Thinking Of Buying A Condo?

Life in a condominium comes with its own unique set of community living arrangements with shared spaces and expenses, an association made up of all owners, an elected board of directors, common ownership elements, and shared maintenance fees. Here are some major things to consider before buying a condominium.

Declaration, bylaws, rules, meetings and minutes

Condominium living requires that residents give up some of the typical homeownership freedoms to enjoy the shared benefits. Part of making this work requires an association governed by a board of directors.

The board of directors, elected by unit owners of the condominium, makes decisions in running the condominium and owes a fiduciary duty to the association. These decisions involve financing repairs, hiring contractors and employees, managing various committees, determining maintenance fees, and acting against residents who violate the rules. Boards are required by law to meet regularly and keep track of what was discussed via minutes.

Request copies of recent minutes to see what is being discussed. Before making the purchase, you should be aware of any current decisions and how it may affect you.

Ask whether you can attend a board or association meeting to see how the meetings are run.

The board of directors governs the condominium through rules and regulations. Found in the declaration, bylaws, and house rules (if any), these regulations normally describe shared living issues such as how the gym is to be used, fines are assessed, and voting on key issues. The regulations usually dictate the types of allowed activities, quiet times, and aesthetic requirements. These regulations attempt to keep the condominium project civil and orderly and preserve property values.

Request a copy of all governing documents with all amendments to make sure there are not any deal breakers, such as a complete ban on pets or smoking. While it is possible to change documents, it is a difficult process.

Budget, reserves and audits

Condominium living allows many owners to pool resources to maintain the project and amenities which may otherwise be unaffordable. These amenities are expensive to maintain, and it is the obligation of owners to timely cover their portion of common expenses regardless of personal usage. The budget of a condominium shows the planned spending for the year. Ask for the budget to see whether the association is prudently spending and saving.

Pay attention to the cost of the upkeep of the amenities and the amounts in the association’s reserve fund. The reserve fund is basically a “forced” savings account for future foreseeable expenses. A reserve study shows when important parts of the project will need to be replaced and how much the condominium has saved to pay for those replacements.

Request a copy of the reserve study. If the reserve study is old or non-existent, the condominium may have large repairs coming due with little to no money and resulting in large special assessments or loans for all owners. A fiscally responsible condominium will normally have a sizable, growing reserve fund that should buffer owners from huge special assessments. Please remember increased maintenance fees are usually unavoidable and should be expected to a certain extent.

Inquire as to when the last audit occurred. Regularly scheduled audits keep finances transparent and precise, whereas infrequent infrequent or no audits may raise red flags.

Management company

Find out how long the agent/account executive (if one) has been managing the condominium. Longevity may suggest stability and the agent may be more knowledgeable and responsive about the historical issues related to the condominium, board, and association.

Litigation

Is the association being sued or suing? If so, about what? Pending litigation may foretell special assessments, as well as suggest bigger problems.

Positive results

Prepared with this information, hopefully you will be able to more wisely make decisions about one of the biggest purchases of a lifetime.

For more information, please visit hawaii.gov/hirec or contact the Hawaii Real Estate Branch at (808) 586-2644

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