When buying into a condominium community or a community with a Homeowner’s Association (HOA), it is important to know beforehand what you are obligating yourself to. Is the community financially solvent? Does the community have funds set aside for ongoing & emergency maintenance? Is the community involved in current or pending litigation? The answers to these questions can be found in a careful review of the condominium/HOA document (condo docs). The condo documents you receive should include, but are not limited to, the following: Declaration; By-laws; Rules/Regulations; Financial Statements; Budgets; and Minutes from Meetings.

Rules, Regulations, and By-Laws

You'll want to review these to see if you will be able to live by the rules and regulations of your condo community. Remember, you’ll be living with many other people and there will be certain expectations and restrictions. Do these suit your lifestyle?

These rules can vary widely from community to community. In general, these documents could specify a range of items, including its pet policy, whether you need to have carpeting, or if you can rent your condo at any time.

Financial Statements and Budget

These documents provide crucial information on the financial status of your building. Most importantly, take a look at the condo’s reserve funds and operating budget.

• Reserve Fund: You are looking for evidence that the association’s reserve fund (or savings account) is adequate for future major repairs or improvements to the building, such as new windows or a roof. A condo needs to build up reserves for future repairs, so a percentage of your monthly fees should be deposited into this fund. If your condo has a low reserve fund, it will require a special assessment (additional fees) when a major repair or renovation is needed.

A good rule of thumb is at least 10 percent of the condo or co-op’s budget should be going to the reserve account.  This is also what lenders require before they will loan for a purchase in a building.

Look for any mention of:

·       Projects that are on the 5-7 year horizon, and if there adequate reserves being funded for these projects.

·       Ongoing or pending litigation. Whether it’s a small or large lawsuit, reserves can be depleted quickly to cover this.

• Operating Budget: Your monthly fees are what fund most of the operating budget. Experts say about two-thirds of the operating budget should be used toward expenses.

See how your condo fees are allotted each month on employee paychecks, utilities, trash pick up, etc. If your condo has a 24-hour front desk, swimming pool, elevators, full-time engineer on site…these expenses add up and so will your fees.

Keep in mind your condo association shouldn’t be dipping into the reserve fund for basic maintenance like trash removal, recreational facilities, common-area landscaping, etc..

Board Meeting Minutes

These documents will alert you to any special unit or building issues, for example:

·       What are the major issues the board is discussing at the last several board meetings?

·       Are there any upcoming upgrades or projects planned in the building?

·       How are those projects going to be paid for? Reserves? A special assessment?

Master Insurance Policy

Look to see what the association’s master insurance policy cover. A list of coverage should be included in your condo docs. By reviewing these carefully, you can determine how much additional coverage you may need for your own unit.

We hope that these suggestions are helpful to you. Let us know if you have any questions.