Condominium Basics

The complete and easy to understand guide

to owning and purchasing condominiums.

By Sterling K. Kekoa

Disclaimer

The information contained in this guide in no way should be considered legal advice. Whenever
real estate transactions are performed a competent attorney should be consulted.
 Condominium Basics

CONDOMINIUM BASICS

To my mother, A. Eileen Kekoa, who gave me the confidence to pursue my dreams and
who led me to cherish the profound nature of the human mind.

Special Thanks to:

Nancy Gershenfeld, Mark Zappone, Theresa Van Sickle, Kevin Pope and all those at the Park
Summit Condominiums who helped along the way.

Third Edition

© Copyright 2010, Sterling Kekoa. All rights reserved. Printed in the United States of America. No part of this book
may be used or reproduced in any manner without legal authorization with exceptions for brief quotations as part of
critical reviews or articles.

Kekoa Publishing
1236 Kelewina Place
Kailua, Hawaii, 96734
E-mail: condobasics@gmail.com

ISBN: 0-9963416-0-0

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Contents
About this book 5
Introduction 6

PART ONE: Condominium Basics

What is a condominium? 7
Condominium definition
Different types of condominiums
New Construction and conversion
Co-operatives
Condo or condominium?
Apartment or condominium
Common Area 9
What is common area?
Percentage of ownership
Homeowners association
Limited Common Area 11
What is limited common area?
Why is it considered common area?
Why is it limited?
Routine maintenance
Private Domain 13
Which areas are private?
Use of private property

PART TWO: Condominium Management Basics

Legal Foundation 16
The Declaration
Key features
The bylaws
Renting regulations
Homeowners Association 19
Membership
Voting procedures
Homeowners meetings
Board of Directors 21
Who they are
Election of board members
Board responsibilities
Management Companies 23
Reasons for management companies
Services
Resident managers
Legal Support
 Condominium Basics

PART THREE: Condominium Financial Basics

Maintenance Fee 25
Homeowners monthly fee
List of expenses
The annual budget
The audit
Reserves 30
The need for reserves
Reserves as part of the budget
Special Assessments 31
Use of special assessments
Power to pass a special assessment
Insurance 32
Insurance coverage
Premiums
Homeowners coverage

PART FOUR: Condominium Investment Basics

State laws
1. Is a Condominium for you? 35
Condominiums vs. Houses
Conversion vs. New Constructions
Other types of condominiums
2. Who, What, Where and How Much? 37
Finding your price range
Pre-approved loans
Your mortgage payment
Finding a location
Inside the condominium
Working with real estate agents
3. The Paper Chase 41
Checklist
4. The Final Act 43
Attorney assistance
Private property inspection
The purchase offer
What is escrow?
Financing

Glossary 46

figure 1: Condominium unit floor plan 13

figure 2: Sample annual budget 27
figure 3: Sample ownership percentages 29

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 Condominium Basics

About this book

The primary goal of this book is to provide simple, yet comprehensive information about
condominiums. Although much of the text is written with the residential buyer in mind, many of
the topics will also be useful to commercial and business interests.

The first three parts contain basic information on aspects of condominium ownership. They
include:

· What a condominium is
· Who owns what within a condominium
· The legal foundation for a condominium
· How a condominium is managed
· Explanation of condominium dues
· Types of insurance coverage

The final part is designed to help the novice condominium buyer, through a step-by-step
procedure.

1. Is a Condominium for you?

· The pros and cons of owning a condominium

· Understanding the different types of condominiums

2. Figuring out where to start

· Matching your desires with your purchasing power

· Things to look for when you are shopping around
· Working with real estate agents
3. How to track down important information

· Finding the necessary documents

· Learning about the financial stability of a condominium
· Discovering the maintenance condition of the condominium

4. Final considerations before making a purchase decision

· The aid of an attorney

· Property inspection
· Understanding FHA and VA approval
· How to begin the purchasing process

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 Condominium Basics

Introduction

Condominiums represent a rapidly growing portion of the real estate market today. As land
becomes increasingly scarce, multifamily dwellings represent a greater percentage of new
housing construction-especially in urban areas. In fact, the United States government predicts
that half of all households will be living in some form of condominium by the end of this century.
Because condominiums are relatively new, you may be among many potential buyers who know
little about them.
It is important to realize that condominiums have certain fundamental differences from
other forms of real estate, such as the more traditional single-family house. You will avoid many
potential problems and surprises before you buy into a condominium by knowing more about
these differences.
The dual purpose of this book is to give you a basic, comprehensive understanding
about condominiums as a whole and to help you effectively evaluate a potential purchase.
Unlike other publications, you will find a few simple step-by-step suggestions on what to look for
in a condominium and how to find helpful background information before signing a purchase
agreement.

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 Condominium Basics

Part One:
Condominium Basics

What is a condominium?
Condominium definition

Condominiums are a form of ownership, not a type of building. There are several different kinds
of condominiums, both commercial and residential. Business parks, private housing
communities, apartments, parking stalls, horse stables, marinas, and townhouses are a few
examples of possible condominiums. In other words, all condominiums do not look alike. The
key to understanding a condominium is to realize that it is special form of ownership.
The word condominium is a Latin derivative that translates to mean joint dominion or
common ownership. All condominiums do, in fact, contain something known as common
property or common area. In a condominium complex, common area can include such things
as hallways, roofs and elevators; also, recreational facilities, such as swimming pools or tennis
courts. It is this concept of common property that distinguishes a condominium as a unique
form of real estate ownership.
When you purchase a condominium not only are you buying a piece of private property,
you are also buying a percentage of common space that is an integral part of the whole building
or complex. If you buy a condominium, it is essential that you understand what the common
areas are and how they are managed.

Different types of condominiums

Most people associate condominiums specifically with urban areas or vacation resorts. The fact
is that condominiums are created and designed to accommodate a variety of business and
individual needs. Regardless of intended function, a condominium is a form of ownership that
consists of both privately and commonly owned areas.
If a condominium is both privately owned property and commonly owned property, then
any other real estate situation that meets this condition, by definition, would also be a
condominium. This means that townhouses and private housing communities are also
condominiums because they own and manage adjoining or adjacent areas.
To illustrate this point, consider the private housing community. The lots and houses
within such communities are privately owned. However, the streets and sidewalks are owned in
common. You may also find that some of these private communities will own other common
property such as parks, pools, clubhouses, and golf courses.

New construction and conversion

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 Condominium Basics

In general, condominiums fall into two distinct categories. The first are known as conversions,
such as an apartment building that has been converted into condominiums. The second are
those that were originally designed and constructed to be condominiums. Each of these has
certain unique characteristics that should be taken into consideration. These characteristics will
be reviewed in finer detail in Part Four: Condominium Investment Basics.

Co-operatives

As a point of reference, co-operatives are entirely common area. There are no privately owned
spaces per se. When you purchase into a co-operative, you are buying a share or percentage
of the whole building. It is similar to buying a share in any other business. The lack of privately
owned apartments is the fundamental difference between co-operatives and condominiums.
In a co-operative, the unit that you occupy will bear a direct relation to your percentage
of ownership in the corporation that holds title to the building. You rent the unit from the
corporation, who will in turn pay any mortgage on the property. As a result, this type of
ownership can have many different ramifications as an investment. Should a co-operative
interest you, it would be wise to investigate these differences further.

Condo or condominium?

Condo is to condominium what TV is to television. Both words, condo and condominium, are
use interchangeably. In the interest of simplicity, this book will use the original term-
condominium. Additionally, this book recognizes that the word condominium commonly refers to
both a unit as well as the entire complex.

Apartment or condominium?

In some areas of the country, there is a very distinct difference between what is meant by a
condominium and by an apartment. For example, in Seattle, condominiums are individually
owned, whereas apartments are seen strictly as rentals. Of course, you can rent a
condominium from the owner, but it is still considered a condominium if it is part of a
condominium complex.
This is not the case in Manhattan. If you own a condominium in a building in New York,
you will most likely refer to it as your apartment. And, why not. After all, it really is an apartment
in the sense that it is a separate dwelling within a structure--the definition of apartment.
These differences are simply the result of colloquial usage. Call it what you will, the
bottom line is that a condominium is a form of ownership that includes both privately and
commonly owned property, whether or not it resembles an apartment, in all parts of the USA

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 Condominium Basics

Common Area
What is common area?

A broad way to describe common area is to say that it is everything that belongs to the
condominium complex and grounds, excluding the space and materials reserved specifically to
the individual apartment, unit or other private residence. It is called common area because it is
property that is owned in common by all homeowners in the condominium.
Common areas in a multiple unit condominium will many times include the tracts of land,
air space, easements and rights as lawfully recorded by the condominium. Items such as
windows, roofs, foundations, columns, girders, studding, joists, beams, main walls, chimneys,
and any other structural part of the building will be named common area. Installations of central
services such as power, light, gas, hot and cold water, heating, refrigeration, air conditioning
systems, main intercom systems, security devices, master television cable and antennae, pipes,
conduits, wires, elevators and shafts, trash collection receptacles and chutes, fire alarm and
sprinkler systems, gutters and drain spouts, sanitary and storm sewer drainage, ventilation fans
and ducts, compressors, and all other similar items intended for common use will also fall under
this category.
As a rule of thumb, anything that is used by more than one owner of the condominium
will invariably be viewed as common area. All other items that do not follow this rule will be
private property. Hence, those wires and pipes that function entirely within the boundaries of
your unit will belong to you-not to the common areas. The chapter titled Private Domain will
explore the privately owned elements in finer detail.

Percentage of ownership

As an owner of a condominium you should be aware of two interrelated facets of common

ownership. The first is to know your percentage of ownership in the common property. The
second is to realize the necessity for a cohesive and effective way to manage the common
areas.
With respect to the first of these two aspects, you will find that an exact percentage of
common ownership will accompany each unit in the condominium. There are two forms of
figuring the ownership percentage. It is the developer who initially decides which method is
used. However, once the percentages are calculated, they cannot be changed except through a
unanimous vote of all the owners in the condominium development.
Of the two, the more common method is determined by comparing the percentage of
floor space or square footage in each unit. The other method arrives at a percentage according
to the unit's original purchase price. Due to the fluctuations in the housing market, the latter
method of establishing the owners' percentage of common area is not as popular.
In either case, the actual quoted percentage should appear in the condominium's
officially recorded documents-referred to as the declaration and bylaws in this guide. The sum
total of all the percentages ascribed to each of the units will equal 100%. To put it another way,
all the owners combined will own all of the common property.

Homeowners association

Common areas, like all physical improvements, require maintenance and attention in order to
preserve their intended function and state of repair. As a result, condominiums manage and
maintain their common property through an organization called the homeowners association.
Each condominium owner will be a member of the homeowners association by virtue of his or

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 Condominium Basics

her percentage of ownership in the common areas. In turn, an elected board of directors heads
the association.
The board of directors will directly supervise all common areas within the condominium's
boundaries. The association will often establish specific rules, bylaws and policies that will
outline the operating functions and day-to-day management of the complex. Consequently,
there are likely to be general rules pertaining to pets, laundry, and pools. Rules can vary from
one condominium to another according to the spirit of the inhabitants.
In new construction, the developer usually functions as the association. When a certain
percentage of the units or homes have been sold, the developer passes control of the complex
to the owners and the homeowners association.
The maintenance costs for these common elements are shared according to each
individual's percentage of ownership. The homeowners association will create an operating
budget that will account for these expenses. For a number of reasons, it is a good idea to
become familiar with the basic functions of the condominium homeowners association and
board of directors. You can find more information in Part Two: Condominium Management
Basics.

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 Condominium Basics

Limited Common Area

What is limited common area?

Condominium owners should become familiar with another form of common area, namely
limited common area. In simple terms, it is common area that has been assigned to a specific
unit. A basic list may include such things as decks, parking spaces, storage lockers, mailboxes
and fireplaces.
Because limited common areas are, in essence, still part of the common area, they are
included into the percentages of ownership and are governed through the homeowners
association. You can locate the apartment's percentage of common ownership in the
condominium's declaration or bylaws.

Why is it considered common area?

The underlying reason why limited common areas are described as common area is that they
can directly affect other owners in the building or complex. If they were declared as private
property, many unpleasant and perhaps dangerous situations could arise. For example, an
owner may decide to renovate or make an addition to his deck that may alter the original look
and design of the building. Another owner may neglect to inspect and clean his fireplace that
could result in a chimney fire and spread to units above. These are only a couple of examples
by which private control of these limited common areas could provoke considerable duress to
the other owners in the condominium complex.

Why is it limited?

On the other hand, if these items were simply common area, another owner could rightfully
claim access to those areas. Imagine if someone came to your door and demanded to use the
deck that happens to be attached to your unit. Under these circumstances you may agree that
it could easily become tiresome to have other people roaming across your living room to use the
deck. This scenario could cause you undo anxiety. This example demonstrates the need to
restrict or limit the access to these particular types of common area.
All limited common areas assigned to your unit will fall under the control and supervision
of the homeowners association and the board. Changes in use or appearance will be subject to
their approval. If you intend to purchase an apartment in a condominium project, ask what
policies will directly determine the acceptable use and expected conditions of the limited
common area connected to the property. There may be regulations concerning the rental
arrangements for parking spaces or restrictions on patio furnishings. It is better to find out what
the limitations are before you move in.

Routine maintenance

Condominium associations sometimes elect to delegate part of the responsibility for these
limited common areas. Homeowners may be held responsible for the routine maintenance for
the limited common areas to which they have exclusive access. This routine maintenance can
be loosely interpreted to mean any form of up-keep that will sustain the useful life of that area.
For example, the owner may be asked to keep his deck in a presentable condition or his
parking spot free of debris. As for fireplaces, an association may arrange to have the flues
cleaned and pass the costs on to the respective owners.

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 Condominium Basics

In one sense, you can view this as a trade-off for having restricted access to these
common areas. You may find it helpful to know if your condominium homeowners association
intends to pass the costs for routine maintenance on to you.

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 Condominium Basics

Private Domain
Which areas are private?

For almost anyone who purchases a condominium, the primary objective is to own and control a
specific space or apartment. The rights and responsibilities of ownership by fee simple title,
conveyed through a deed, grants the condominium owner exclusive jurisdiction over various
elements within the condominium apartment. Therefore, it is important to recognize and
understand the principal parts and boundaries of your private domain.
The declaration, the official document that establishes and proclaims the complex as a
condominium, should provide a detailed description of the exact dimensions of each individual
space. It should also contain provisions that detail the specific features that constitute the
private domiciles. Incidentally, if you are not familiar with condominiums, you may be surprised
to find out that you may not own everything you see.
For the most part, if you share it-you don't own it. This means that only those things that
serve or support the individual apartment will be considered homeowner property. It can be
confusing because there is a fine line between what is private property and what is common
area.

The illustration depicts several items within a condominium floor plan in order to provide you
with a better idea of which elements are private and which are not. A simple residential
apartment condominium is used because of the close proximity of both common and private
areas. Each lettered item is as follows:

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 Condominium Basics

A. MAIN WALL- (Common Area) This wall separates the apartments from one another or from
the outdoors. It will often have support beams and other inter-structural elements.

B. BALCONY- (Limited Common Area) This space is used by only one owner but also affects
the exterior appearance and structure of the building.

C. SUPPORTING INTERIOR WALL- (Common Area) This wall may contain pipes that serve
other units and may also have supporting struts. However, the wall surfaces are generally
considered private property.

D. FRONT DOOR- (Common Area) This door can effect both overall appearance and fire
regulations within the building.

E. FIREPLACE- (Limited Common Area) The flue will often extend through other areas even
though one unit owner uses it.

F. SLIDING GLASS DOOR- (Common Area) This glass door separates the balcony from the
apartment. It will affect the exterior appearance of the complex.

G. COUNTERS- (Privately Owned) The counter has no significant bearing on the structural
integrity of the building.

H. REFRIGERATOR- (Privately Owned) This appliance will not endanger the structural integrity
of the building.

I. WATER HEATER- (Privately Owned) The water heater serves only this apartment and will not
jeopardize the other common elements within the building. However, should your water heater
burst, you will be responsible for all damage that result because it is your property.

J. TOILET- (Privately Owned) This amenity will only affect the occupant of this apartment and
will not threaten the structure of the building. Because it is private property, the owner will be
responsible for damage that originates from a problem with this fixture.

K. WALL ADDITION- (Privately Owned) This line represents a wall partition that you or a
previous owner (excluding the developer) has erected. It should have no significant influence
on the structure of the building.

L. CLOSET DOOR- (Privately Owned) This partition does not compromise the other structural
supports of the building.

Use of private property

If it belongs to you exclusively, you will be free to do what you want with it. For the most part, as
long as it does not affect the support structure or main operating systems in the building, you
may pursue any interior design that you wish. Keep in mind that others may not share your zeal
for the eccentric and unconventional design renovations may hinder your ability to rent or sell
the condominium in the future.
In rare instances, an association will attempt to restrict your freedom if a change in your
living environment will directly affect the other owners of the condominium. For instance,
accumulating trash and garbage in your apartment to the extent that it becomes unsanitary for
the building. Similarly, you may be asked to remove a sign that distracts from the aesthetic

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charm of the residence as a whole. With the exceptions of certain extreme circumstances, you
will be left to your own creative energies as the supreme ruler of your estate.

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Part Two:
Condominium Management Basics

Legal Foundation

The Declaration

Condominiums, as a unique form of real estate ownership, are essentially a combination of

private and collectively owned property. The legal instrument that establishes the building,
project or complex as a condominium is termed the Condominium Declaration and Covenants,
Conditions, Restrictions, Reservations, Easements and Deed, or more simply--the Declaration.
It is also referred to as the Master Deed. The name varies from state to state. All
condominiums should have a master copy recorded on file with the county clerk or the land
records office. It is public information and available to anyone.
With the knowledge that all the provisions in a declaration are important, there are
certain noteworthy features that can shed some light on a condominium's physical and working
structure.

Key features

CONDOMINIUM PROCLAMATION
Often at the beginning of the document, this is the provision that affirms and declares this
residential or commercial project a condominium.

DESCRIPTIONS
There should be a full description of the building and apartments within the condominium. This
section may show any assignment of limited common areas; those area that have restricted
access such as decks, storage lockers and parking spaces.

COMMON AREAS
The description of common areas and general regulations throughout the complex may be listed
in detail.

LIMITED COMMON AREAS

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 Condominium Basics

A description of the limited common areas and general restrictions will be included.

COMMON AREA HOMEOWNER PERCENTAGES

Listed percentages of ownership in the common areas for each apartment owner will be
recorded. Voting strength and fiscal responsibilities are determined from these percentages.

HOMEOWNERS ASSOCIATION
There will be provisions for the fundamental responsibility and authority of the homeowners
association. There will be conditions under which the developer transfers control of the
condominium to the association. There will also be procedures or guidelines for meetings and
voting.

BOARD OF DIRECTORS
Authority, responsibility and term of officers are established here. Board meeting procedures
will be outlined. The management duties of the board can be named in this provision.

GENERAL CONDOMINIUM REGULATIONS

You may find regulations on vehicle parking, common walks and drives, interior apartment
maintenance, exterior appearance, pets and acceptable activities such as laundry and pool
hours.

COMMON EXPENSES AND ASSESSMENTS

A list of expenses and payment procedures by owners for common areas will appear. Punitive
measures for non-payment of homeowner fees may also be described.

INSURANCE
A provision for condominium insurance coverage of the condominium complex and common
areas in the apartments will be found in this document.

Amendments or changes to the declaration can be made by the homeowners association. For
this reason, you should make sure that you receive the most recent copies of this document.

Important: These are only a few principal elements that will have a direct effect on the
homeowner. The content and size of the declaration can differ significantly from one
condominium to another. Though many of the points in the declaration may seem rather
obvious, the aid of an attorney experienced in real estate law is strongly suggested when
interpreting this document.

The bylaws

During your quest for the perfect condominium, you may find that many associations also follow
a set of bylaws that have notable points of interest. These bylaws include more specific
regulations and concerns of the condominium. Such items may include pool hours, pet
restrictions and board meeting procedures. The provisions in this document can describe new
rules or amendments to others in the declaration. Check to see if the condominium has a set of
bylaws. It is well worth the effort.
As with the declaration, the bylaws can be changed or amended from time to time. The
current set of bylaws should incorporate all additions and revisions.

Renting regulations

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 Condominium Basics

The declaration and bylaws should contain the basic guidelines that the homeowner should
follow. It is customary that control over renting procedures rests with the board of directors.
Parking space rentals are often subject to the board's approval, because they are often
classified as limited common area. In order to insure security for the vehicles belonging to
owners in the complex, those who intend to rent parking spaces will often be screened. If you
are assigned parking spaces with the purchase of your condominium unit, you will find it
valuable to learn the renting procedures that have been established.
Renting your private apartment can be less restrictive. Check the declaration, bylaws
and renting policy for the proper requirements for renting your apartment or home. For
instance, you may find that your property cannot be rented for less than one month and that the
prospective renter must demonstrate a satisfactory income.
Renting is often an area of contention for many condominiums. Unfortunately, it has
been observed that renters are not as conscientious as owners and frequently do not respect
the condominium's grounds and facilities. For this reason, condominiums often have specific
procedures for owners who rent their property.
In addition, if you are shopping for a condominium, it may be wise to consider the renter
vs. owner ratio. Knowing how many renters there are in a complex, will give you an idea of the
general atmosphere. Lenders who finance condominiums will often have guidelines as to the
maximum percentage of renters in a project that they will deem acceptable.

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Homeowners Association
Membership

The homeowners association is exactly what it means, an association of homeowners.

Ownership of an apartment or space is the sole qualification for membership in the homeowners
association. By parliamentary procedure, the association will regulate and operate the
condominium and all common property under its jurisdiction. The condominium's declaration
should contain a provision that describes the fundamental obligations and official operations of
the homeowners association.
Most condominium associations function in a similar manner, but the people of one
condominium may differ greatly from those of another. The methods and goals of these
associations will differ as well. For example, a lakeside resort with many recreational facilities
may attract leisure-oriented residents and it is reasonable to expect that the goals of this
condominium will reflect their constituents' priorities.

Voting procedures

Each owner's total voting weight is equal to his or her percentage of common ownership. If you
own more than one apartment then your votes are equal to the combined percentages. This
may seem a bit lopsided until you take into consideration that higher ownership percentages
also translate into higher monthly maintenance fees.
In some cases, the owner has the right to delegate their vote to a representative. This
person does not have to be an owner in order to cast a vote by proxy. If you intend to have
another person vote in your stead, the board of directors will request proper notification of your
proxy through a predetermined procedure. The declaration and bylaws should spell out these
restrictions and procedures for individual owners voting rights.
In those instances where there is more than one owner of a property and the individual
owners cannot agree in which favor to cast a vote, the board will disqualify the vote. When
conflict occurs within a membership vote, disputing co-owners may not be allowed to cast
fractional votes.

Homeowners meetings

Condominium owners will assemble for two types of meetings. The more fixed of these will be
the annual meeting. On special occasions, the association or the board will call for a meeting in
order to discuss and attempt resolve issues involving the condominium. Proper method of
notification for either type of meeting is often established by regulation in the condominium's
declaration or bylaws.
The annual meeting commonly falls at the end of the association's fiscal year. The
agenda for this meeting will include certain customary items. There should be an audit of the
past year's books as well as a summary of the previous budget's performance. The board will
also present the new budget. It is common that an election of new board members will also
take place. Other topics of interest can be pursued during these meetings.
Special meetings are called to inform, discuss and resolve problems and issues that are
important to the homeowners. These meetings can range from an ordinary board election to a
special assessment. Special meetings can be called by either a group of homeowners or by the
board. A quorum of owners is required to be in attendance before any homeowners meeting
can officially conduct business. The declaration or bylaws establish the number of members

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that constitute a quorum.

Condominium homeowners meetings, where the entire ownership body is call to attend,
are infrequently held—often only once during the fiscal year. Therefore, if you can spare the
time and energy, it is a good idea to attend these meetings or to submit a proxy as the topics
and resolutions will, in all likelihood, have a direct effect on you and your property.
Most associations adhere to standard meeting procedures such as Robert's Rules of
Order. If you have never attended a board meeting or a stockholders meeting, you may find
your first homeowners association meeting somewhat confusing. Who can make a motion and
when? How is a resolution adopted? These are only a couple of examples that demonstrate
the necessity for a clear and precise method for conducting a formal meeting. You should be
able to find a copy of the latest edition of Robert's Rules of Order at a local bookstore or
library.

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Board of Directors
Who they are

There are many names for a board member and for the governing entity. In some
condominiums, the board is referred to as the Board of Governors, Board of Directors or the
Board of Trustees. The individual members are sometimes called Officers or Administrators.
Whatever their title, they hold the same responsibility to the association-to help guide and
protect the collective interests of the condominium.
In effect, to be on a condominium board is to be a fiduciary. As a member of the board,
the elected individual is, in essence, a trustee of the association. The association gives the
board the power and authority to conduct the condominium's business affairs and bestows each
director with the legal ability to contribute to the actions of the board.

Election of board members

In order to become a director you must be nominated and voted for at a homeowners meeting.
The number of directors in an association is usually specified in the declaration or bylaws. The
size of the board will vary according to the size of the condominium.
Each member sits on the board for a set period of time. A term between two and three
years is more widely recognized. Of course, there are different lengths of tenure in different
associations. It is generally agreed that a two or three year time span is preferable, because it
is long enough to provide continuity and short enough to prevent burn-out. It will also provide
the homeowners an opportunity to vote in new members on a regular basis.
Some board posts have an intrinsic role and title. Traditionally, there are four seats:
President, Vice President, Treasurer and Secretary. Other members will serve as a Member-at-
Large and their duties can be tailored to suit the individual. On smaller boards, it is not
uncommon to see combinations of formal positions, such as a Vice President /Treasurer.
A final note on elections, it is wise to attend the meetings when there is a board election
scheduled. A condominium board is only as good as the people who serve on it. If there is little
scrutiny of the nominees at the time of board elections, you may find yourself at the mercy of a
less-than-objective or perhaps worse, an incompetent board. Knowing that the actions of the
board will greatly affect your property, it is a good idea to pay close attention to the individuals
that volunteer to serve.

Board responsibilities

The board has three general points of responsibility in order to insure that the condominium is
properly managed.

• The formation of a budget and the appropriate collection of dues from the homeowners is
one of their most essential actions. Included are the necessary tasks of the bookkeeping,
yearly audits, taxes and fiscal records.
• The board sets the tone for the living environment. In order to anticipate and mediate
human nature rules and regulations must be formulated and enforced.
• The board concerns itself with the present and future maintenance of the condominium's
common property.

In these areas of concern, a board will retain legal assistance, arrange for insurance coverage

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and attend to the security of the complex. The duties of a condominium board can increase with
the relative size of the complex and the extra facilities that are part of the condominium.
In large condominium developments, where the population provides sufficient owner
support, a board will delegate some of their workload to committees. Committees are formed by
the President in order to research and make recommendations to the board. For instance, a
committee might be created to evaluate and make a formal report on the security needs of the
condominium.

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Management Companies
Reasons for management companies

The actual work in relation to board participation is different for every condominium. Some
communities are either too small to have enough members to satisfy the basic requirements or
have directors who do not have enough time to donate and cannot adequately meet the needs
of the complex. Whatever the reason, many associations retain the services of a professional
management company. When you consider the numerous duties necessary to operate a
condominium you can understand why management companies are frequently employed.
Consider some of the various duties that a professional management company provides:

· Bookkeeping and filing

· General banking needs
· Records of homeowners and renters
· Yearly budget and periodic financial statements
· On-site management and repairs
· General offices and communication needs

There are condominiums that do run their own shop without a management company. This type
of homeowners association is aptly termed a self-management condominium. Neither method
is preferable over the other. If the condominium is functioning properly, it doesn't matter who
does the work so long as the work gets done.

Services

All homeowners associations have a fiscal year in which they plan for their expenses and
income, or in accounting jargon-a budget. Unless there is someone within the condominium
who is willing and able to construct a budget, the management company will help to provide
one.
Security is a legitimate concern for many associations and a good management
company can help evaluate and provide useful services and suggestions. Where there is a
need to locate and employ contractors, plumbers and electricians, the management agent can
generally offer some assistance.
Bookkeeping, files and records must be properly maintained for all financial transactions
conducted on behalf of the association. The normal transfer of money and other banking
requirements can be done through the management agent. Current records of all owners and
renters are also part of the management duties. Most of the administrative work that most
condominiums have can be accomplished through the management company. These are some
of the services a professional management company would provide.

Resident managers

It is reasonable to assume that someone should be available to handle the various daily
responsibilities that are necessary for the proper function of multiple unit complexes. These
tasks may include: checking to see if the garbage and recycling bins are emptied on schedule,
making minor repairs as needed, and keeping tabs on the many residents to insure that the
rules and regulations are being observed.
Large condominium associations with many such duties will often employ a resident

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manager; and when necessary, also an assistant manager. Resident managers perform on-site
assistance for the association. The managers in the condominium work in direct contact with
the management company in order to carry out the instructions of the board.
Without question, the healthy state of a condominium is heavily dependent on the quality
of service of both the resident mangers and the management company. A bad management
team can cause a great deal of damage and chaos. Remember, tidy common areas and frugal
spending policies make for happy condominium owners.

Legal support

An equally essential element to effective condominium management is proper and competent

legal assistance. The very nature of real estate ownership can be complicated and
condominiums, by virtue of their common property, can make things even more confusing. Most
associations will find it necessary to retain legal counsel to aid with the conflicting issues that
invariably arise.
These issues can range from advice on how to pursue delinquent accounts to the
appropriate methods of deploying a special assessment. An association will also find that good
legal support can help to make prudent decisions on contracted work and other binding
agreements.

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Part Three: Condominium

Financial Basics

Maintenance Fee
Homeowners monthly fee

This is the infamous and mysterious condominium fee. It is a common misconception that
condominiums are overpriced or too costly to own and maintain because of this monthly fee. In
reality, this fee represents many basic expenses, some of which are also paid by the average
house owner. Regardless, it is important to note that this fee is not included in your monthly
mortgage payment.
Other condominiums will have different names for this fee. They may include,
condominium dues, monthly maintenance dues, or monthly assessment. Whatever it is called,
this fee represents the percentage of responsibility that each homeowner has for the
maintenance of the common areas as well as other share expenses. These costs are projected
in the annual operating budget, and directly determine each owner's monthly maintenance
assessment. At the end of this chapter you will find a sample budget and ownership
breakdown.
As a precaution, in a newer condominium you should check to see if the monthly
maintenance fee is set at a reasonable level according to similar properties. Developers will
often attempt to attract buyers by offering lower maintenance fees. If inadequate sums are
collected and fail to meet the condominium's expenses, a large increase will inevitably occur in
order to satisfy these obligations. If the maintenance fee seems too good to be true, it probably
is.
You should note, however, that it is inevitable that your monthly fee will increase as the
cost of utilities and services increase. These increases should reflect the normal rise in the cost
of living.

List of expenses

Garbage pick-up, water supply, sewer, electricity, landscaping, and insurance are all expenses
that the privately owned residence might have. Condominiums have other expenditures such
as payroll, taxes, supplies, security systems, cable TV and management fees. However, you
should be aware that a condominium monthly maintenance fee could have a couple of
surprising benefits.
Discounts due to volume can cut the actual cost per household. There are other costs

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that a condominium has that a privately owned residence may not, but a condominium may be
able to absorb these costs with lower group discount rates. Therefore, take a good look at the
budget and find out what the expenses are and compare them to what you might pay in a
house. In some instances, by paying this monthly fee you may actually save money.
In the case of line items such as insurance, the premium is collected in small amounts
over the course of a year as opposed to making quarterly or annual payments as you might
ordinarily as a private house owner. This could be advantageous for the individual who has
difficulty budgeting for large amounts.

The annual budget

Each unit's monthly fee is calculated by the percentage of ownership in the condominium's
common area. The association anticipates what it will cost to operate the condominium for the
year ahead and will bill the owners monthly for their share of expenses. Naturally, it is better to
have more income than outgo and a properly formed budget will exhibit this characteristic.
In general, condominiums operate as nonprofit organizations and the primary goal of the
budget is to cover all the financial expenses without having to dip into the reserve account or to
levy a special assessment. Therefore, a well-designed budget will account for all normal
expenses and include a small contingency for inflationary increases.
Budgets are different everywhere, so take a good look at what it includes. It wouldn't
make sense to pay for the expensive health club facilities if you don't expect to use them. On
the other hand, you may find it desirable to live in a place with these amenities. In either case,
by reviewing the listed items in a budget, you will know what you will get for the money you will
pay as part of your homeowners’ monthly dues.
The following figure illustrates what a budget should look like. The second figure shows
the unit ownership percentages and the monthly amounts assessed to each unit.

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Figure 2: Sample annual budget

LONELY PINES CONDOMINIUMS 98/99 ANNUAL

BUDGET
100 Pine Street
Pine City, USA

INCOME
Maintenance fees $100,000
Laundry $900
Late Charges $1,000
TOTAL INCOME $101,900

OPERATING EXPENSES
Payroll-Salary $12,300
Payroll-Taxes & Insurance $2,500
Accounting & Audit $1,400
Insurance $7,400
Legal $2,000
Maintenance & Repair $5,000
Maintenance fee manager's unit $1,000
Cleaning $2,100
Management Fee $10,000
Supplies $2,000
Income Tax $2,500
Miscellaneous $600
Landscape maintenance $2,000
Rent-manager's unit $7,650
Cable TV $7,400
Electricity $6,500
Elevator $3,000
Telephone, Security intercom $1,000
Water, Sewer & Garbage $14,300
TOTAL OPERATING EXPENSES $90,650

RESERVE SAVING
Capital Repair Reserves $11,250

TOTAL OPERATING EXPENSES AND RESERVES $101,900

NET INCOME (LOSS) $0

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figure 3: Sample ownership percentages

LONELY PINES CONDOMINIUMS

100 Pine Street
Pine City, USA

Total Annual Budget: $ 100,000

PERCENTAGE OF MONTHLY
UNIT OWNERSHIP ASSESSMENT

101 1.32 $110.00

102 0.92 $76.67
103 1.34 $111.67
104 0.91 $75.83
105 1.33 $110.83
106 1.26 $105.00
107 0.98 $81.67
108 1.09 $90.83
109 0.97 $80.83
110 1.37 $114.17

111 1.32 $110.00

112 0.92 $76.67
113 1.34 $111.67
114 0.91 $75.83
115 1.33 $110.83
116 1.26 $105.00
117 0.98 $81.67
118 1.09 $90.83
119 0.97 $80.83
120 1.37 $114.17

page one

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The audit

Condominiums function primarily as nonprofit organizations and must file a tax report at the end
of their fiscal year. The declaration and bylaws should stipulate the requirement and procedure
for conducting an audit, usually performed by an independent firm. The audit will review the
associations' books and accounts for tax purposes, as well as to ensure that the condominium's
financial operations were properly maintained.
As an owner or prospective buyer, you will find the audit report a good source of
information. The audit will detail the associations' assets, reserves, income and expenditures.
These figures will allow you to determine the financial health of the condominium complex. You
will be able to obtain a copy of the most recent audit from the management agent or the board's
treasurer.

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Reserves
The need for reserves

All physical improvements have a limited useful life. As with houses, condominium roofs don't
last forever; nor do hallway carpeting, garage doors, or elevator cabs. They are good only for a
specific length of time and will eventually need to be replaced or repaired. With a reserve plan,
a condominium can anticipate and arrange to pay for these inevitable costs.
From the start, homeowners associations should commission a professional analysis
that will list the specific parts and materials that will need attention. This study should project
each item's useful life and the estimated costs for both maintenance and replacement. By
knowing the total projected costs, a fund can be established. With a properly established
reserve account, the condominium should be able to meet the financial needs of the future.

Reserves as part of the budget

The easiest way to pay for the future is to save for it now. This is the basic principle behind
reserve accounts. As a member of the association, each property owner will be obligated to
help pay for these anticipated costs. The monthly maintenance fee, which pays for the general
maintenance of the condominium, should also include these reserve payments. The estimated
reserve amounts should be prudently calculated and included into the annual budget as a
shared expense of the condominium's homeowners. A comprehensive reserve plan is a good
sign of a well-run condominium.
A condominium with adequate reserves will be less likely to assess owners when the
time comes to pay for needed improvements. This is another good reason to locate a copy of
the budget and the reserve plan. Before buying, you should examine the items that are
considered part of the reserve analysis, and whether or not the association is properly
maintaining sufficient balances to meet these projected costs.
The declaration or the bylaws may specify the need for a reserve account as well as the
appropriate method of funding. Regardless of the information in the official documents, a
reserve account is extremely important for any homeowners association. By anticipating the
inevitable, you and your fellow owners can lessen the frustration and financial burden of future
costs associated with the normal maintenance requirements or necessary replacement of
property owned in common.

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Special Assessments
Use of special assessments

Special assessments are known to be the nemesis of the condominium homeowner because
they are frequently used as way to pay for the unexpected. In an imperfect world, problems do
arise and condominiums are no exception. A special assessment is the primary tool by which
the condominium raises the needed funds to pay for extraordinary large or unexpected
expenses.
Frequently, in newer condominium projects, a special assessment results from problems
due to deficiencies in construction. When a developer cuts corners or improperly rushes
construction, defects appear that can become more severe as the building ages.
Condominiums that suffer from poor fabrication often develop serious problems that a buyer
may not always be aware of, until it is too late.
Homeowners associations who are caught in difficult situations will find that unless they
can effectively raise funds from an outside source, they will be obliged to pass a special
assessment in order to rectify an eroding situation. Example situations may include everything
from a leaky roof to replacing shabby siding. Whatever the problem, an unfortunate turn of
events can force an association to assess the homeowners in order to effectuate the necessary
repairs.
Architectural disasters are not the only motivations for special assessments. A majority
of owners may fancy the idea of lounging around a pool and propose that one be installed. A
special assessment could be the preferred method to accomplish this task. This situation is far
less common, however; special assessments usually occur as the result of extreme problems
within the complex that require large sums of money to resolve.

Power to pass a special assessment

Who has the authority of the pass a special assessment? It is different from condominium to
condominium. In some associations, where the expense is a necessity, not a luxury, the board
has the exclusive power to assess homeowners without membership approval. In other
condominium associations, all special assessments must have the approval of a majority or
quorum of homeowners. The declaration will outline the exact procedures by which a special
assessment can be implemented.
Special assessments are rarely popular as they usually represent unplanned financial
obligations. Before you purchase a condominium, you should contact the management
company and the board to find out if the condominium complex may face a special assessment
due to any current problems. Further, you should also be aware of any past special assessment
that were the direct result of structural defects or improper construction.

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Insurance
Insurance coverage

In general, the coverage of the condominium's insurance policy will extend to the common
areas, limited common areas as well as the equipment and tools that belong to the association.
Along with compensation for damage and loss, the insurance policy should provide for liability
protection. The declaration should outline the specific insurance requirements and extent of
coverage.
In contrast, the individual private apartments or homes will not be included into the
association's insurance coverage. Therefore, each owner will be responsible for his personal
and real property.
For example, if part of the siding on the condominium were damaged from a fallen tree,
it would be covered by the association's insurance policy because it is common area.
Conversely, if your stereo were stolen it would not be the association's responsibility and should
be covered by your own insurance policy.

Premiums

The annual premium for the association's insurance policy is paid by all the owners. It will be a
budgeted expense and the cost is distributed according to ownership in the association. As a
homeowner, your monthly fee will include the insurance for the condominium. It will not include
any insurance coverage for your own property and personal affects. You will have to pay for
your individual homeowners insurance separately.
If you intend to purchase a condominium, you should make an effort to acquire a copy of
both the budget and the association's insurance policy. The budget will show the amount of the
condominium's insurance annual premium. A copy of the insurance policy will also allow you to
determine the details of coverage.

Homeowner’s coverage

Knowing that the association's insurance ends at your doorstep, your private property will be
your responsibility. Many insurance companies have a homeowner’s policy for the individual
condominium owner. When you do obtain this kind of policy, make sure that it does not
contradict the association's master policy. For this reason, you may wish to consider using the
same company that holds the condominium's master policy. Incidentally, it is important not to
confuse this type of insurance with mortgage insurance payments.
Typically a homeowners’ insurance policy will cover the private elements within the
apartment, your personal property and liability coverage. For a more detailed description of
which elements and spaces within a condominium are considered private property, refer to the
chapter titled Private Domain.
You will discover that such things as appliances and wall coverings will belong to the
owner exclusively and should be covered in an individual homeowner's insurance policy.
Homeowners insurance may elect to cover most of your personal items, such as clothes,
furniture and other objects in your possession. A typical homeowners policy should offer
liability against injury of visitors while on your property.
Individual homeowners insurance premiums and recovery amounts will vary radically
from one condominium to another. There are a number of variables that will affect your
particular costs. These may include location of the condominium, the type of security system,

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smoke detection devices, and fire protection systems. Therefore, you should investigate the
costs of a similar homeowners policy for the condominium before you make a purchase
decision.
In addition, you may wish to discuss the ramifications of renting your property with an
insurance agent. Subject to the nature of occupancy, your homeowner’s policy may also be
affected by converting your condominium into a rental, and it would be wise to anticipate this
potential costs.

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Part Four:
Condominium Investment Basics

The final section of this book is dedicated to the first time residential condominium buyer. In
order to fully illustrate the suggested step-by-step procedure in detail, the following information
primarily focuses on the apartment condominium. You will find, however, that most of these
instructions will also apply to other types of condominiums as well.
If you are unfamiliar with the basic functions of a condominium, you may overlook
essential information that could have a critical bearing on your purchase decision. This section
summarizes one method from the initial considerations to the point of purchase, in four basic
stages.

State Laws

Having read the first three parts of the book you probably realize that there is more than meets
the eye in the condominium market. The lack of available information and general
misunderstanding of the public has lead to many serious problems.
It is precisely for these reasons that many state legislatures are beginning to adopt
stricter guidelines for the proper development, management and transfer of condominium real
estate. For the buyer, some of the information is delivered according to current laws in what is
sometimes called a resale certificate.
As state laws vary so do these certificates. Some will be more complete than others.
Obviously the more detailed the information, the better off you are as the potential purchaser.
In the event that the information in your certificate is difficult to understand, or worse,
your state has no requirement for the previous owner to provide essential information, the
following steps will give you the basics you should cover.

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1. Is a Condominium for you?

Condominiums vs. Houses

Given the wide array of residential options in today's real estate market, is a condominium right
for you? Don't forget that those private housing developments with their clubhouses and golf
courses also fall under the condominium umbrella. There are so many different types of
condominiums, designed to accommodate a myriad of tastes that to own one is more a question
of fundamental compatibility with this form of ownership rather than personal appeal for a
particular type of residential structure.
The most notable difference between a condominium and a house is the binding
relationship between you and your neighbors. Obviously, shared ownership of common
property will include shared responsibilities. It requires cooperation with others. If you are
fiercely independent and want to make all the decisions, chances are that a condominium is not
for you. If on the other hand you dislike doing everything yourself or enjoy the advantages and
security of a closed and private community, a condominium could be an ideal choice.

Conversion vs. New Construction

Most condominiums can be separated into two distinct categories-conversion and new
construction. Conversions are basically renovated space that was used for something before
becoming a separately owned residence. New constructions, projects that were originally
conceived as condominiums, represent the other facet of condominium development. Each of
these two types often has certain inherent characteristics that the new homebuyer should
recognize.
Because some conversions were intended to be something prior to becoming a
condominium, they can have a few built-in drawbacks. You may notice that some
condominiums of this genre are frequently advertised as having a certain old world charm. Look
carefully because this "old world charm" could be more old and less charm than you expect--
such as no washer and dryer in the apartment.
If the necessary installations aren't there when you move in, there is a strong possibility
that you will have to do without those modern conveniences. Renovating the architecture of the
past and bringing it into the future can be wonderful, but make sure you notice the
idiosyncrasies that come along for the ride.
New construction also has its unique set of problems. Poor construction and cheap
materials have been known to plague a new condominium owner. A few homeowners
associations have been forced to make expensive repairs because they just don't build 'em like
they used to. If it's new, pay attention to the quality of workmanship and materials. In addition,
it would be wise to learn something about other complexes that may have been constructed by
the developer.
These are only words of caution, intended to make you aware of the fact that these two
different types of condominiums have their own unique discrepancies. You will find there are
many condominium owners, on both sides, who love and cherish their respective abodes.

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Other types of condominiums

There are various other types of real estate that are technically condominiums. On the surface,
they may appear to have little in common with the apartment condominium, but they often
function in very much the same way.
A townhouse may share a wall, walkway or a fence. Such items will be viewed as a
common area and there will be a set of regulations that will establish the legal percentage of
ownership as well as outline the proper maintenance and management procedures. In another
instance, you may locate a group of weekend country homes that look more like the average
house rather than a city apartment. On closer inspection, you may discover that each resident
and owner in this community holds membership rights in a recreational facility or county club.
Their common ownership and participation will demonstrate the need to establish and
follow a collective form of government. In both circumstances, the townhouse and the vacation
development, you will find that it is beneficial to explore these opportunities with similar
strategies.
The other varieties of real property that fall under the condominium category can also
differ significantly from the apartment condominium. However, by understanding the common
elements that bind them together, you will be better informed when you undertake your initial
inquiries.

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2. Who, What, Where and How Much?

Finding your price range

Everyone's idea of home is different. You will ultimately find that your desires will be balanced
against your financial capacity. Knowing what you like and what you can afford will give you a
good place to start.
Dreaming about what you would like to have, is probably the best part of buying a home,
take the most important aspects that appeal to you and rank them in order of priority. Is a pool
more important than a parking spot? Is a deck better than a fireplace? Try to keep your feet on
the ground, few people get everything they want--at least not right away, so a little compromise
is usually necessary.
Figuring out what you can afford is equally important. If you are like most people, your
income and financial assets will determine the upper limit of your purchasing power. It is a good
idea to know the home price and mortgage monthly payments you can reasonably handle
before you start looking around.
In order to project a realistic idea of where you stand financially, you should consider two
things. The first is to recognize how changes in the real estate market (e.g. home prices) will
affect your purchasing power. The second would be to know the current interest rates offered
through qualified lenders. These two factors will determine the maximum borrowed sum, for a
real estate loan, a lending source is ultimately willing to extend. It will be based as well on your
estimated ability to satisfy this financial obligation.
Although lending institutions have specific guidelines and formulas they employ to arrive
at the largest loan amount they feel they can offer; you should also carefully construct a regular
monthly budget on your own, including every realistic expense you normally incur. In the end,
you should arrive at a reasonable payment you are sure you can comfortably meet.
There are many useful and popular software programs on the market that can assist
you. Be conservative, giving yourself enough room to pay for rises in futures costs and that
unexpected expense that has a funny habit of hitting you at the worst time. Often, optimism and
the intensifying need to own the property you saw only yesterday, leads some to overestimate
the real debt they can realistically carry. Incidentally, don't forget to include the condominium
maintenance fee your property will demand. It will not be included in your monthly mortgage
payment.
Depending on the type of condominium, the monthly fee will represent some of the
expenses that you may already pay. Make sure you know which ones, because each
condominium is different. For example, if you are looking at a private housing development the
monthly fee may also include your dues to the county club and golf course.

Pre-approved loans

You may wish to consult a local lending officer in order to get a rough estimate of your
purchasing power. Be aware that banks, saving and loans, and other lending institutions can
vary radically. It is always a good idea to shop around.
In addition, competitive lenders are willing to pre-approve and extend a stipulated
commitment on a loan during a specified period of time. Commonly, this is based on a brief but
compressive review of your current financial status and history. This option is worth
investigating because it will save time expediting the purchase transaction. It may also help you
pursue a reluctant seller to accept a lower price knowing the sale will not be encumbered by a
loan disqualification.

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Your mortgage payment

You may ask, what exactly is included in my mortgage payment? In real estate jargon, it is often
referred to as PITI.

P - principal
I - interest
T - taxes
I - insurance

These four items are quite simple to understand. Principal is the portion of the payment that is
actually goes toward the ownership of the property. The interest is the amount that you pay for
borrowing the money, the cost of the loan. State property taxes are often paid as part of the
mortgage payment. The mortgage insurance is the portion that you pay to the lender for
protection against a default on the real estate loan. This insurance amount should not be
confused with the other forms of insurance pertaining to the condominium unit and complex.
Your lender should also explain to you the various elements of your mortgage payment
and the escrow officer should also make you aware of your monthly payments at the time of
closing. For more information on the closing process you can turn to the section called Escrow.

Finding a location

Once you have a good idea of what you are looking for and what your price range is, you will
have practical idea of where to look first. Location is a very important consideration in terms of
both life style and investment appreciation.
If you owned a boat, it would seem logical to consider waterfront property with moorage.
It is equally important to remember that the location of your property will have a significant effect
on its value in the future. Almost all real estate is by nature, immobile and so it’s value will rise
or fall according to the advantages or disadvantages resulting from where it is build. Although
this factor is often difficult to determine accurately, your equity and the value of your property
over the long run will reflect your condominium's location.
With these two factors, your purchasing price range and the selected geographic
location, you should be able to narrow the field enough to make a few outings into the market. If
for some reason your imaginary domicile doesn't match the real estate available, you will have
to reevaluate your priorities.

Inside the condominium

Now that you have a pretty good idea of the type of place that will suit your needs, your next
step will be to get out and look at a few available condominiums.
One method is to review the classified section of the newspaper, call up an agency and
arrange for a rendezvous. Or you can take the drive-by and drop-in approach. Many listings
can now be found throughout the Internet. Open houses are frequently used by real estate
agencies to provide opportunities for prospective buyers to view available condominiums.
Selling real estate is big business and you shouldn't have a problem finding an agent to
help you shop, but read the follow chapter on agents before you decide to make your first
outing.
Whatever your style, there are a few tips you should know when you take a tour inside a
condominium. The general idea is to notice some of the signs that a condominium is well
designed and well maintained. Consider the following list of questions and observations:

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1. The type of the condominium

a. Conversion: If the building was converted into condominiums, does the unit contain
desirable conveniences such as modern appliances? Have the plumbing and electrical systems
been renovated? Is adequate parking available?

b. New Construction: If the unit or dwelling is newly developed, are the materials of good
quality? Do the structural and design elements in the condominium show signs of skilled
craftsmanship?

2. Home security

a. Fire protection: What types of fire protection systems are there within the facility? Does the
unit have smoke detectors? Does the complex have smoke detectors and fire alarm systems?
Is the property near convenient exit doors and stairwells?

b. Entry: Does the condominium employ security personnel such as a doorman or night
watchman? Is there a camera system? Is there a security entry system?

3. Maintenance of the condominium

a. Resident managers: What are the duties of the resident manager? Are the windows and
walls clean? Is the condition of the carpets good? Are the grounds kept in an attractive and
healthy fashion? If there are any problems in the complex, the resident manager is probably the
first to know.

b. Board administration: Who is responsible for the decisions of the condominium? Are the
rules and regulations enforced and equitable?

4. Monthly maintenance fee

Find out the how much the current monthly maintenance fee is. Has it gone up over the past
few years? If so, how much? If the condominium is relatively new and you are buying from the
developer, compare the amount to other units with similar purchase prices in the area. It may
be unrealistically low. If you buy into a complex in this situation, you may find that the
association will systematically increase your fee over several years in order to catch up.

6. What kind of liens or encumbrances exists on the unit?

Are there any back taxes or unpaid assessments? If you do learn of any, make sure you know
who is responsible for these obligations before you are in escrow.

Working with real estate agents

Working with real estate agents can be both an enjoyable and extremely helpful experience. Be
aware, however, all real estate agents and brokers only make money by making a sale. This
doesn't mean that every agent and broker is in it just for the money. On the contrary, there are
many who are genuinely interested in their clients' desires and enjoy helping them make the
right decision. However, the bottom line is that an agent gets paid only after the property
changes hands, regardless of his or her personal sentiments. Realizing this, you should not

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assume you would get all the information you may need.
If you don't ask, you won't find out--so ask. An agent may not always volunteer
information on the ins and outs of condominium real estate. When you demonstrate a serious
intent to buy, you will be surprised how many agents will walk over hot coals to get you the
materials you ask for. You will find it useful to work with an agent or broker who is familiar with
condominiums. It will save you time trying to explain why you need some of the seemingly
obvious information.
There is another aspect beneficial to working through a real estate agent. If there is a
way to obtain financing in order to make the sale, they can help you find it. This doesn't mean
that an agent will work miracles or that every agent you meet will be willing hold your hand. The
more experienced agents will know something about financing and have connections in the
lending industry. This could be a benefit to you, but also note that it may not always be in your
best interest. Before you decide to have an agent locate financing for you, do some exploring
on your own first.

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3. The Paper Chase

At this stage, you may have selected a few properties that have the overall appearance and
elements you desire. But, before you fall in love or let an agent persuade you into signing on
the dotted line, stop and make sure you do not skip this critical step. It is absolutely essential
that you take a few necessary precautions in order to avoid the booby traps that many
unsuspecting buyers have fallen into before you.
Condominiums, like all good institution, thrive on paper. Ironically, this knowledge can
be extremely useful to you as the buyer. If you know what you are looking for, it should be
relatively easy to gather the appropriate information and documents. In most instances, it is
simply a matter of a few phone calls and some copying charges.
If you are entitled to a resale certificate or are covered by laws requiring the basic
information be disclosed to you, then double check to see if all the information is there.
The following check list will help you identify the most essential pieces of information that
you need in order to have a precise picture of the property you would like to consider. You
should not make a purchase decision until you receive, review and understand all of the
information below.

Checklist

1. Declaration and Bylaws

You should have both the declaration and bylaws for the condominium. The
amendments, if any, should also be attained.

2. Rules and regulations

The rules and regulations that cover the condominium and all amendment to these rules
should be reviewed.

3. Restraints
You should find out if anyone has the right of first refusal or other restraints that may
inhibit the smooth transfer during a sale.

4. Monthly and special assessments

You should know how much money will be due the association each month as well as
any special amount that have been levied against the condominium dwelling.

5. Delinquent assessments
It is also wise to learn about the how much money the association is owed by delinquent
homeowners.

6. Association debts
Knowing the current debts and obligations of the association will aid in your assessment
of the association.

7. Fine schedule
You should know the specific penalties, amount and terms applied for delinquent
payments and other violations.

8. Miscellaneous fees

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Does the association have other fees, such as move-in or move-out fees?

9. Future repairs or replacements

Does the association have plans for replacement or repairs to the condominium that
have not been specified in the budget or reserves?

10. Reserves
You need to know if the association has plans for the proper replacement and repairs
that will be needed in the future.

11. Annual budget and audit

A copy of the budget and the latest audit will aid in understanding the financial health of
the association.

12. Monthly or regular financial statements

The monthly or periodic financial statements should reveal how the condominium is
doing in comparison to its budget.

13. Law suits

Are there any lawsuits or judgments that involve the association?

14. Insurance
A copy of the insurance policy will help you discover the various elements of the
condominium that are insured and the extent of the coverage.

15. Property alterations

Has the unit or home you intend to purchase have any alterations that violate provisions
in the declaration?

16. Developer control

How many units does the developer still hold and is the developer in control of the
condominium's homeowners association?

17. Code violations

Are there any know building or health code violations?

18. Leased property

Does the association lease land or property that has a direct bearing on the owners of
the condominium?

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4. The Final Act

You should be able to make a few decisions after visiting a few places and reviewing the
background information. At this stage you can eliminate some of the condominiums that didn't
live up to your expectations. Hopefully, you will have a couple of attractive options that you can
pursue with the serious intent of purchasing.

Attorney assistance

To start, you should have an attorney who understands condominium law, review the
declaration, bylaws and all other pertinent documents. This is an expense that is worth every
cent. It could be very unpleasant to learn that you had misinterpreted a provision in the
documents that results in a disagreement between you and another party over your control or
ownership rights.
A good real estate attorney can be an indispensable asset when you are in the market to
buy property. An attorney who is familiar with the area should also be knowledgeable about
specific state statutes that pertain to condominiums. The regulations and legal requirements of
condominium construction differ from state to state. Some states have strict building codes
while others may have none. If you do intend to purchase real estate, it will be wise to spend an
equal amount of energy to procure an able attorney.

Private property inspection

After you are confident about the purchase of a condominium, you should consider a
professional inspection of the private property. If the seller will not provide this courtesy, then
the responsibility to inspect the private elements in the development will be yours. Unless you
have an educated understanding of construction, it is advisable to pay for an inspection prior to
a purchase decision.
It is important to note even though a condominium has been inspected and approved for
FHA and VA loans, it does not mean that the building is sound and will not have any serious
structural defects. Such bureaucratic forms of acceptance are not guarantees of quality and
safety. Many complexes have been known to suffer amazing disasters that passed inspection
by city, state and federal agencies.

The purchase offer

Once you have taken all the necessary precautions and have found the condominium you wish
to buy, you will need to make a proposal to the seller that outlines your intent and the conditions
under which you will purchase the property. This proposal is often called the Purchase Offer,
Purchase Agreement or the Earnest Money Agreement. It will have an expiration date before
which the seller will either have to accept the offer or make a counter proposal or reject the offer.
Commonly, the real estate agent will have a standard purchase agreement form. These
forms are standardized in most states and are preprinted in the proper format with routine
information. If you do not use an agent and wish to conduct the sale on your own accord, you
should be able to buy the preprinted forms with the fill-in blanks at most business supply stores.
There may be a special purchase offer form for condominiums in your area. Unless you have
extensive knowledge of real estate transactions and condominium law in you area, it is not
considered prudent to make such an offer without consulting a competent attorney.
The offer is traditionally accompanied by a token sum of money. In some states, one

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dollar is enough to validate the purchase agreement. Traditionally, however, the token amount
or earnest money, as it is frequently termed, is usually more. There is no set amount, but the
idea is that the money is a token of your intentions. The earnest money is commonly returned if
the seller does not accept the offer, but is often applied toward the down payment if the seller
agrees to the terms of the sale.

What is escrow?

When your offer is accepted, an escrow account is opened for the purposes of conducting the
proper procedures that will insure the legal transfer of the property's ownership. Escrow is also
sometimes referred to as closing or settlement. Even experienced investors often are confused
about the multiple tasks that must be completed during escrow. As new homebuyer, you should
enlist the services of an attorney who can guide you through this process.
Escrow is where the terms of your purchase agreement are resolved. If your purchase
is subject to obtaining financing, you will have to make arrangements with a lender at this time.
Generally, a title search will be conducted in order to insure that the seller has the legal right to
sell the property. Any other restrictions or requests will be resolved during the escrow period.
When all the necessary steps have been successfully completed, you will be asked to sign the
proper papers, which will ultimately result in your ownership in the property.

Financing

Most people finance the purchase of their homes. You will find that you can buy a condominium
in the same way that you buy a house. You may arrange for financing before or after you make
an offer to purchase. By qualifying for a home loan prior to a purchase you can avoid many
headaches. Keep in mind that the lending industry is extremely competitive in this area and it is
worth a look around for the most favorable terms and interest rates.
Home purchase financing has become more creative, flexible and elaborate than ever
before. This is primarily the result of deregulation and competition among lending institutions.
Remember that it pays to shop around. You should also be aware that loans do not always
come from banks. There are loan brokers who also have a keen interest in your credit
worthiness.
Consequently, it will be to your benefit to become familiar with all the financing options
open to you. This is important enough to repeat. There are many of financial options,
everything from government insured programs to individually designed rent-to-own contracts -
often termed lease option agreements. In some situations, the owner may have enough equity
in the property that he or she can act as a lender and create a purchase contract with you
directly. These are only a few ways to handle the financial transaction of real estate and
knowing more about them will almost certainly leave you in a better financial position.
A final word on financing. Don't get discouraged. New homebuyers often find that they
are not only overwhelmed by the complexity of real estate ownership, but also frustrated by the
high prices. Many people have bought homes for very little cash, through both hard and soft
markets. You will be surprised how far a little creativity can take you. The real estate industry
profits through the exchange of property. Remember this and take advantage of it.
If you are currently renting, you may find it interesting to calculate how much money you
will spend over various amount of time. Rent is money that you will never see again. Part of
the money you spend on mortgage will be applied to the principal and will become your equity.
The interest on home financing can often be deducted off your taxes.

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Glossary
Annual Homeowners Meeting · A meeting of the all the owners in condominium held usually at
the end of the association’s fiscal year.

Assessment · A sum levied on a property either based on an appraisal or a percentage of

ownership in the condominium.

Audit · An examination of the association's financial records.

Board · A group of elected homeowners charged with the responsibility of operating and insuring
the overall welfare of the condominium complex.

Budget · A financial plan, which projects the future expenses and income of the condominium.

Bylaws · A set of additional regulations and procedures that govern the internal operation of the
condominium organization.

Capital Reserves · A fund set aside for the repair and replacement of the common areas of a
condominium.

Closing · See Escrow

Committee · A person or group of persons appointed to study, investigate and form a

recommendation on specific issues.

Common Area · Materials and space that are jointly owned by all owners in a condominium
project. See also Limited Common Area

Condominium, Condo · A type of real estate ownership that consists of both commonly owned
and privately owned areas.

Conversion · A condominium that was transformed from a previously different purpose.

Co-operatives, Co-op · A type of real estate ownership that consists entirely of commonly owned
areas.

Declaration · The financial instrument that establishes the foundations of a condominium.

Deed · A legal instrument that conveys real estate to a purchaser.

Director · A condominium owner who is elected by the association in order to contribute to the
actions of the board.

Earnest Money · A sum of money given as a pledge that accompanies a purchase offer.

Easement · A privilege with limitations to occupy or use a specific area within an estate.

Equity · The portion of value in a property that is not financed or compromised.

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Escrow · A neutral third party whose purpose is to oversee that the proper conditions are met
according to the terms of the sale in order to insure the legal transfer of property.

FHA · The Federal Housing Administration, a branch of government that insures real estate
loans from default by the buyer.

Fiduciary · A persons who functions as a trustee. See also Director

Fiscal Year · A twelve-month period in which a complete accounting is made.

Homeowners Association · The collective body formed by the constituent owners of a

condominium.

Homeowners Insurance Policy · A separate insurance policy which protects the individual
owner's property.

Insurance Premium · A sum of money paid to maintain insurance coverage.

Limited Common Area · Material and space that are owned by all owners in a condominium but
are restricted in access and use.

Maintenance Fee · An assessment, a sum of money, which is charged to an individual unit or

property in order to pay for the expenses as described in the association's budget.

Management Company · A firm that is employed in order to aid in the operation of a

condominium complex.

Minutes · A written transcript or summary of a meeting.

Mortgage · A conditional transfer of property to a creditor as security for the repayment of a

loan.

Officer · See Director

Parliamentary Procedure · The rules and practices by which a deliberative assembly is

conducted.

Principal · The original sum of money borrowed excluding the interest.

Property Manager · Representative of a professional management company.

Proxy · A person or document that acts on behalf of another.

Purchase Offer · A prospective agreement outlining the terms under which a sale of a specific
property can occur.

Quorum · The number of members of a group that must be present in order to legally transact
business.

Reserve Report · An analysis of the condominium's common property which projects the

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necessary funds to make repairs or effect replacements. Also called Reserve Analysis.

Resident Manager · The on-site mangers of a condominium.

Robert's Rules of Order · An established procedure for conducting a meeting.

Routine Maintenance · The up-keep necessary to fulfill the expected useful life of an item or
area.

Settlement · See Escrow

Special Assessment · A special sum levied on a property for a specific purpose.

Special Homeowners Meeting · A meeting of all the owners in a condominium for the purposes
of discussing and resolving special issues which concern the whole condominium.

Title · The legal right to the possession of property.

Trustee · See Director

VA · The Veterans Administration, a branch of government, which makes real estate loans to,
verified veterans.

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