Mike Bates Realtor – Alabama Condo Buying Guide – Home Owners Associations / Condo Owners Associations:
Homeowners Associations or more correctly Condo Owners Associations are often miss-understood entities when you are considering purchasing your beach condo. Home Owners Associations or normally associated with single family developments and Condo Owner Association with common structures that are comprised of multiple units. The terms are used interchangeably even though in theory they should not.
When you purchase a condo you are buying the airspace comprised within that unit which must be enclosed and housed within the floor, ceiling, and walls of the structure. You are also purchasing joint ownership of the common elements, structures, and any amenities that are present.
A set of Condo Owners Association documents include:
- Declaration of Covenants and Restrictions
- Condo Plat
These documents are public records and are recorded in the local county records whereas Homeowners docs for single family residential developments are generally not recorded.
There are usually 2 types of common elements within a complex – General Common Elements and Limited Common Elements. General Common Elements are items such as pools, elevators, sidewalks, parking lots, etc. while Limited Common Elements are usually associated with the balcony or patio for each unit and even certain parking spaces within the complex. When buying a condo and reviewing their association documents it’s important to understand if the maintenance of the limited common elements are responsibility of the owner or of the owners association (it can vary). In most complexes the actual maintenance of the back patio is the responsibility of the owners association. Front door, back doors, and windows are usually the responsibility of the owner with a requirement they conform to building guidelines.
Owner Association dues can cause sticker shock to many buyers however, if you break the costs down of what most HOA’s cover you will find they are not too far different from if you had to pay each separately for a house. Most COA dues cover the following:
- Basic Cable
- Pest Control
- Building and common element insurance
- Building and common element maintenance
- Internet and Phone are becoming more common inclusions
- Reserve Funds
- Owners Association administrative needs
You Association fees are handled by the Board of Directors that were selected by the unit owners. They decide on which projects to undertake based on the funds at hand and the priority of addressing certain needs of the complex each year. When purchasing condos in our areas you will hear 2 types of ‘assessments’ often mentioned:
Insurance Assessments: When the building insurance comes due each year some complexes will assess owners their portion or a subset of the premium due. This happens in many complexes that simply don’t have the reserves to budget and pay for each years insurance premium. The amounts can change each year depending on that year’s insurance premium. These assessments are usually a single payment arrangement and have become more prevalent since Hurricane Ivan.
Special Assessments: These are assessments usually occur for either building of reserve funds or large projects where there is not enough money in the reserves (ex. new roof on the building, new windows and doors, and so on). These assessment can be paid out within the same year or spread over multiple years depending on the project being addressed.
So how does a Property Owners Association have anything to do with your mortgage loan? In reality it has quite a bit to do with how much will be required for you to put down as your deposit when purchasing a condo. In another blog I will go more in-depth on this subject but it’s important to understand at the highest level that the Owners Association financial strength must meet certain minimum criteria for banks or mortgage companies to make a loans associated with that complex based on how much you put down as a deposit. Some of these are Fannie Mae or Freddie Mac federal guidelines but many financial institutions have their own rules. Sometimes termed “overlays”, on top of the federal requirements.
Thus, if you want to buy a $300k condo and can only afford to put 10% down then it’s very important to know which complexes might have already been identified as 10% down complexes before you start looking. It can save a tremendous amount of time and pain for both yourself and the seller if you know this before you start as opposed to finding out 3 weeks into the loan process that an underwriter doesn’t like a certain owner association financials and won’t make the loan. When making an offer on a condo property you should always add a contingency to the purchase agreement to be able to review the HOA documents, financials, board meeting minutes, any identify if there any outstanding assessments or litigation information that needs to be disclosed.
Baldwin County Condominium Owners Associations Guide by Mike Bates with the Jason Will Real Estate Team 214-274-6860.