“The Surfside collapse was unusual and extreme but of course every buyer wants to be safe,” says Ben Stern, managing broker of Buyers’ Edge, a real estate agency in Washington, D.C., that only represents buyers. “Real estate agents aren’t engineers or attorneys, but we can help buyers review documents and then bring in experts if there are special concerns or questions.”
Who can answer your questions?
Sellers and/or their agents may be required to disclose what they know about the property under the rules of the jurisdiction. Your real estate agent will be aware of disclosure rules in the jurisdiction. Buyers can also request information from the condo association and a property management company if there is one, but Stern says they are not obligated to answer buyer questions.
“In practice, though, most associations and management companies cooperate because they want units to sell and, if the deal goes through, that buyer will be a client of the management company,” says Stern.
Questions condo buyers should ask the seller or the seller’s agent before making an offer include:
Will my home inspector check for structural issues?
A home inspector will evaluate the unit you want to buy but won’t have access to inspect common elements owned by the condo association such as the roof or garage. However, Stern says, an inspector may notice some issues such as bricks needing to be repointed or a water intrusion issue that could be a red flag.
“Look at the carpet in the halls, the lighting in the parking lot and the landscaping,” says Robert Nordlund, founder and CEO of Association Reserves in Westlake Village, Calif., a company that provides reserve studies for condominium and homeowner associations. “If an association is falling behind on the little things, they’re likely falling behind on the more important things.”
How old is the condo?
Condos that are 10 years old or less typically have a warranty on the structure, the roof and materials, says Stern. You can ask the listing agent, the seller and the condo association for information about warranties.
“Most buildings last a very long time and will reveal any structural issues within the first few years,” says Nordlund.
Has the condo recently been inspected?
If you’re looking at a building that’s 30 or 40 years old, it’s best to ask the condo association or condo management company if any inspections have been done, says Tyler Berding, a founding partner at Berding & Weil, a law firm in San Francisco that specializes in construction defect litigation.
“You can ask if an inspection revealed any repairs needed now or in the future and whether there are plans to address them,” says Berding. “But usually, inspections are only done on the surface of buildings rather than structural components.”
Has a reserve study been conducted?
A condo association with a small number of units is less likely to do a reserve study, says Stern. A reserve study is an analysis of the cost of future maintenance, repairs and replacement of common area items — such as replacing the roof or repaving a parking lot — so the association can be financially prepared to pay for projects.
“If a building has 150 or 200 units and they haven’t done one, that’s an alarm bell and you need to wonder if they’ve been asleep at the wheel and haven’t set aside money for future repairs and maintenance,” Stern says.
Only about 5 percent of condo, co-op and homeowner associations have a professional reserve study completed annually, says Nordlund. Some have one done every third year or have the association treasurer estimate reserve fund needs.
“Each state has their own statutes about condominium associations,” says Berding. “They often don’t require the association to do inspections or even require funds to be set aside for maintenance.”
How much cash is in the reserve fund?
The amount of cash in the reserve fund should be listed in the budget of the condo association, which buyers see as part of the condo documents after they make an offer. Buyers can request those documents from the listing agent or the condo association in advance.
The amount of cash needed varies by the size, age and condition of a building. Generally, Nordlund says, if an estimated reserve fund is over 70 percent funded, that’s considered good. A poorly managed association has 30 percent or less of what’s needed, he says. For example, Association Reserves’ study for the Surfside condo before it collapsed revealed that just 6.9 percent of needed reserves were funded.
“Buyers should seriously consider whether to buy a condo that doesn’t have a reserve fund and hasn’t been inspected, particularly if the building is 30 or 40 years old,” says Berding. “The chances of a surprise special assessment grow with age, especially if the condo board has kept condo fees low for decades.”
Are any special assessments planned? Have there been any in the past?
A special assessment is a one-time fee in addition to condo fees used to pay for a specific project. Condo owners must pay the special assessment if one is voted on by the condo board. In some cases, the special assessment can be paid in installments rather than in a lump sum.
Depending on how long the sellers have owned the unit, they should be able to tell you if there have been any special assessments in the previous few years, what they cost and what projects they paid for. Sellers are obligated to tell buyers if they know a special assessment is projected in the next few years, says Berding.
“A special assessment can be painful compared to increasing the condo fees by a certain percentage each year,” says Stern.
Have condo fees been raised in recent years?
You can ask the sellers or their agent or the condo association about the history of condo fees.
It’s best if condo fees have been raised at least three times in the previous five years, says Nordlund.
“If assessments haven’t been raised at all, that’s a red flag that the association isn’t keeping up with inflation and may not be properly maintaining the community,” he says.
How many homeowners are delinquent in their condo dues?
While individual sellers may not be aware of delinquency rates for condo dues, the condo association and the condo board track this information. You can ask them for the percentage of delinquent homeowners and look for the information in condo meeting minutes where it is often reported.
An association where fewer than 5 percent of the owners are delinquent on their condo dues is considered good, says Nordlund. Most associations average a delinquency rate of 5 percent to 10 percent. If more than 10 percent of homeowners are more than 60 days past due on their condo fees, that’s an indication that the association may not be financially stable, he says.
What percentage of the units are owned by investors?
While individual sellers may not be aware of what percentage of units are rented or owner-occupied, the condo association and condo board track this information. You can ask them.
Lenders sometimes have rules about how many units can be occupied by renters because investors are more likely to default on a loan than owner-occupants. A building with a high percentage of renters may not be as well-maintained as one that’s mostly occupied by owners who are concerned about property values, says Stern.
How much insurance coverage does the condo association have?
Your lender will need to review the master insurance policy for the condo association, so you can request it from the condo association or management company. The seller may also have a copy of the policy.
Every condo association needs a master insurance policy to cover common elements of the building. Ask the listing agent or the condo management association to tell you — or provide documentation — about the insurance coverage.
“Your lender has a vested interest in the financial stability and insurance coverage of the condo, so they’ll also check that the association meets their minimum standards for coverage and reserves,” says Stern.
Are the rules and regulations acceptable and enforced?
Buyers receive condo documents with rules and bylaws after they make an offer, but you can also ask the seller, the condo association or the property management company about issues important to you such as whether pets are allowed, where you can smoke or if there are quiet hours when residents can’t have loud parties or when contractors can’t work. Regulations and whether they are enforced can impact property values, Nordlund says.
Can I see the condo association meeting minutes?
Meeting minutes serve as the official record of an association and can reveal topics that the board discusses, says Nordlund. He says buyers should ask the condo association or property manager for recent meeting minutes and beware if there are no notes or if the board doesn’t address issues that could impact home values.
“None of these issues by themselves mean that a buyer should walk away from a place they want to buy, but it could help them decide between two or three condos,” says Nordlund.