Saturday, November 20, 2010

repeat: Ten questions for prospective condo buyers

This is repeat of a post from last year that is still relevant. Some of you may have missed it then.

I've seen many a search for a beach condo grind to a halt or take an abrupt turn when a buyer encountered an issue that they hadn't considered earlier. One's mental image of the perfect beach getaway may be at odds with the reality. Below is a list of ten pertinent questions prospective buyers of beach condos should have asked and answered prior to beginning the search.

1. If planning to get a mortgage for the purchase, how much down payment will the lender require? Mortgage requirements for Florida condos are different than those for condos in other states and for houses. Expect to have to put down 25 to 30% in most cases for Florida condos. Your pristine credit does not matter.

2. What will my taxes be? Forget what the current owner is paying. It does not apply to the new owner except (sometimes) for the first partial year of ownership.

3. Will there be a problem with my English Mastiff? Probably. Most condos have rules limiting the number and weight of pets. Some don't allow any pets at all.

4. Do the condo fees cover all expenses? No. In most condos the monthly fees cover insurance and maintenance for the building, water and sewer, basic cable, lawn care, common area electric and other common expenses. Some condos also include hot water in the fees and some even cover AC units. At the other end of the scale, some do a special assessment every year when the insurance bill arrives and a few complexes with artificially low monthlies seem to assess every time the wind changes direction. Be suspicious of condos with too-good-to-be-true low monthly fees.

5. Will the insurance on a Florida condo be sky high? No. As the condo fees cover the insurance for the building, the unit owners have only to cover the interior and contents of their units. I pay less than $1000 per year for a small 2 bedroom beach rental condo.

6. If I don't like the layout will I be allowed to remodel my unit? Yes. In most cases, any interior alterations that do not affect the structural integrity of the building are allowed. Removing non-load-bearing walls and building new walls are common alterations. Exterior alterations in most cases are more tightly restricted. Replacing the tired wooden front door with a hip new stainless steel door will likely not be allowed.

7. Are ground floor units undesirable? Not according to the people living in them. If you don't plan to go to the beach often, you will prefer the view from an upper floor. If you're one of those people or families that will be on the beach a lot, you may want to consider the lack of barriers (stairs or elevators) between your unit and the beach. I've found that the people in the ground floor units are the ones who spend the most time on the beach. Bonus here is that the ground floor units usually sell at a decent discount to higher floor units.

8. Can the condo association bill me for repairs to the building without my consent? Yes. All owners in a complex share the expense of maintaining the common elements and the board has a duty to maintain those shared assets. When the time comes to repair the balconies or replace the roof, if sufficient reserves don't exist, each owner will be assessed their share of the total. Sometimes an association will get a loan to pay for a large expense and increase monthlies to cover the repayment of the loan. This is why it is vital to review the condo budget and to read minutes of recent meetings. A buyer should be aware of recent and/or upcoming repair projects. Some buildings have reserves to pay for future expenses and some have none. Lack of reserves may kill chances of a mortgage. If considering a unit in an older building, all other things being relatively equal, a building that has recently completed a large renovation project is more desirable than one staring at an upcoming project.

9. If the seller agrees to pay the assessment for the upcoming concrete restoration project should I be concerned about anything else? Yes. The assessment might not be enough to take care of unexpected issues that surface during the project. Even more important, are you prepared to deal with the noise and inconvenience of the project for an extended period? Major concrete projects in addition to being expensive, are unbearably noisy, balconies are out of use and often pools are covered for the duration. As stated in number 8, a building with recently finished project is preferable all other things being equal.

10. Will I be able to rent my unit out for some income when I'm not using it? Maybe. Some condos have no rental restrictions while others have up to a one year minimum rental period. If you are prohibited from renting for less than a year, you won't be using the unit at all if you choose to rent it. If you buy a unit in a building with a one month or longer minimum rental, you may have a hard time picking up a monthly or longer tenant outside of the January through April season. You can read my detailed post on rental restrictions and their implications here.

This is by no means a comprehensive list but it's a good start. Knowing about restrictions and issues may eliminate a lot of wasted effort in your search. If anyone has others I've not included, please add them in the comments below.

I know that things are getting tougher

When you can't get the top off from
the bottom of the barrel.
_____Green Day


  1. Wow. Thank you for this very informative post. Buying a single family home is looking even more attractive.

  2. another thing you've talked about is a right of first refusal for other owners in the building. You can find the perfect unit, in the perfect building and negotiate a terrific price only to have someone else take over your contract using this right. Don't get too excited about your new condo until the expiration of this right.

  3. To the first comment; don't forget that single-family home owners must insure their structure, pay water/sewer, take care of their own lawn and landscaping and maintain their pool, if they have one. This can run from $250 to $450 per month on a modest single-family home. Also, a portion of condo fees in some complexes partially fund reserves for roof and other major expenses. Homeowners need to take all of this into consideration when comparing costs to own a home versus a condo.

  4. To the 2nd comment; Yes, first right of refusal is a sticky, unfair and often misunderstood process. A buyer can do everything right and negotiate a great deal but the better the deal, the more likely another owner is to exercise their right and take the contract.

    There are a few buildings where no outside buyer will ever get to purchase because there are owners who are standing by with the intention of taking out any unit that is contracted. The only possible way for an outsider to get into one of these buildings is to overpay enough that the sitting owners won't take the contract.

    Having said that, we are seeing some attractive contracts make it through the process in other buildings. Your agent may not know which buildings contain the vultures.

  5. As the first anonymite to comment, I wanted to thank you for your reply and added thoughts, Mr. Walker. Your blog always provides a lot of valuable insight.

    After exploring the CB community as a three-year oceanfront condo renter, we have been actively discussing whether or not to buy in the area and, if we do, whether to choose a condo or single-family-detached home. While single-family homes certainly do entail some frustration and expense, at least one's residential decision making isn't tightly paired with some of the "owner-vultures" that I have had the misfortune of meeting in at least one high-end building in CB. As a low-key, quiet, and hopefully pleasant person with absolutely no desire to impose on my neighbors, I will still admit to considerable surprise at hearing owners literally screaming at each other in the lobby about parking spots, having doors shut in my face while juggling with keys and packages, and observing other owner-occupier behaviors which can only be described as rude and boorish. That condo unit was gorgeous, but I wouldn't spend a dollar to buy in that building and have to deal with those other owners in any matter social or financial. (Of course, it may be that that building was an anomaly, because otherwise CB is such a nice small town.)

    If we finally decide to buy, however, we will be giving you a call. I figure that we "owe you" for all of your valuable advice. :-)

  6. From Anonymous 2: Well, that is telling. Thanks for the informative post - with the way prices are falling, I can afford to buy in a more upscale condo, but after your post, I know I don't want to do so.

  7. I'd be very interested to hear if this is common behavior or, if not, what upscale building to avoid!

  8. Larry - your comment about fighting over parking spaces is interesting. Would you be able to explain exactly what the term "assigned parking" means and what a condo buyer actually obtains when they get assigned parking? Is the assigned space passed from owner to owner or can the association assign an alternate, perhaps less desirable space to a new (or even existing) owner?

  9. I'd be interested to hear which building as well. Naturally, all complexes are different and things change as new people move in and others move out. I lived in a wonderful small building in south Cocoa Beach that was changed overnight when a nasty new owner moved in. She made life miserable for everyone for a couple of years until she moved out.

    Bad neighbors aren't exclusive to condos, by the way.

  10. Assigned parking usually refers to a specific spot in an under-building garage or outside. It is usually permanently assigned to a specific unit and can't be reassigned without the unit owner's agreement. I have seen parking spots get exchanged by agreement between owners and even sold. Some buildings have deeded garage spaces and some have all unassigned spots.

  11. For some perspective, the link below to Donna DiMaggio Berger's post today about what she's thankful for in her condo association,

    What she's thankful for

  12. Yeah that's right don't forget that single-family home. Thank you for your article its very informative and helpful.