Condo Purchasing Tips
Several years back, Kentucky passed a law (search for KRS 381.9101 to 381.9207) requiring people selling condos to provide certain information to buyers. The seller must provide a Condominium Sellers Certificate within 10 days of an accepted contract. The buyers then have 5 days to review the information and may back out with a full refund of earnest money if they are not satisfied with the status of the condo association. The Certificate provides key information about the condo such as disclosure of any pending lawsuits, pending assessments, association contact information, sale restrictions, monthly fees, planned capital expenditures, and reserves. Attached to the Certificate will be the annual budget, proof of insurance, bylaws and the master deed.
Here are some things to check for in the bylaws and master deed. This isn’t a complete list, just some items that come up frequently with condos in general.
Pets. If you think you will want pets or have a strong objection to pets, look for a rule on this.
Renting. A small amount of renting can be a convenience to owners but if too many units are rented instead of owner-occupied, there may be difficulty for buyers in obtaining financing. Additionally, renters may not always show as much involvement/commitment to the community as on-premise owners. The best situation is if the association allows a limited percentage of units to be rented (maybe 20% or less). Then if you decide to move in the middle of a downturn or if you just need to be gone for a year or two, you may be able to rent out your unit until prices recover or you return. Also find out about short term rental rules (any rental of 30 days or less). If you happen to purchase next door to a unit that is rented out for short term rentals (bachelor parties, etc), it may diminish the value of your property.
Management succession. In the past, some boards were self-perpetuating, but that may have been outlawed. Ideally the whole association gets to vote on who the board members are. Check for this and other rules governing association practices.
Special assessment at transfer. Sometimes at purchase you are required to pay at closing, on top of the regular monthly fee, the equivalent of X times the monthly fee. This goes into the reserve fund or for common expenses. You may or may not get it back when you sell.
Condo governance. When a condominium is first built and there are no owner-occupants, the developer controls all of the decision making. The master deed typically will spell out at what point the developer cedes control to the owner-occupants. Typically it is defined as a percent of ownership such as when 75% or 90% of all planned units have been sold. The earlier buyers of condos in a new association have no voting voice in decision making, so that should be taken into consideration.
Parking. Some condo associations have assigned parking. Others have space on a first come, first serve basis. Be sure to understand the situation and find out if assigned parking spaces are included in your deed.
Home business. See if there are any restrictions on this should you operate your business out of your home.
Board minutes. You should ask for the minutes from at least the last three condo association meetings. Often the meeting notes contain issues that are not covered in the Condo Seller’s Certificate. For example, if the building has an old roof and there is talk of replacing it at a fairly high price, it may one day, after your purchase, become a large assessment. Technically, if it has not yet been voted on/approved prior to your purchase, it may not need to be disclosed in the standard documents. If you are aware of it prior to closing, you can try and negotiate an escrow amount to cover it funded by the seller. Once you close, it’s too late.
Insurance. While you will get proof of insurance with the Condo Seller’s Certificate, you may want to have it reviewed as early as possible by your lender’s underwriting department. Sometimes the insurance may not be sufficient, in the underwriter’s eyes, to cover full replacement of the building. It’s much better to find that out early on than a few days before closing.
I strongly recommend reading all of the documents or having an attorney review them on your behalf. Realtors are not allowed to interpret them since that can be construed as practicing law. You can also have a condo association official interpret them for you. BE SURE to get their interpretation(s) in writing. Verbal assurances don’t count in Kentucky real estate law.