This article will ... Explain why it’s important to understand the homeowners association’s rules and finances. Describe strategies for identifying hidden problems that could be expensive to fix. Point out certain quality-of-life issues you might face and ways to minimize them.

While owning a condo or townhome can be simpler than owning a house, buying one is arguably more complex. That’s because you’re not just buying a home; you’re buying into an association. You and all the other owners will share responsibility for building maintenance and community standards.

It’s not enough to make sure the unit itself is in good condition; you also need to make sure the homeowners association (HOA) and management company know what they’re doing. There may be some unglamorous but essential things you need to examine before buying a condo or townhome.

HOA fees

As a condo or townhouse owner, you’ll pay HOA dues to cover shared responsibilities, such as landscaping, pest control, and maintaining the building’s exterior and common areas. Low HOA fees might seem like a bargain, but they’re typically a red flag for neglect.

You want the HOA’s fees to be high enough to cover both monthly operating expenses and future repairs. If they aren’t, you could find your ceiling caving in under a leaky roof and your budget collapsing under a huge supplemental HOA fee called a special assessment.

“Just like some people save for a rainy day, and others simply figure it out later, HOAs and condo associations are similar,” said Katie Wethman, managing director of My Move DMV Real Estate Professionals, serving Northern Virginia and Washington, D.C. “Some states have requirements about how much must be put into the HOA’s reserve fund, while others don't. Similarly, some states require a reserve study periodically to estimate those future repairs.”

HOA financials

Just like you wouldn’t share your credit report on a dating website, an HOA’s financial statements aren’t available in real estate listings. These private documents are only available to those with serious intentions. You’ll need to make a purchase offer that the seller accepts before you’ll receive the association’s budget, financial statements, and reserve study.

To protect yourself, you can include a contingency in your purchase agreement that gives you a reasonable number of days to review these documents and the opportunity to exit the agreement without penalty if the HOA’s financials are unsatisfactory.

“Though it can be tedious, homebuyers need to review the reserve study, in particular, to make assessments about future financial obligations that the owners will face,” Wethman said.

Consider hiring a financial planner or accountant to review the HOA’s budget, financial statements, reserve study, and building insurance policy. (Related: 3 ways a financial professional adds value)

Inadequate insurance can also lead to special assessments on homeowners to pay for what should have been a covered loss.

It’s also important to review the HOA’s covenants, conditions, and restrictions (CC&Rs); bylaws, and meeting notes. These documents will tell you what rules you’ll have to follow and what problems the HOA board has addressed. And, in many jurisdictions, you can pay a few dollars to search for case documents on the courthouse website to find out if the HOA has been sued, why, and how the case was resolved.

It’s a good idea to get help from trained professionals who can tell you how well the HOA is run and how its rules and financial condition could affect your investment and quality of life. Some real estate agents may have these skills, but others may not have the legal or financial expertise to offer a thorough analysis — or might care more about making the sale than your well-being.

Rental rules

One important HOA rule to be aware of is whether owners can rent out their units, how often, and for how long. These rules could make or break your experience and even impact your ability to get a mortgage. (Related: Shopping for a mortgage)

As an owner-occupant, you may not want to live in a community where most of the units serve as rentals — especially vacation rentals. Visitors may not be as courteous as long-term neighbors and may not care for the property as well. But if you hope to buy another home in the future and keep your condo as an investment property, you might prefer a community with minimal rental restrictions.

Due to mortgage investor guidelines, however, it can be challenging to finance a condo in a building where too few units are owner occupied. It can also be harder to get a mortgage if one entity owns multiple units, too much of the building is dedicated to retail or commercial use, the building has significant deferred maintenance, or the HOA is facing a major lawsuit.

Hidden problems

No one wants to buy a home with hidden problems that will require expensive repairs. Ideally, you would know about the home’s every flaw before you even make an offer, or at least have inspection contingencies in your purchase contract that let you back out without penalty.

“The reality is that we can never have a complete understanding of a property before making an offer — especially when submitting a noncontingent offer,” said Ying He, a Realtor with BarbCo in San Francisco.

There are a few ways you can minimize the risk of overlooking significant problems:

Review seller disclosures. “Sellers are obligated to disclose any known issues with the property, especially major concerns, such as water intrusion or foundation problems,” He said.
Get professional inspections. Inspection reports may be available from the listing agent if the seller obtained any presale inspections. A good agent will help you decipher these reports. “If needed, we can reach out to the inspectors directly to clarify any details and ensure we fully understand the findings,” He said. “If time allows, we may also arrange for additional inspections by our own certified inspectors, contractors, or other experts. A good example of this would be arranging a mold inspection if the initial report suggests potential mold issues.”
Review HOA meeting notes. They may reveal recent roof leaks, plumbing, and other problems. Even if the problems aren’t specific to the unit you want to buy, they could be predictive of future issues.

“There will always be some level of risk involved,” He said. “Our role as Realtors is to educate our clients, helping them understand and mitigate those risks as much as possible.”

Quality-of-life issues

With shared hallways, walls, and courtyards, you might be concerned about your personal space and solitude in a condo or townhome. It may be easy for neighbors and visitors to see into your windows, know when you’re coming and going, and listen to your conversations. The property’s overall layout and the unit’s location within the complex can make things better or worse in this regard.

If you want to buy a condo, but you’re concerned about noise and privacy, “I say go for the upper unit if that's an option,” said Cari McGee, a Realtor with the Cari McGee Real Estate Team serving Kennewick and the Tri-Cities area in Washington state. “Also, try to be at the end of a group, but not at the end by the street.”

Even professionals sometimes learn lessons the hard way. McGee said that a few years ago, she sold some clients a wonderful condo near a marina and restaurants. “The condo is right by the road, so they hear traffic going to and from the restaurant at all hours,” she said. “We hadn't even considered that before they bought it.” In the excitement over the location, they all forgot to consider how road noise might affect living in that unit.

Noises and nuisances aren’t always obvious when you view a listing or tour a home.

“Depending on the time and day of the showing, these issues may not be immediately noticeable,” He said. “I always advise my clients to visit the property multiple times to get a full understanding.”

“For example, if there’s a school nearby, it's crucial to visit during drop-off and pick-up times. If there’s a train station nearby, we should be there when a train passes to assess whether the noise level is something the potential buyers can tolerate,” He said. “Similarly, if there’s a fire station nearby, it's important to gauge how frequently fire trucks go out and how much impact the noise might have.”

Experts in your corner

There’s a lot to consider about a condo or townhome before you buy it. Beyond whether you like the location, price, and layout, it’s important to understand the HOA’s rules and financials, how well the unit and entire complex have been maintained, and what privacy and noise issues you might face.

Working with a team of trusted experts — including your real estate agent, attorney, and mortgage lender — can help you make better decisions than you might make alone. If you’d like an expert opinion on whether you’re financially ready to buy a home, reach out to a MassMutual financial professional. They can take a look at your big picture, suggest risks and opportunities you may not be aware of, and help you make a plan.

Discover more from MassMutual…

Owning vs. renting: A guide for renters considering homeownership

Borrowing from your 401(k): The risks

Why you need both life and disability insurance

_________________________________

Home

Tips for first-time condo or townhouse buyers | MassMutual