner doesn’t pay their share, the other co-owners must either make up the deficit or watch the mortgage go into foreclosure. Removing a non-paying tenant in common can be very difficult since it is not as easy as foreclosing on a regular mortgage borrower.

Because of the many potential problems with TICs, they are not recommended unless there is no other joint ownership alternative available. Of course, TICs require a carefully-drawn agreement among the joint tenant co-owners. Consideration should also be given to resales and whether or not a prospective purchaser must be approved by the other TIC co-owners. Due to TIC difficulties, many real estate agents refuse to handle TIC resales, thus limiting the number of prospective buyers and the potential for market value appreciation.

However, residential TICs should not be confused with commercial TICs which have become very popular with real estate investors making tax-deferred Internal Revenue Code 1031 exchanges. To illustrate, an investor can make a tax-deferred exchange from an investment or business property, such as an apartment building, into a management-free TIC share, such as an office building or shopping center which is managed by the TIC development company. Although the long-term viability of commercial TICs has yet to be proven, many commercial TIC investors are very pleased.

EXAMPLE : I’ve written before about my friends Dory and Andy who sold their California rental house about 10 years ago for around $300,000. They made a tax-deferred IRC 1031 exchange into a TIC which owns and leases an Applebee’s Restaurant in Kentucky! Now in their 70s, Dory and Andy look forward to receiving their monthly TIC rent checks with no management hassles. Their TIC co-owners are individuals they have never met.

WHAT IS THE BEST FORM OF OWNERSHIP? Among the CID (common interest development) alternatives discussed, condominiums and PUDs are obviously the best form of ownership. The primary reason is the ease of individual owner mortgage financing, much like a single-family detached house.

Also, there usually is no personal interview required, which can limit the potential number of future buyers and market value appreciation. With any form of CID there are HOA by-laws and rules which must be obeyed by the co-owners, subject to fines and liens imposed by the HOA.

IS A NEW OR RESALE CONDO BEST? Brand new condominiums have the widest appeal to prospective buyers. However, buyers of brand new condos should be aware most new buildings have construction defects. The best builders and developers quickly correct any construction problems. However, many defects aren’t discovered until several years later.

Then it is up to the HOA to sue the builder and/or developer to remedy the construction defects. Reportedly, over 80% of California condo HOAs have brought construction defect lawsuits against their builders and developers. When a HOA is involved in a lawsuit, most mortgage lenders refuse to originate new mortgages in that condo complex, thus virtually halting resales except to all-cash buyers.

EXAMPLE : The building where I own my second-home condo developed serious water leaks into the underground garage from the landscaped area above. The concrete construction had not been properly waterproofed by the builder who probably figured it would be several years before leaks developed and by then he would be long gone. However, at that time we had as our HOA president a retired attorney from General Mills who had lots of time on his hands. He went after that builder and the developer with a vengeance! As a result our underground garage was dug up and correctly waterproofed without any litigation costs for the HOA.

Another drawback of a brand new condo or PUD complex is the developer often sets the initial monthly fees very low to attract buyers. When all the units have been sold and the developer departs after turning over the management to the new HOA, it is frequently discovered by the HOA members the monthly fees assessed against each condo owner are far too low to cover operating expenses and establish basic replacement or maintenance reserves. At that time, the HOA is forced to raise the monthly fees or risk insolvency.

Incidentally, in most states a HOA cannot file Chapter 7 bankruptcy (although some HOAs have gone into receivership where a court appoints a receiver to operate the HOA and bring it back to solvency).

Buying a condo unit which is several years old is usually more predictable than buying a brand new unit. After a few years, the “kinks” of defective construction have usually been resolved. Of course, older condo complexes have problems too, usually related to repairs or replacements and the need to provide for an aging complex with increasing monthly fees.

When buying a condo which is several years old, before making a purchase offer be sure to ask several current resident-owners “What do you like best and least about living here?” A related second question to ask several existing owner-occupants is “How is the soundproofing – Do you ever hear your upstairs, downstairs or adjacent neighbors?” To minimize sound transmission, it’s usually best to buy a condo on the first floor or the top floor of a multi-floor condo building.

Condo owners I’ve encountered are usually quite friendly and eager to talk about their likes and dislikes. Later, we’ll get to the “top 10” questions which prospective owners need answered, but not necessarily by a current condo owner in the complex.

Whether buying a brand new or a resale condo, when you become seriously interested in a particular unit ask the seller or the sales agent for a copy of the condo CC&Rs (covenants, conditions, and restrictions), by-laws, and rules. Check especially for restrictions on pets and rentals. You might disagree, but I recommend condos which prohibit or at least restrict pet size, and which make rentals very difficult and expensive for owners who want to rent their units.

My personal opinion is I prefer owning a condo in a complex which is several years old so you can observe how the property is “aging.” Is it filled with owner-occupants with similar lifestyle interests to yours? Or are the residents completely different, indicating you might not fit in?

MINIMIZE YOUR RISK BY GETTING A MORTGAGE. One of the biggest mistakes I’ve observed buyers of new or resale condominiums make is paying 100% cash and not obtaining a mortgage. The big problem, if you made a wrong choice, is reselling your “bad condo” might be very difficult or even impossible. Meanwhile, you have your cash tied up. For this reason, be sure your condo purchase offer contains a mortgage contingency finance clause.

EXAMPLE : I still remember the letter I received from an elderly condo buyer who foolishly paid all-cash. Only after moving in did she discover her condo’s drawbacks, such as a large number of renters (about 50%, as I recall), the HOA was involved in a lawsuit, the soundproofing was poor, and she could smell the ethnic cooking of the neighbors adjoining her condo. She wanted to sell and move out! But then she learned no mortgage lender would make loans in that complex because of all the problems (especially the high percentage of renters and the lawsuit). If that buyer had first read this special report and made her purchase with a 20% cash down payment (or less), contingent on obtaining an 80% mortgage, she would have learned before purchase that she was buying a bad condo which couldn’t be easily financed. Instead of making an easy resale, she could only hope another “sucker” could be found who would pay her 100% cash for her bad condo.

THE 10 KEY QUESTIONS TO ASK TO AVOID BUYING A BAD CONDO. Finally, we get to the all-important 10 key questions smart condo buyers should ask (but condo sellers hope their buyers don’t ask):

1 – WHAT IS THE FINANCIAL CONDITION OF THE HOMEOWNER’S ASSOCIATION? If you are a buyer seriously considering purchasing a specific condo unit, it’s time to ask for and read copies of the latest HOA financial reports, minutes of the HOA meetings for the last six months, and a copy of the CC&Rs, by-laws, and rules.

Don’t hesitate to ask lots of questions about this information, such as “Are any monthly association fee increases planned or under discussion, how many special assessments were levied against the condo owners in the last five years, are any owners delinquent in their monthly fee payments, and is the HOA involved in any lawsuits?”

When you receive the latest HOA financial statement, be sure to look especially close at the replacement reserves? There is no minimum reserve guideline, but two standards are (a) at least $2,000 to $3,000 per unit, and/or (b) 25% of the HOA annual gross revenue should be the balance of the replacement reserve account. Ask if there are any major replacements anticipated for the next 12 months, such as a new roof or other major repairs.

2 – WHAT IS THE PERCENTAGE OF RENTERS IN THE COMPLEX? If there are more than 20% renters, that is a very bad sign and it’s best not to buy there. The key reason is when the percentage rises higher, mortgage lenders either refuse to make new loans there, thus hurting resales and market value appreciation, or they will charge borrowers higher than normal interest rates.

Equally important, if you are buying for owner-occupancy, you don’t want to be surrounded by renters who often don’t have the same pride of ownership that owner-occupants usually do. If you learn the condo complex has less than 10% renters, that’s a very good sign. Be sure to ask about HOA rental restrictions and inquire if renters are discouraged.

Of course, in resort areas the condo might have been designed for rentals when the owners are not “in residence,” rather than primarily for owner-occupancy, especially if a management company handles a “rental pool.” But don’t overlook this very important topic of condo rentals.

3 – IS THE CONDO COMPLEX PROFESSIONALLY MANAGED? If not, why not? All but the very smallest condo buildings need outside professional management. Hiring an independent professional condominium management company usually pays for itself.

EXAMPLE: The condo management company which for over 25 years has managed the 63-unit condo complex where I own my second home often saves us “big money” by handling the 1,001 management details such as obtaining annual bids for lawn care, elevator maintenance, and pest control. A few years ago, they saved us more than their annual fee by obtaining new carpeting far below our budget cost. Just last month, the professional manager alerted the HOA board of directors that our elderly resident caretaker had recently made some potentially costly and dangerous mistakes. Although the caretaker is extremely well-liked, the HOA board voted to terminate his employment before a costly accident occurs. Without that outside management advice, our HOA board might not have known about the caretaker’s forgetfulness which was becoming a serious problem.

Because the condo management company always sends its representative to our monthly HOA director’s meetings, he acts like an expert consultant since he also manages other similar nearby condo complexes. Our professional condo manager also prepares the annual budget, including planned capital improvements. As a result of the manager knowing where to find reliable suppliers, bids often come in below estimated costs. Also, he handles personnel matters, such as making sure the new caretaker is qualified, experienced, and trustworthy.

4 – HOW DO THE MONTHLY FEES COMPARE WITH SIMILAR NEARBY CONDO COMPLEXES AND WHAT SERVICES ARE INCLUDED? Before making a purchase offer, be sure to compare the current monthly condo fees and get a written list of included services. To illustrate, some condo complexes include central heat and/or air conditioning whereas others don’t because each unit has their own heat and air conditioning.

Be sure to inquire if any increase in the monthly assessment fee is planned, or if any special assessment for a major expenditure is expected. At the condo complex where I own my unit, the HOA board voted several years ago to annually increase our monthly fees by 5% to pay for rising expenses and increased replacement reserves. A few years ago, we had a $2,000 per unit special assessment to replace the old leaky windows. After all the complaints about that special assessment, the HOA board decided it would be better in the future to gradually increase the monthly fees to avoid special assessments (except for a serious unexpected emergency, of course).

5 – HAS YOUR CONDO SELLER PREPARED A DEFECT DISCLOSURE REPORT? Depending on state law where the condo is located, the condo seller may be required to prepare a state-mandated defect disclosure form. Even in states without such a disclosure statute, smart condo sellers and their listing realty agents voluntarily prepare a disclosure report. The result is to prevent surprises and avoid after-sale lawsuits for non-disclosed defects of which the seller is aware.

6 – HAS THE CONDO UNIT BEEN PROFESSIONALLY INSPECTED? Whether you are buying a new or resale condo, it pays to include a contingency clause in your purchase offer for a professional inspection. If the condo seller already had a recent professional inspection report from a reputable inspector, you might consider accepting it to save the inspection fee of about $350.

I recommend hiring a member of the American Society of Home Inspectors (ASHI) because of their tough membership and experience requirements. Local ASHI members can be located at www.ashi.com or 1-800-743-2744. Be sure to accompany your professional inspector to discuss any defects discovered which were not previously disclosed to you.

Most sellers of resale condos won’t object to a buyer’s contingency clause in the purchase contract for a professional inspection. However, some builders of new condos will resent a buyer hiring their own inspector. They usually say, “This complex was fully inspected and approved by the city building inspector who provided our permit of occupancy.” While helpful, government inspections carry no liability for defective or incomplete inspections.

7 – HOW GOOD IS THE SOUNDPROOFING? As explained earlier, poor soundproofing is the number one complaint of condominium owners. Before making a purchase offer, smart buyers ask their prospective neighbors to turn on their TV or stereo at normal levels to check for sound penetration. When possible, to minimize sound transmission between condo units buy an “end unit” (with a neighbor on only one side) and a first floor or top floor unit. If you are buying a condo with an upstairs condo, be sure to ask the upstairs neighbor to walk on the floors to see if there is sound transmission; wood floors can be especially noisy.

8 – HAS THE SELLER COMPLIED WITH APPLICABLE STATUTES? In addition to the residential transfer disclosure statements which many states now require, the federal government requires every house and condo buyer be given a written lead-based paint disclosure for residences built before 1978, plus a federal booklet about lead-based paint dangers. Buyers then have 10 days to have the property professionally inspected for lead-based paint, if they wish, at the buyer’s expense. But home sellers are not required to remove lead-based paint.

There may be additional local or state disclosures required, such as for energy efficiency, building code compliance, radon, and well water quality. The listing realty agent should know which disclosures are required locally.

9 – ARE THERE ANY SPECIAL CONTRACTS OR LONG-TERM LEASES AFFECTING THE CONDO COMPLEX? Before making a condo purchase offer, be sure to ask if there are any special contracts or long-term leases made with the developer. Especially in Florida, some condo developers retained title or control of the recreation complex and/or parking area, signing long-term unfavorable leases with the condo homeowner association. Some sweetheart contracts even require the HOA to hire the developer as the professional property manager.

If the condo complex is brand new, be sure to inquire how many units have been sold and how many, if any, are still owned by the developer. If the developer holds title to many units, or plans to keep title to a significant number of units, this is not a good sign because he then can control decisions made by the HOA. Fortunately, most condo mortgage lenders require at least 50% to 75% of the new units be sold before they will fund mortgages on the condos sold to individual buyers.

10 – ARE THERE ANY NEGATIVE INFLUENCES TO CONSIDER? Condo buyers, especially those who are not familiar with the location, should ask about and observe any negative influences. Examples include a poor floor plan, inferior construction quality and workmanship, inadequate parking (the best condo complexes have two assigned indoor or covered parking spaces per unit, plus adequate visitor parking), density and landscaping (many condo units are beautiful inside but are jammed so close together there is little open space), public school quality (even if you don’t have school age children, school quality affects potential market value appreciation), property taxes (often reassessed shortly after purchase), recreational and meeting facilities (if you want a pool, tennis, golf, physical fitness center, etc., the condo price will usually reflect these amenities), and outside influences such as a nearby noisy freeway, airport flight patterns (especially early mornings and nights), smelly sewer works or factories, nearby noisy railroad, adjacent high voltage power lines, noisy street traffic, poor location, lack of public transportation and/or nearby shopping, high crime rate, moisture and mold in the building, formaldehyde, and other adverse influences.

GET ALL SELLER PROMISES AND REPRESENTATIONS IN WRITING. As with any real estate transaction, get all seller or sales agent promises and representations in writing. To illustrate, if the developer’s sales agent promises the adjoining open space will remain that way, or it will be professionally landscaped, get that representation in writing as part of the sales contract, signed by the developer. Or, if the seller promises a decorating or upgrade credit, get that in writing too.

Before the buyer takes title, the buyer is king! After the buyer takes title, the buyer loses leverage control over the seller.

SUMMARY. Purchasing a condominium (or one of the other common interest development ownership methods briefly discussed) is more complicated than buying a single-family detached house. Greater buyer “due diligence” is required before purchase to avoid buying a “bad condo.”

Be sure to ask lots of questions, especially the 10 key questions, but bear in mind that no condominium (or house) is perfect. A good book to read for further information is Make Money with Condominium and Townhousesby Gary W. Eldred (John Wiley and Sons, New York), 2003, $19.95, 283 pages, available in stock or by special order at local bookstores, public libraries, and www.amazon.com.

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