Condo Buying and Associations
The Good and the Bad:
Many people purchase condominiums each year and enjoy living in them. However, many others find themselves overwhelmed by the burden of being in a condominium association. Understanding what a condominium is and how working with a board and association works will help you make an informed decision as to whether this is the right choice for you.
Tips Buying Condo
A condominium is a type of real property that features two separate parts when it comes to ownership. You own your actual unit, and you hold a title to it. However, you also own property in common with the other unit owners in the complex. Owning a condo is a little different than renting an apartment. In an apartment, the management company and building owner handle all of the responsibilities of taking care of the building. In a condo complex, all of the unit owners are collectively responsible for the building. While you bear responsibility for maintaining, repairing and remodeling your own unit, you might need to get the permission of the condo association for certain remodeling changes if they have an effect on the common property.
Every complex of condominiums creates a corporation consisting of each owner within the larger plan. The corporation elects a board of directors to execute the responsibilities of the corporation. Each corporation sets its own bylaws that determine the number of people on the board, their terms of office and any requirements in terms of eligibility to run for office. The directors serve as volunteers, and then run the unit for a minimum of one term. Generally, two thirds of the board’s membership must be actual owners or mortgagees, although each corporation is free to set this in its bylaws. At annual or special general meetings, the board makes a report to the rest of the owners.
In general, the board is responsible for the management of the common property. This includes a number of specific duties, such as:
- Establishing and collecting contributions of condominium dues and special assessments
- Preparing financial statements for review of the corporation members before or at the annual meeting
- Preparing and implementing both a yearly operating budget as well as a reserve fund plan and providing that information to the owners before the annual meeting
- Establishing and maintaining property insurance for instances covered by standard policies or any other instances set out in bylaws
- Establishing and maintaining a liability policy for the corporation or board with regard to executing responsibilities and duties
- Conducting a study of the reserve fund at least every five years and updating the plan for managing the reserve fund
- Reviewing and changing the bylaws and, with the requisite notice, submitting changes to the corporation owners for general approval
- Responding within 10 business days to written requests from purchasers, owners or mortgagees for information regarding contributions, agreements, bylaws, minutes of general or board meetings, budget, insurance, financial statements, or the reserve fund.
If this sounds like a lot, it is. Maintaining just one single family house involves a lot of footwork, but maintaining a complex that can contain anywhere from a dozen to hundreds of units is even more complex. There are several reasons, though, why having a condo association is a good idea. First, it keeps a degree of uniformity in the appearance of the units. If you don’t like living where people hang their wet laundry from their patio or on a line, then you would choose a unit in a corporation that prohibits such activity. Having an association means that someone else is taking care of the landscaping for you and maintaining such common amenities as a fitness center or a swimming pool. Your association fees go to cover those items, but you’re not having to do the work yourself. You’re free to live a fairly maintenance free lifestyle in exchange for paying a monthly fee.
Obviously, living in this sort of arrangement has a few negatives as well. If you don’t agree with a particular rule and you choose not to follow it, you can be fined by the association, and if those fines build up, you can lose your unit. You might think that it’s perfectly fine to invite your five best friends over to the sand volleyball court on fine Saturdays, but if the rules say you can only have two guests at a time, then that’s all you can bring in. Some condominium associations forbid having cars that are not in running order, such as sitting there with a flat tire, on the premises. If you’re short of cash and don’t have the wherewithal to get the tire changed in a timely manner, that can be a problem. This is why it is important to review the rules before joining the corporation as an owner or mortgagee.
If you’re wondering why a reserve fund is necessary, there are things that can happen that affect the entire property, not just one unit. In these cases, the reserve fund of the corporation goes to pay for them, as that fund comes from your combined contributions. However, in some cases, the board may approve a special assessment to assist with some of those costs as well. Some common examples of this include shifts in the soil under the foundation, leading to the need for major repairs throughout the complex. Others could include damage from a hailstorm to the roof. While insurance would cover much of that, the deductible on that expense for a condo community can be considerable. If the swimming pool suddenly needs major repairs, that can turn into an assessment issue as well.
Sometimes these special assessments can run into the thousands or tens of thousands of dollars. If the cost of the community repair exhausts the reserve fund, each owner is expected to make a contribution. If you don’t have that amount sitting in your bank account, don’t dawdle, because you can end up losing your unit over a board approved assessment. Instead, talk to your bank, or to a friend or relative, and see about borrowing the money. If you can’t find it that way, get in touch with Amansad Financial, as we can help you access your condo equity in order to pay the assessment. In any event, you don’t want to ignore this bill. Call one of our customer service professionals today to get started.