What else should purchasers be aware of?
Someone who is looking into an older building where there hasn’t been a recent influx of purchasers is going to be dealing with owners who have been there for a long time.
Generally speaking, an older, more established condominium is a safer purchase, but you have to balance the risks and rewards of an older condo. The real deals are in the associations and condominium developments that came online in the last five or six years, in which the initial purchasers are ‘under water’ on their mortgages.
Find out what the level of assessment increases has been over the last few years, and compare the assessment amounts to similar buildings in the area with like amenities. Your broker can help you with that.
The comparison is important, because if there is one building that has similar amenities to every other building in the immediate neighborhood and the assessments on it are disproportionately lower, it should be a red flag to any potential buyer. That tells you that the association is not funding its reserves as much as it should. It also tells you that the association isn’t addressing any deferred maintenance.
Although the low assessment may look more attractive on a monthly basis, if a big project like a roof replacement comes up, you may be hit with a special assessment when the association doesn’t have the money to otherwise pay for it from its reserves.
What can prospective purchasers do to protect themselves?
The law requires that you be provided with certain information regarding the financial situation of the association and whether the association anticipates any special assessments in the next couple of years.
You are entitled to see the declaration, the bylaws, and all the rules and regulations. There may be something in there that may be a red flag and make you decide this condo would not be a good fit for you for one reason or another.
Take it a step further and ask for information that the condo board is not required to disclose. Ask for minutes from the board’s meetings from the last year so you are aware of what’s going on in the building and to see if there are any design defects or claims against the developer.
Prospective purchasers simply need to do their due diligence to ensure that the association they’re looking at buying into really meets their needs. Work with brokers and real estate agents, and use their knowledge of the industry and the area to make a sound decision, as those professionals have the ability to explain the complex details to prospective purchasers.
Patricia A. O’Connor is a partner with Levenfeld Pearlstein, LLC. Reach her at (312) 476-7523 or [email protected].