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Prepared By: Melissa C. Marsh, Los Angeles Real Estate Attorney
Written: January 2009

Introduction To Buying A Condominium.

A condominium is like an apartment you own. You own the title ("fee simple") only to the "air space" inside the unit you purchase. If you are planning on purchasing a townhouse, by contrast, you also own the land on which the unit sits and the air space above it (up to about 500 feet). Both the condominium and the townhouse share common spaces such as: walkways, landscaping, parking, recreational facilities (pool, gym, spa) etc., which are shared by all of the owners in the development.

To maintain the common spaces, the homeowners' association will require the payment of a monthly fee (dues), which hopefully will be sufficient to cover general repairs and maintenance of the common areas of the complex as well as (hopefully) a build up a cash reserve for future needs. Unfortunately, most homeowner associations fail to levy a sufficient monthly fee which often results in the imposition of one or more "special assessments" (a one-time charge assessed to each owner to cover some exterior maintenance or repair such as a new roof). These special assessments often times can range from $1,000 to $10,000 per unit.

Common Problems Encountered With Condominiums.

There are three common problems faced by condominium owners. The first is the real potential for the homeowners' association to levy a large special assessment against each and every unit in the complex. The second is the real risk that individual homeowners will bring a lawsuit against the homeowners' association, which can severely impair the individual homeowner's ability to refinance and/or sell their units. The third is the delay that often occurs when repairs and maintenance are needed, which often causes the property value to deteriorate.

Before You Buy a Condominium.

1. Make sure the development is separately incorporated. If not, you could be headed for headache.
2. Pending Lawsuits. Check for any pending lawsuits against the development and/or the homeowners' association as such can lead to large special assessments levied against each unit. If a lawsuit is pending, be sure to review the documentation to determine what the dispute is about, its likely impact on the development, and consult an attorney to evaluate the matter to ensure your pocket-book won't be affected by the outcome.
3. CC&Rs and Rules. Read the condominium's covenants, conditions and restrictions (CC&Rs), and any other rules adopted by the board of directors, which may place restrictions on renting your unit, improving the interior of your unit, visitors, operating a home based business, pets, use of the common areas, etc. When reviewing the CC&Rs pay particular attention to the size of the board, any requirements for reserves, voting rights, etc.
4. HOA Finances. Research the finances of the homeowners association. It is extremely important to determine if the HOA is in debt, or has a balanced budget and has sufficient reserves to cover normal maintenance, emergency repairs, and major upkeep such as a new roof, new plumbing, new stucco, painting, etc... Ask to see the HOA's financial statements and the minutes evidencing any major expenditures for the past three to five years to determine what upkeep has or has not been done. Ask about, or review the minutes for, any planned upcoming expenditures and the last two to three dues increases (date and amount or percentage increase).
5. Insurance. Find out if the HOA maintains insurance, including earthquake insurance. Remember you only own the air space, so if the HOA doesn't maintain earthquake insurance, your insurance will only cover your personal effects, not the reconstruction of your unit, and certainly not that of the building itself. The failure of a Homeowners' Association to maintain adequate earthquake insurance, at least in California, can lead to the entire structure becoming bank owned.
6. Renters vs. Owners. Find out how many of the owners live in their units, and how many of them actually rent them out. If 25% or more of the development is rented, it is likely that the complex will not be well maintained and their may be additional problems with noise, maintenance, and resale value.
7. Maintenance Company. Find out the name of the maintenance company and not only ask your potential neighbors how responsive the maintenance company is to their requests, but also research them online.
8. Future Value. What is the noise level above, below and outside your proposed unit, and the building, at different times of the day? Is the parking adequate not only for the residents, but for visitors? How many condominiums are for sale in the complex? How may have sold in the past two years? Are newer condos being built near by?

Conclusion.

Needless to say, this list is not meant to be exhaustive. When buying a condo it is important that you understand all of the documents, including the bylaws, the CC&Rs, and the condominium rules. If you are unsure about something, do not rely on the statements of the broker or agent; remember their main priority is getting a commission which only occurs if you buy or sell that condo. Getting an opinion from a local real estate attorney could be money well spent, and typically is provided for a relatively low fee.

In addition to all of the above which is particular to condominiums and town homes, a buyer should also ensure they have checked all of the items set forth in our Home Buying Checklist.

If you need further assistance, please call 818-849-5206, or email Melissa C. Marsh. Although many home buyers and sellers forgo the use of an attorney, in those purchase and sale documents that I have had the opportunity to review and revise, I have saved many of my clients thousands of dollars.

Related Articles:

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• Checklist For Buying a California Home

© 2009 Melissa C. Marsh. All Rights Reserved.