Buying a unit in a condominium development is a huge commitment, especially for a first-time buyer.   Far too much has been written in the media about the evils of condominium projects and the regimented, oppressive rules owners must abide by - rules that are clearly unreasonable to enforce on any human being. The condominium management team (the manager and board of directors) are generally depicted in very unflattering terms, with words like "Nazi" and "Gestapo" routinely being inserted into the story. In contrast, the individual condominium owner is generally depicted as a helpless victim.

While we understand that there may be a few instances where these kinds of situations may occur, industry surveys indicate that they are definitely not the norm. When a homeowner ends up facing difficulty with association management, the situation more often is that the homeowner violated some rules - the very rules that he or she agreed to abide by when purchasing a unit.   Occasionally the unit owner is aware of the rules but for whatever reason thinks that they don't apply to him or her. More often, homeowners have never actually read the rules and think they can do whatever they want. After all, since they bought a "home", they can act as they please in their own home.

It is important to ask why the homeowner wasn’t made aware of the rules. While there are several possible answers to that question, the most common one is that the homeowner did not educate himself about what he was buying before he purchased. The condominium lifestyle is not for everyone.   A wise prospective buyer will first take some time to understand the general framework of condominium ownership, then perform some research about the specific condominium development in which the desired unit exists.

Condominiums often appeal to homebuyers because of pricing, location, common amenities, or lack of an upkeep requirement. For some, the ability to just lock the door and leave on a trip without having to worry about the "house" while they're gone is attractive. But these factors are just the most visible ones- though unfortunately for many people, they are the only ones considered.

What other issues should a prospective buyer be considering? The list below provides a starting point, though there are likely even more items to consider. Even prospective buyers who are experienced in the condominium lifestyle could save money and/or frustration by taking the time to review some facts regarding a particular condominium before submitting an offer. The three areas of consideration are Governance, Finances, and Community.

Governance

The prospective buyer should obtain and read the governing documents of the association, and inquire about management and the board of directors.

• Master deed or CC&Rs (Covenants, Conditions & Restrictions) - While you as the unit owner have exclusive ownership of the interior of the unit, this document may specify certain restrictions that apply to your own "space" (examples - no wood floors for upstairs unit, no pets, etc.). You share the common areas (such as hallways, landscaped areas, clubhouse, and pool) with your neighbors, your co-owners. This document specifies each unit's percentage of property ownership. It is the legal document that defines your ownership percentage, determines your obligations (fees and assessments) and rights, such as your voting percentage at condo association meetings.
• By-laws - The by-laws define your rights as a condominium owner. Review the by-laws to make sure your basic rights are protected.
• Rules & Regulations - While all condo rules must comply with national, state and local restrictions, the condominium board of directors develops the Association’s rules, which are property-specific. While these rules are subject to change by a future board, they are generally relatively stable.   Because these are the rules that impact an owner on a day-to-day basis, they should be carefully reviewed. Common rules pertain to pet ownership, parking, separate storage areas, noise levels, unit occupancy, and the use of common areas such as a gym or clubhouse.
• Manager - A prospective buyer should meet briefly with the manager (whether on onsite manager or a representative of a management company) to ask about maintenance issues, adequacy of insurance, governance issues, rules violations, or any similar matters. Most managers are forthright and generally don't have a bias in responding to such questions.
• Board of directors - A prospective buyer should request to meet with at least one board member, and also ask to see three or four months of board meeting minutes to get a feel for both how the board governs and also for issues such as insurance, maintenance, reserves, budgeting, and rules violations.

Finances

• Association assessments - Consider the total ownership cost of the condominium unit, which includes not only mortgage costs and real estate taxes, but also monthly association assessments and condominium owner insurance on your unit. (Consult with a knowledgeable insurance agent.)
• Reserve study - Ask for a copy of the reserve study. The reserve fund pays for major repairs and replacement of common building systems. What is the percent funded? Are there any special assessments scheduled? Does the 30-year cash flow analysis indicate that the association has adequate funding? Are all significant components included in the reserve study? Although most reserve studies do not provide a list of significant components that are excluded, some do. If this is an older project (20-plus years old) and infrastructure components such as plumbing, electrical, and wastewater systems are not included (which is the norm), be aware that these components do have a limited life and a significant cost - probably the highest cost of all components. They are often excluded because they cannot be physically "observed" during a reserve study site visit, and are assumed to have a very long life cycle.
• Financial statements and budget - Request a copy of the financial statements and budget. The operating fund pays for the upkeep of the property’s common areas, property management fees, and other salaries and expenses. See if the association has had to "borrow" from reserves to meet current operating costs. If so, that is a major red flag indicating inadequate operating assessments.
• Assessment history - Request a schedule of the Association’s assessment history. Assessments held at too low a level in the early years of an association often mean that necessary maintenance was deferred, shifting the costs to future periods. These are the types of associations that often find themselves in trouble in later years. What is the history of special assessments?

Community

As a prospective buyer, you should perform a brief "walk the project" and attempt to meet your potential future neighbors. Ask them what they like about living in the Association. Ask them what they don't like. Is the enforcement of rules too stringent? Are there too many renters or rowdy neighbors?

It is this last step that is often the most important, as a friendly neighborhood is what builds "community." Even if all the governance and financial indicators are positive, this still may not be the right place for you if you get a negative vibe on the issue of "community".