Buying a Condo

A condominium is a type of property that is owned by more than one person. Typically, a condominium property consists of a large complex of apartment-like units or townhouses. Each of these units is owned by a different owner. In such a situation, a unit owner owns everything inside his unit, including the walls. However, the individual owners share rights to the property’s other areas, such as elevators, pools, fitness centers, lounges and hallways.

The Association: One of the advantages of a condo is that the individual owners don’t have to handle exterior maintenance and repairs. For example, there is typically a property manager who is responsible for making sure that the grounds of a condominium are kept in good repair. If there is grass to cut, the association typically takes care of it. Things that need repairing inside a unit are handled by the owner of that particular unit.

Condo Fees: With condo ownership,  a unit owner is not responsible for exterior maintenance and repairs, but does help to pay for it. This is done through the monthly condominium association fees. Additionally, there may be special assessment fees, which are sometimes charged to each unit owner. A special assessment fee may be charged on a one time basis when the entire condominium property needs roof work.  In most cases, condo fees include building insurance and maintenance, management fees, and water.  Some complexes include utilities in thier fees that are higher than in those buildings that do not cover these expenses.  Fees are calculated on a per sq ft basis.

Perks: Some people consider condominiums good buys because they offer perks that a person may not be able to afford on their own. For example, in a condo, you get use of a pool, recreational center, tennis court, basketball court, and clubhouse as part of the deal.  There would be no need for additional gym or club memberships.

Location: Many condos are built in urban areas, making it possible for people to get to work easily. Others are built in suburban areas within close proximity to highways and public transportation. It’s a good idea to consider the surrounding area and whether or not a condo property is likely to appreciate in value, based on expectations for the area in which it was built.

Price: Some condos may be less expensive than single-family homes. However, this depends on the particular condominium. While a lower price for buying a condo may sound like a good deal, the condo fees and upcoming assessments are a huge considerations when gauging the affordibility of the unit.  Condos in Florida sell from $9,000 to over $30,000,000.

Restrictions: Almost all residential condominiums regulate pets, children, re-sale and leasing, and other matters of concern to the owner of a condominium apartment. Specific information is contained in the Declaration of Condominium and its attachments.  You and your attorney should read these documents carefully to determine if you will be comfortable with your rights and obligations as an owner.

Know Before You Buy:

• The monthly or quarterly assessment you must pay recognizing that it may increase in the future
• Restrictions on your right to sell, lease, mortgage or devise your apartment
• Restrictions on the age of children who may use the pool, beach or other facilities
• Restrictions on pets
• Restrictions on parking any vehicles or boats, other than regular passenger automobiles
• Restrictions on types of renovation materials, window hangings, furnature allowed on balconies
• Your obligations as to maintenance of windows, screens, air conditioners, plumbing, etc
• Whether or not there are mandatory club memberships in connection with the condominium
• Limitations on use of recreational facilities, playing stereo units and musical instruments at night

 PURCHASING A RESALE CONDOMINIUM

Locating the right condo unit can easily be achieved by working with a competent real estate broker. There are many factors to consider, such as location, amenities, and investment potential. The title holder to the unit you chose may be a private individual, bank, or corporation, so there may be many different decision makers when negotiating the deal. Closing the real estate transaction is done through a title agent or attorney. The steps to this process are:

1. Successful negotiation: Agreeing on terms of price, closing date, and conditions.  In Florida, the most common consitions are financing, general inspection, mold inspection, 3rd party approval for short sales, approval from condo association, and review of condo documents and finances.  Once all terms are agreed on a deposit is made to show good faith.
 
2. Satisfying conditions: Once all the conditions are met, a second, usually larger deposit is made. Total deposits can range anywhere from $2,000 to $50,000, depending on the price range of the unit and owners request.

3. Ordering Title: The next step is to select a title company or attorney to prepare all the documentation for closing.  Generally it takes about 2 weeks to finalize a sale once all conditions are removed.

4. Processing the file: Tax information, loan payoffs, homeowner and maintenance fees, inspections/reports, and hazard and other insurances as well as legal papers are ordered and title commitments/preliminary reports are reviewed and sent out.

5. Title Search: Public records are reviewed. Records searched include deeds, mortgages, paving assessments, liens, wills, divorce settlements and other documents affecting title to the property.

6. Title examination: Examination of the documents found during the title search that affect the title to the property. This is when verification of the legal owner is made and the debts owed against the property are determined.

7. Review lender instructions: If there is a mortgage payoff or a new mortgage going on the property, instructions are reviewed along with a review of the legal and loan documents, assemble charges, and then closing statements are prepared and closing is set.

8. Escrow/Settlement: An escrow officer oversees closing of transaction. Seller signs deed, buyer signs new mortgage if applicable, old loan is paid off, new mortgage is signed. Seller, real estate agents, attorneys and other parties to the transaction are paid. Documents are recorded in the county in which the property is located.

 PURCHASING FROM A DEVELOPER

Pre-construction condos are units that have been proposed by a developer, but have not yet been built. When you purchase a pre-construction unit, you are putting money down before construction begins. The main advantage to buying into a condominium development before construction starts is that you often get a lower price than if you buy when construction is complete. The reason for this is that developers typically need pre-construction sales of 50 percent to 90 percent of the units in a development before they can borrow funds to begin construction. In addition, you can often choose from a variety of finishes and flooring options, allowing you to customize your home.  There are several steps to be aware of when buying a pre-construction condo. They can vary from developer to developer, but the basic components are:

1. Reservation Agreement: You give a deposit (usually between $5,000 and $10,000), to reserve the unit and set the price. Be aware that a builder can reserve the right to change the price on the contract.

2. Condominium Documents: When a developer is approved for construction, the developer submits condominium documents (including budgets, association rules, unit descriptions, materials, and other important information) for approval by the state. Once the documents are approved, they are sent to the buyer for review.
  
3. Right of Rescission: Once you receive the condominium documents, you have a 15 day period to decide whether you would like to proceed into a binding contract. If you don’t, you can exercise your right of rescission and withdraw with a full refund.

4. Hard Contract: If you decide to go through with the purchase, you’ll then provide the balance of the required Down payment – usually 15% to 20% of the purchase price, and sign a binding contract agreeing to purchase the condominium. Once you receive the condominium documents, you have a 15 day period to decide whether you would like to proceed into a binding contract. If you don’t, you can exercise your right of rescission and withdraw with a full refund.

5. Closing: When construction is finished, the developer will issue you a Certificate of Occupancy. A closing date is set when you pay the balance of the purchase price and sign the final documents.

 COSTS

Title Costs

*Above example for Palm Beach County.  Costs will vary in different counties.

Transaction Costs

*NOTE – In negotiating SHORT SALES, sometimes the buyer and seller will have to come up with additional funds for deficiency on a secondary mortgage and or condo fees in arrears.

 RECISSION PERIOD

If you are purchasing a unit from a developer there are 15 days to “rescind” the contract, meaning to change your mind and not go through with the purchase. If a buyer is purchasing a resale unit either privately or through a broker, there are 3 days to back out. This statute is a great benefit to out of town buyers, who may have to make a fast decision and submit an offer to secure the property before seeing it. They would have time to fly down for an inspection before making their commitment to purchase.  Many investors purchase properties in this manner.

 LONG DISTANCE CLOSINGS

Electronic fund transfers, fax machines and overnight couriers are making it more and more common to conduct closings from across the state or across the country. In such cases, you have all necessary paperwork couriered to you for signatures, and you simply send back. When the closing agent, keeper of all the documents, receives everything in good order, he or she proclaims the closing official and the keys are sent out to the buyer.

 TITLE INSURANCE

When purchasing a home, instead of purchasing the actual building or land, you are really purchasing the title to the property, the right to occupy and use the space. That title may be limited by rights and claims asserted by others, which may limit your use and enjoyment of the property and even bring financial loss. Title insurance protects against these types of title hazards.  Other types of insurance that protect your home focus on possible future events and charge an annual premium. On the other hand, title insurance protects against loss from hazards and defects that already exist in the title and is purchased with a one time premium.

Lender Protection

Most lenders require mortgagee title insurance as security for their investment in real estate, just as they may call for fire insurance and other types of coverage as investor protection. When title insurance is provided, lenders are willing to make mortgage money available in distant locales where they know little about the market. 

Owner’s Coverage

Owner’s title insurance lasts as long as you, the policyholder – or your heirs – has an interest in the insured property. This may even be after you have sold the property.

Concerns

Title insuring begins with a search of public land records affecting the real estate concerned.  An examination is conducted by a title agent or attorney on behalf of its underwriter to determine whether the property is insurable. The examination of evidence from a search is intended to fully report all “material objections” to the title. Frequently, documents that don’t clearly transfer title are found in the “title chain,” or history, that is assembled from the records in a search.  Such examples are:

• Deeds, wills and trusts that contain improper wording or incorrect names
• Outstanding mortgages and judgments, or a lien against the property because the seller has not paid his taxes
• Easements that allow construction of a road or utility line
• Pending legal action against the property
• Incorrect notary acknowledgements

Through the search and the examination, title problems are disclosed so they can be corrected whenever possible.  Title insurance offers financial protection against these and other covered title hazards. The title insurer will pay for defending against an attack on title as insured, and will either perfect the title or pay valid claims.