Your Condo Purchase-Treat It As An Investment

Condominium purchases by their nature involve property rights that are more complicated than typical single family lots or properties.  We have written several blog articles relating to investigations that buyers and their realtors should undertake prior to their purchase (links are included at the end of this blog).

It is said that ownership of real estate is really only the ownership of a “bundle of rights”.  For condominium units, there are extensive restrictions on those bundle of rights, which must be carefully evaluated similarly to how a small business investment must be reviewed. The points below are applicable to buyers and all involved agents.  Perhaps even more importantly, a listing agent who is prepared to provide this information or point the buyer to the source, will be able to get through contract negotiations more quickly and reduce disputes and misunderstandings both before and after the closing.

    1. Condominium Documents – Take the time to read the condominium documents.  There is extensive disclosure obligations of condominium developers, and somewhat less disclosure obligations of Sellers of condominium units.  But a buyer should also request documentation beyond what may be the statutorily required disclosures, along the lines of what is described below. This can include the past year’s Association meeting minutes and a record of assessment increases and special assessments for current and prior years.
    2. Management of the Association – Professional management is important to the smooth operation of the association. A licensed condominium manager is required to obtained association management training.  They will also serve as a valuable resource for information about the status of the Association and some of the other important items discussed below. A good Association manager will also respond to requests in a non-biased and timely manner.
    3. Budget Issues and Financial Information – This information is useful to evaluate the quality of the operation of the Association currently and in the future (i.e., the likelihood of special assessments).  A fully funded reserve account reduces the likelihood of unanticipated future expenditures. An older complex should have higher reserve amounts, and most importantly, management should have undertaken recent reserve evaluations for accuracy.  If unit owners vote to not fully fund reserves, that may also be an indication of absentee ownership and insufficient maintenance, which could limit the availability of federal loan programs for purchases and re-finances.
    4. Litigation Status of the Association – Pending or threatened lawsuits also are a possible harbinger of future increased or special assessments.  These could relate to developer warranties, collections/delinquencies, enforcement and construction related issues. While not a disqualifying factor, the extent of litigation could be a harbinger of assessment increases.
    5. Rules and Restrictions – Buyers are usually concerned with the type of restrictions that are imposed on owners in the community. These would include pet, children, guests, property usage, and esthetic restrictions, among others. Of great importance are the rental restrictions (investors do not like them, permanent owners will require them). This is another factor that federal loan programs use to approve or disqualify a project from their underwriting criteria.
    6. Amenities and Common Elements – Buyers must understand all of the common elements and amenities that come with the condo unit.  This could include parking spaces, storage spaces, docks, patios and other areas and structures that an owner might think they possess and have control over.  The reality is that most of these elements are owned by the Association, and the owner only has the right to use them, and sometimes even has the obligation to maintain and repair them, or are restricted on making improvements to them. The only way to determine the scope of responsibilities is by reading the Declaration and the Rules and Regulations.
    7. Maintenance and Repair – This causes the most heartburn for unit owners and also requires a careful reading of the Declaration AND the Operating Budget.  Typically, the question (an argument) arises after there is some damage or break down, and fingers start pointing between unit owners and the Association.  Don’t forget obligations for complete pest control, all utilities and routine servicing of equipment.
    8. Insurance Obligations – Coverages for various types of insurance will normally be reviewed by a lender, but before making an offer for a condominium unit, and budgeting the ownership expenses, evaluate what is and is not covered by Association policies.  It is not unusual for an Association to cut back on insurance policy limits, or even non-renew insurance coverages.  The operating budget/financial statements of the Association might give some advance notice to the status of insurance coverages and claims.

You would not want to invest in a business that will cost you additional unanticipated further expenditures. We strongly recommend that after reviewing all pertinent condominium documents and Association records, you discuss any questions you have with competent Florida legal counsel. Also check out our other blogs below for additional information and details.


Berlin Patten Ebling, PLLC


Article Authored by Christopher Caswell, Esq.

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.


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