12 ways buying a condo is different than buying a home
Now is a difficult time to be a first-time homebuyer. For those who are ready to stop renting and own their own home, they’ve found that there aren’t a lot of homes for sale. This situation has been exacerbated by the pandemic and the historically low mortgage rates of the last year or so. Reduced inventory has led to high-stakes competition, driving home prices up and pricing many shoppers out of the market.
With this difficult housing inventory situation, many frustrated would-be homebuyers have decided to step out of the market. Starter-homes are going for McMansion prices in many areas across the country. But there is one type of home that’s not experiencing the same crazy situation—the condominium.
The definition of a condo:
A condo is a privately-owned residence that is part of a larger complex of homes. Condo owners are members of an association, and often have to pay condo association or homeowner association (HOA) fees. Condos allow you to enjoy the benefits of homeownership without the higher cost and added hassle of owning a house. Owners usually have access to condo-specific perks like general exterior maintenance and shared communal areas and amenities.
If you’ve gotten tired of being outpaced, outbid or just tired of being out there looking, a condo might be the solution for you. But before you start shopping for a condo you should understand how buying and owning one can be different than buying a house. Most people have an understanding of what it takes to buy a house and may not realize that some aspects of the process can be different when buying a condo. Don’t be surprised by these 12 things when buying a condo:
1. You’re also shopping for neighbors
A condominium is part of a community. You and your neighbors pool resources to create the shared amenities and pay for the upkeep of the property. Not only that, but in general you live in close proximity with each other, either in a single building or in a collection of buildings. You’ll be seeing a lot of each other.
A condo association takes that community one step further, by placing your fellow condo owners on committees and doling out responsibilities. We’ll get more into the association below, but needless to say, you’re going to be spending a lot of time living and working together with your neighbors.
That’s why you’ll want to try and get a sense of who’ll become your neighbors. Perhaps your agent can help you find out, or perhaps you can make a connection with someone who lives there and take them out for a coffee and get the inside scoop. Don’t be afraid to do a little social media stalking to see if any of your connections can introduce you to a resident in the community you’re looking at.
2. Budget for your HOA
Condo or homeowner associations stipulate that every member of the community pay a certain amount each month to pay for the upkeep of shared spaces. That’s not just the amenities of the condo community, but also trash and snow removal, security, pest control and some associations will pay for utilities.
Depending on the amenities and upkeep needed for these spaces, the price per member per month could range anywhere from $100 to thousands of dollars at the highest-end luxury condo buildings in New York and San Francisco. The national average for HOA fees is between $200 and $300.*
So when you’re calculating your monthly mortgage expenses, you’ll also have to add in the monthly HOA fee that you’ll be expected to pay. It’s easy to find out what the fees are, they should be disclosed on the home’s listing. Then you can compare these fees to what it would cost you for the same services if you were to pay for them by yourself. For instance, hiring a landscaper to care for your yard and garden at a house will likely cost more than your monthly HOA fee.
3. Consider amenities
Part of the allure of owning a condo is that you could also be getting access to a pool, a workout room or even a coworking space and conference room. These facilities are paid for by your HOA fees, and some can be pretty crazy.
Here are some of the more out-there amenities we’ve seen that come with a condo:
Those are fun and all, but most of them come at luxury condo buildings. Some of the more common amenities you may find include landscaped outdoor patios, doorman, playgrounds for the kids, dog runs and game rooms.
Keep in mind that the price of maintaining these fun amenities is wrapped into your HOA fees, so you’re going to be paying for them if you use them or not. That’s why it’s a good idea to focus on condo communities that include extras that you’ll actually use, so you’re not wasting your money on something like an in-house dog walker when you’re a lifelong cat-person, for example.
4. Complex decisions
Condo complexes can come in all shapes and sizes. Some consist of one large building like an apartment building. Others can be part of a larger complex featuring a series of buildings with four to eight units in each building. These are often built around a central amenity like a pool.
Some condos can be built like rowhouses or townhomes, where each unit has a street-facing entrance. Still other condo complexes may feature a neighborhood of buildings that look like houses but feature two or more units in each building.
The way the complex is laid out can have a huge impact on how people live in the community. Some layouts encourage social interaction in shared spaces. Other layouts may offer you more privacy.
Another aspect of the complex to consider is the association’s rules about subletting and short-term rentals. It’s possible that you may live next to a unit that is rented out to someone new every year or even every weekend. It’s also possible that you may want to rent your unit out yourself someday and make a little extra money. These are all things to take into consideration when looking at condos.
5. Consider the association
Everyone who owns a condo will have to deal with a condo association in some way. The association is usually made of other unit owners—your neighbors—and you work together to take care of the complex. A well-run association can make the condo living experience great, but a poorly run one can be a real headache.
Before you buy a condo, and by extension join the association, here are a few things to look at to make sure things are running smoothly:
Ask the association to see their budget to get a good idea of what your HOA fees are paying for. Will you have to pay for utilities like water, gas and electricity? What parts of the property will it be your responsibility to care for? And how much money is being held in reserve, should an unexpected expense for the association pop up?
Also, make sure that the association is using the money well and not running a deficit.
Last assessment, next assessment
An assessment is an additional fee that members of the association must pay for larger projects considered outside of typical maintenance. An assessment could be levied for something like a new roof, exterior painting or new heating system—the types of big expenses that come along due to normal wear and tear on the building. Or it could be something that comes up suddenly.
Ask when the association last called for a special assessment and if there plans to call for one in the future. These assessments can be very pricy, and you’ll want to know how often they could come up.
Ask to see the minutes from meetings
It’s common for a group of people in a community to disagree from time to time and depending on that group of people those disagreements can be friendly or contentious. No one wants to pay a lot of money to buy a condo, only to find themselves in the middle of a hornet’s nest when they attend their first association meeting.
Have your agent request the association’s meeting minutes for the last six months or so. You’ll be able to pick up on any ongoing issues that they face and get an idea how well the group works together to find solutions.
6. Getting preapproved takes more documentation
The lending process for a condo may be different. It’s best to connect with a loan officer who has experience closing loans for condos.
Your loan officer may ask for some additional documentation about the specific condo complex, before you can get your preapproval, information that you obviously wouldn’t get asked for if you were buying a home.
7. More for your lender to look at
When buying a house, a lender will look at your finances and the value of the home in making his or her decision whether to offer you a loan. Your loan officer may ask to see more information about the condo association when making their decision. This could include if the association has been named in any lawsuits, the percentage of the units in the complex that are owner-occupied and what insurance the complex has.
In addition, your loan officer may also consider the condition and value of the condo complex and the financial stability of the condo association. This can sometimes lead to a mortgage rate that is a little higher for a condo than a single-family home. This rate prices in the risk of community-living, where there are some things that are out of your control.
8. Rules and regulations
When you go from being a renter to an owner, it’s fun to think of all the things that you can do in your home without worrying about what a landlord may say. But if you’re going to own a condo, you may have to cool your DIY jets a little bit.
The condo association generally has their own set of rules and regulations that limit what you can do in and around your condo. Some common restrictions include:
Common Condo Restrictions
- Defining what is considered “common areas” and determining the use and maintenance of these spaces
- Limiting noise and nuisances inside your unit and in common areas
- Deciding what pets and animals are allowed in the complex
- Issuing parking rules and limitations
- Maintaining the building, including limiting what changes an owner is able to make to his or her unit
Make sure you ask for a copy of the association’s rules and regulations before you put an offer in on the condo. You may find out that some of the rules will severely limit your ability to enjoy your own home.
9. Cheaper insurance
Condo insurance is generally less expensive than homeowner’s insurance. That’s because it works in tandem with the insurance policy that the condo association takes out on the buildings and common areas. Condo insurance typically covers the property inside your unit, like your personal belongings, whereas homeowner’s insurance covers personal belongings, plus the building and property. That difference can translate to a lot of savings.
10. Less work on your part
Perhaps one of the most well-known perks of owning a condo is that there’s no lawn to mow, no gutters to clean and no leaves to rake. In general, those responsibilities fall to the condo association, which may hire out a landscaping service or some other help to maintain the property.
Keep in mind that this isn’t a free perk. This maintenance makes up a major part of the HOA fees you pay each month. It’d still likely be less than what you pay for these services if you owned your home, and one way to think about it is that you’re paying to have weekends free of yard work for as long as you live there.
11. Resale issues
If your condo is going to be your first home, it’s likely that eventually you will sell it and move onto something grander. It’s smart to start thinking about what it’s going to be like to put your condo back on the market after you’ve lived there for a few years.
The financing can be more difficult for a condo, and since a lender will be looking at the condo association, it’s important that it’s well-managed. As a member of the association, you’ll be able to help make sure it is!
Perception of the complex can be as important as curb appeal when you put your condo on the market as well. A complex with a number of units for sale could be seen as a red flag for potential buyers, so you may want to plan when you put your condo on the market accordingly.
12. Condos are cheaper
The housing market has always been dominated by buyers looking for a house to call home. And that has kept the price of condos down, lowering the entry point for first-time homebuyers. In fact, in 2020 the average home sold for 17.3% more than the average condo, the greatest difference since 2013, according to Redfin.
But, that difference may not last for long. According to that same Redfin report, condo sales are rebounding, partially due to the lack of single-family homes for sale.
Whether you live in a single-family home in the middle of a field or in a penthouse at the top of a condo building, home is where you make it. Despite the differences you may find when purchasing a condo, that doesn’t change the benefits of being a homeowner. And once you move in and start filling it with your memories, that will be the greatest benefit of owning a condo.
* From Everything you need to know about HOA fees by Zach Wichter, bankrate.com
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