Whether you are a first-time buyer or not, there are a lot of nuances to be aware of when buying property. Beyond the norm – of which there are many lists, including this one, and these two, you’ve got a lot to consider in making the right choice. In addition to deciding if the property is right for you, you need to decide if the Association is right for you. One resource that prospective buyers don’t lean on nearly enough is their Realtor. Here are some tips for working with a realtor when buying a condo to ensure you make the right decision.
The Realtor is making a nice fat commission off of you – which sometimes makes them forget that they need to give you the full scoop on a property (the Principal-Agent problem). Despite this, you can and should use your Real Estate Agent to help perform due diligence on the Association before you buy a Condo. Their job is to help you, and if they don’t, fire them and find a new one.
Understand the Legal Landscape in your Jurisdiction
First, before you even start looking at specific Condos, ask your Realtor to explain the legal nuances of your state with regards to what Association documents you will get access to during the buying process, and when you’ll get them. Depending on local laws, you should get access to all of the Condo docs you need to make an informed decision – covenants, conditions and restrictions (CC&Rs), disclosures, monthly meeting minutes, and Association finances.
Sometimes these documents are not available until you have a contract, but even then, you often can break the contract within a certain number of days after reviewing the docs with no penalty. Ask your Realtor what the situation is and how much time you’ll have to review these documents, as they are lengthy. You must use this review time judiciously. Buying real estate can be an emotional process, which is where many errors happen – you fall in love with a property and ignore fundamentals. A mediocre or bad Realtor isn’t necessarily going to talk you out of a sale given the Principal-Agent Problem we previously discussed, either. You need to be methodical and disciplined. This means you need to be ready to cut bait on a contract if you receive documentation from the Association and you identify problems.
Have your Realtor Walk You Through the Condo Docs
Once you get the appropriate documents from the Association – don’t go it alone. Your Realtor should help you review them. First and foremost, I suggest that you identify what Condo rules and regulations matter most to you. For tips, you can look at this article.
If you are able to get your hands on the CC&R’s before placing an offer in your state, create a list of what rules matter most to you – i.e., pets, special assessment rules, and architecture controls – and ask your Realtor to prepare you a matrix that sums up this information for any properties you’re serious about. Otherwise, ask your Realtor to review the documents as soon as you have a contract and provide you the information then.
When reviewing Condo financial docs, the most important thing you need to do is to look into whether the Association has performed a recent reserve study and if they are adhering to the recommendations. When I bought my Condo, the sales team bragged about having $2 million in reserves. Of course, they had no reserve study and $5 million in deferred maintenance so that led to a special assessment. Don’t listen to how much they have in the bank – find out if they’ve done a reserve study by a qualified firm. That’s what matters.
Read All of the Disclosures – Both for the Unit and the Building
Disclosures are for any known defects or issues. These are provided for both the building as a whole and the unit. Failing to disclose issues is illegal but honestly happens more than it should – particularly at the unit level. Find out what issues exist, carry out an inspection with your own inspector, and make sure to factor any known issues. Be particularly wary of issues that may be the Condo’s responsibility to fix but that they haven’t chosen to remedy yet. For example, there are certain leaks in a unit driven by a faulty facade or roof that only leak during severe weather. Hypothetically, it may be that the repairs to prevent the issue from happening are $50,000, while the damage to the paint and drywall is only $500 to repair. As such, an Association might choose to just repair the drywall and repaint whenever there is water damage. This is often legal, but the result is the Owner of that unit has to be aware of what they’re dealing with. So pay attention to the disclosures and make sure your Realtor has your back in sorting through them.
Be Wary If Your Realtor Has a Relationship with a Condo Development Project
Real estate is a local, relationship-driven business. A good Realtor is well-connected. But keeping in mind the Principal-Agent Problem, you need to make sure your Realtor is looking out for you, not their business. If you’re buying into new construction or a conversion, you are well-served to ask point blank questions of your Realtor such as: How many units have they sold in the building? Have they worked with the developer before? Do they receive any incentives (which in many cases legally must be disclosed) for selling into the building? None of these are red flags – you just want to be an informed client as to how the relationship is working.
Remember- the Real Estate Agent works for you. There are tons of good Real Estate Agents out there. When you’re working with a realtor when buying a condo, make sure they are willing to go the extra mile for you when it comes to understanding what it means to live in a Condo Association. Because the last thing you want to do is find out you’ve closed on a Condo that’s in dire financial straits and has a bad Board. Asking the right questions will make sure that doesn’t happen.