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

Contents
About this book Introduction PART ONE: Condominium Basics What is a condominium? Condominium definition Different types of condominiums New Construction and conversion Co-operatives Condo or condominium? Apartment or condominium Common Area What is common area? Percentage of ownership Homeowners association Limited Common Area What is limited common area? Why is it considered common area? Why is it limited? Routine maintenance Private Domain Which areas are private? Use of private property PART TWO: Condominium Management Basics Legal Foundation The Declaration Key features The bylaws Renting regulations Homeowners Association Membership Voting procedures Homeowners meetings Board of Directors Who they are Election of board members Board responsibilities Management Companies Reasons for management companies Services Resident managers Legal Support 16 7 5 6

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PART THREE: Condominium Financial Basics Maintenance Fee Homeowners monthly fee List of expenses The annual budget The audit Reserves The need for reserves Reserves as part of the budget Special Assessments Use of special assessments Power to pass a special assessment Insurance Insurance coverage Premiums Homeowners coverage PART FOUR: Condominium Investment Basics State laws Is a Condominium for you? Condominiums vs. Houses Conversion vs. New Constructions Other types of condominiums 2. Who, What, Where and How Much? 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 Checklist 4. The Final Act Attorney assistance Private property inspection The purchase offer What is escrow? Financing
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Glossary figure 1: Condominium unit floor plan figure 2: Sample annual budget figure 3: Sample ownership percentages

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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

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.

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

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 termcondominium. 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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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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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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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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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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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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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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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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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 heldoften 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-atLarge 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 100 Pine Street Pine City, USA 98/99 ANNUAL BUDGET

INCOME Maintenance fees Laundry Late Charges TOTAL INCOME OPERATING EXPENSES Payroll-Salary Payroll-Taxes & Insurance Accounting & Audit Insurance Legal Maintenance & Repair Maintenance fee manager's unit Cleaning Management Fee Supplies Income Tax Miscellaneous Landscape maintenance Rent-manager's unit Cable TV Electricity Elevator Telephone, Security intercom Water, Sewer & Garbage TOTAL OPERATING EXPENSES RESERVE SAVING Capital Repair Reserves TOTAL OPERATING EXPENSES AND RESERVES NET INCOME (LOSS)

$100,000 $900 $1,000 $101,900

$12,300 $2,500 $1,400 $7,400 $2,000 $5,000 $1,000 $2,100 $10,000 $2,000 $2,500 $600 $2,000 $7,650 $7,400 $6,500 $3,000 $1,000 $14,300 $90,650

$11,250 $101,900 $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 OWNERSHIP 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 1.32 0.92 1.34 0.91 1.33 1.26 0.98 1.09 0.97 1.37 1.32 0.92 1.34 0.91 1.33 1.26 0.98 1.09 0.97 1.37 MONTHLY ASSESSMENT $110.00 $76.67 $111.67 $75.83 $110.83 $105.00 $81.67 $90.83 $80.83 $114.17 $110.00 $76.67 $111.67 $75.83 $110.83 $105.00 $81.67 $90.83 $80.83 $114.17

UNIT

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. Homeowners coverage Knowing that the association's insurance ends at your doorstep, your private property will be your responsibility. Many insurance companies have a homeowners 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 homeowners 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 its 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? 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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Condominium Basics

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. amendments, if any, should also be attained. The

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 associations 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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