Making an Offer on a Condo:
The Top Four Things to Know
Making an offer a condo is quite different from making one on a house. There are many extra considerations that can be overwhelming and sometimes nerve-wracking, especially for first-time buyers. Below are the top four things you need to know when making an offer on a condo. But first, here’s some background on how making an offer on a condo differs from making an offer on a single-family home.
The Resale Disclosure Documents
Once the condo’s current owner accepts your offer, she has a certain number of days from ratification to produce and deliver the resale disclosure documents to you (14 days in Virginia, 15 in Maryland, and ten in the District). The condo association is responsible for providing the seller with the resale disclosure package. The seller then is responsible for delivering the documents to you. These exchanges are typically handled through the Realtors.
In Virginia, the seller has not provided the info within the window, the buyers can assume the info is not available and void the contract if they so choose.
The resale package contains a wealth of important information about the condo building or community. It will include legal documents that describe the formation of the condominium, how it operates, and its rules and regulations. The good news? You’ll have a chance to back out of the deal within three days of receiving the documents if you discover a dealbreaker.
1) The Review Period
You have a right of review of the document package. The important parts of the package are:
- Current bylaws, architectural guidelines, and rules and regulations of the condominium (to include a record of all approved unit alterations or renovations in accordance with condo policies).
- Even when something is permitted, there can be restrictions. For example, a development might allow pets with certain restrictions such as only one per unit or only dogs under 25 pounds. You may learn that there’s a limit to the number of people who may occupy the unit.
- A schedule of payment for condo fees.
- A statement of any unpaid fee assessments, special assessments, or upcoming assessments. Unpaid assessments are the responsibility of the owner. However, any future assessments would be the responsibility of the condo owner.
- Records of any pending litigation or judgments against the condo association.
- Certification that the condo association has filed its annual report with the state board.
- Any violation notices given to the current owner which they would be required to fix before closing.
In Virginia, you’ll have a three-calendar day period to review all of this information (seven in Maryland, and three business days in the District). This window is called the “buyer’s right of rescission” and allows you to cancel the contract if you find anything in the documents that you don’t like (perhaps the rental policy, shaky finances, or a large upcoming assessment). Within this window, you can cancel your contract and your earnest money deposit will be returned.
Keep in mind, if you didn’t receive the complete resale package, this clock still starts.
You’ll need to either extend the review period until you receive the missing information or void the contract.
FYI – these documents are yours to keep.
While not required as part of the condo resale package, ask for the current and previous year’s association budget, year-to-date actuals, as well as its balance sheet. Pay close attention to the status of the condo’s reserve fund. Also, you should see if minutes are available from recent condo association meetings – they are often a treasure trove of information about your new community and neighbors.
2) Insurance Issues
Your lender will insist that their closing attorney inspect the condo’s Master and Unit Deeds and likely issue a Title Insurance policy. The attorney will also confirm there are no outstanding condo fees for the unit (unpaid fees can trigger a “super liens,” when delinquent assessments take priority over a lender’s mortgage). Additionally, he will confirm there is adequate insurance on the building and/or complex. You’ll have to provide proof of insurance from your insurance company for your interior possessions. Your personal items are NOT covered by the building’s insurance if the roof leaks or the building catches fire.
3) The All-Important Condo Fees
Condo fees generally include insurance and maintenance. In addition, association fees commonly include lawn maintenance, snow removal, landscaping, water, sewer, and trash service, and maintenance of any community roads. In some cases, the association fees include certain utilities, usually, heat, electric and cable/internet. Your condo fee will also cover any community amenities like a pool, clubhouse, or fitness center.
Once you have a better sense of what the condo fee covers, you can update your personal budget accordingly.
4) Special Assessments – Buyer Beware!
A special assessment is a fee imposed by the association to pay for necessary repairs or improvements that are not part of the association’s operating budget. Such unexpected expenditures may be repairing storm damage or replacing an elevator. Rest assured that a portion of your monthly condo fees is allocated to the association’s reserve fund for large but occasional expenses such as paving, painting, or replacing flooring.
When you purchase a condo, you own it “walls in” – so exterior features such as your roof are shared between condo owners. So who pays when there is an issue with a shared space? The short answer is you — and all other owners. It’s crucial to keep this issue in mind when looking at very small condo buildings. In some cases, there may only be one or two other units and owners. So if the roof needs to be replaced, the owners are going to face a steep special assessment to make it happen.
The Bottom Line
Making an offer on a condo is quite different from making one on a single-family home. Condos, with their rules, management, and shared spaces, make the process more complex. Do your homework and thoroughly read through all of the documentation you receive from the association.
We know that all of these extra considerations can be overwhelming and sometimes nerve-wracking. The good news? You’ll have a window in which you can cancel the contract if you discover a dealbreaker.
Can we assist you in buying your dream condo? We’d love to help. We are here to help you through the buying process. For more insight into buying or selling, sign up below for our monthly e-newsletter.