Welcome to this edition of the Greg Fly Podcast, my excuse for talking about topics I'm interested in. I'm Greg Fleischaker, and today I'm speaking with Jon Mand with Lenihan Sotheby's International Realty, who is here today to talk about condos. Jon, good to see you. How are you today?
Why Even Consider Buying A Condo?
Jon: I'm doing great, Greg. Thanks for having me.
Greg: Well, my pleasure. I actually asked you to come in and talk about condos, so it's not like you stopped in and said, "Hey, Greg, I'm just dying to talk about condos." Real quickly, condos as opposed to a single-family house. What's the difference?
Jon: Well, a lot of differences, obviously, as we kind of get into it and start talking, but I'd say the biggest difference is just the lifestyle that a client's looking for. The condo buyers are obviously interested in a condo for, typically, a very specific reason, and they don't want the maintenance that goes along with a freestanding single-family home.
Greg: So the no yards to mow, generally speaking, you don't have to take care of your gutters, or a lot of the stuff that just goes with being a homeowner, right, so ... I guess that "condominium" is a legal term, isn't it, that there's a different kind of ownership than a standalone home, or a single-family residence, that most people think of?
Jon: That's correct, yes.
Greg: All right, so most of the condos that we're familiar with are going to be big buildings, right? They're going to have ... They don't have to be big, but 10 to 100 units, and everybody owns a little piece of the common space.
Jon: That's correct.
Greg: Is that the easiest way to think about it?
Jon: Yes, absolutely. I mean, it's effectively an apartment building, but you own your apartment rather than leasing it from a landlord, so that's kind of the easiest structure to think about.
Greg: Okay, so when someone's thinking about buying a condo ... We'll keep it here in Louisville, because I know different markets have ... You know, New York's a totally different animal, right, so talking about Louisville, what are a few things that people need to keep in mind or think about ask they start approaching the process? Let's say they already know they want to buy a condominium. What are some of the things they need to think about or get in line so they're in good shape when the process happens?
Jon: You know, I would say one of the primary consideration for people looking at condos is going to be, you know, they're interested in the product because they don't want the maintenance, but the maintenance fees that go along with a condo are a big deal. I would say that that's one of the primary parts of the due diligence you really want to drill down on when looking for a condominium, is what are the monthly HOA or the condo association dues, what's included in that, looking back historically at the financials for the condo association, looking at their current operating budget, making sure there's no outstanding capital purchases that are going to need to be made, that they have adequate reserves to pay for a new roof, or to reseal the parking lot, or the types of large-scale maintenance projects for the entire building. You want to really drill down on the health of the association.
Condominium Homeowner's Association Fees
Greg: How do you get that information? Because this is something that you don't typically have to do with a home, and years ago, I guess, you didn't have to do with a condo. You need to really ask to get that information, to find out what kind of capital expenditures there are.
Jon: You do, yeah, and the condo sellers, since the real estate market collapsed back after the boom here, there was some legislation passed, and in Kentucky, condo sellers are required to complete an adequately and appropriately named Condo Seller's Certificate when they're selling a condo. That certificate would include information on exactly the things that I mentioned: what are the dues, what do they cover, what are the reserves, attaching current financial statements from the association. Depending on the building, sometimes it's one of the residents, if you've got a fourplex where they've sold off into condominiums, one of the residents is probably managing the property and president of the association, and they'll pull that information together, or when you get into the larger-scale buildings, they'll have a professional property manager that has all of that information and will provide it, but you get the information from the seller.
Greg: Because years ago, it seems like ten years ago, maybe, or a little bit longer, you might run into this situation where someone thinks they've done all their homework, they know what their HOA fee is going to be, and then a month after they buy it, the whole building needs new windows, or a new roof or something, and you're like, you know, the fees go up or something, so I think that's actually a good change. It's more homework on the front end, it's more paperwork to get together, but openness and transparency for the buyer, I think that's a good call.
Jon: Absolutely, yeah. You don't want to get surprised with a special assessment to put a new roof on, or replace all the windows, like you said, and not have known about that when you were calculating your purchase price, or the offer you were willing to pay for a unit in that building.
Greg: Right, and then what about inspections for a condo? Because that's a little bit different than, say, a home, right? Do you think the inspector should check out as much as possible of the whole building, or just the inside of whatever unit?
Getting A Property Inspection For Your Louisville Condo
Jon: You know, I typically have them ... Obviously, you really want to check out all of the systems for the individual unit, but I often have the inspectors just do a kind of a quick glance, or double-check, that's probably more appropriate, the information that we've been supplied. So if the HOA says, "Oh, the roof was replaced five years ago, and we waterproofed the basement, where the laundry is," or whatever, I usually like to have the home inspector just go ahead and double-check, and say, "Do you see anything on the exterior of this building that's going to be a significant cost or maintenance item that maybe we haven't been told about up to this point?" I do have the inspectors check it, but obviously the focus of the inspector is on the individual unit.
Greg: And then, just so people are clear, most condos are, and this is my understanding, is that you kind of own the paint on the wall and not much beyond that, so you can't ask your inspector to start poking holes in the wall to see what's behind it, or ... I guess you can't really do that in a house either, but there's some limitations on what an inspector can get into, so they probably aren't going to be able to tell you about what's inside the wall, or what's in between the two units, what might be next door to you. That's kind of ...
Jon: Yes, exactly, and they can't tell if the unit upstairs has a leaky tub that's going to drip down through your ceiling or that kind of stuff either, so those are obviously considerations when you get into a multi-family building like that, but in terms of what the inspector, the process they go through, it's going to be very similar to a single-family home, except they're not likely going to be in the basement if it's not part of that individual condo, they're not going to be crawling on the roof, they're not going to be spending a lot of time on the exterior of the building. They're really just going to focus inside that unit.
Greg: I've had a few people talk to me, or ask questions about common spaces, that they're not always sure about what is included, and to me, that seems that's really a project-by-project consideration, because some of them have very few shared common spaces, and some of them, that's really what you're buying, is the pool and the tennis court, and your little piece of that. You get to use the whole thing, obviously, but you're paying for that amenity and the upkeep for it, so it's really, like you said, it's a lifestyle choice.
Jon: Yeah, and the common areas, you know, there's different classifications even within that, but just on a building that, even if it had no typical what we would consider amenities, but just had a parking lot and a building, I mean, you, obviously, as the owner, you have an undivided interest in the entire property. It might just be a couple percent that you own, but it's not like you only own one little corner of the property; you own 3%, or 10, whatever the number is, of the entire property, and so you have the right to use the parking space, the parking areas, or you have the right to use the lawn, or when you get into lobbies and lobby areas, elevator lobbies, fitness rooms, swimming pools, all those kind of things, those are all common elements.
Then there's also limited common elements. Those are common ownership, but limited to who can use them. Parking spaces is a great example, I mentioned, sometimes those are included as a kind of a fee simple ownership, but oftentimes it's a limited common element, where everybody owns all the parking spaces, but it's limited to who can park there. Balconies, surprisingly, can sometimes be that way, that it's a limited common element. People think it's part of their unit, and it's really, it's a common element, but again, limited to the use of only the person whose living room opens up onto that balcony. Again, the distinction's going to be who pays to maintain it. If the balcony railing's rusting and needs to be replaced, well, if it's a limited common element, that's different than if it was a unit owner's property.
Greg: This is all stuff that people really need to make sure they figure out ahead of time, so that you're not stuck in a situation when you buy a condo of not knowing what's your responsibility, and what the condo association is in charge of.
Jon: Mm-hmm (affirmative), yes.
Greg: When you're talking to an agent, and let's say someone asked you for the information off the MLS for a certain condo that they've seen, that's for sale here in town. You probably ought to ... I'm not saying you should, but realtors should double-check, and make sure that the condo fee that's listed on the MLS sheet is actually the one that is going to be charged, because I've seen that it's not always the same number, and that's a real bummer.
Jon: Exactly, and that's where, I mean, the Condo Seller's Certificate has helped that, because it is a due diligence piece, it has to be provided, and it's a contingency within the contract, so you will get numbers from the association directly, saying this is what the fees are, this is what they cover. The other thing is, I mean, these condominiums are made by a master deed declaring what they call a horizontal property regime, or a condominium association, so those are all of public record. They're recorded at the county clerk's office in whatever county the condo building's in, and so as an agent working through this process, we can access for our clients, even without involving the association on the front end, necessarily, the current master deed and the bylaws for the condominium association.
There's a lot of information that we can pull in, and it'll spell out what's common area, what's limited common area, what's a unit, what exactly do these people own, percentages of interest within the development, various rules and regulations for the association. There's a lot of information that's publicly available if you know where to look for it. Then, of course, as we go through the process, we want to verify that the information we've accessed is the most current information, and that's where the Condo Seller's Certificate, at the point you're under contract, they will provide the latest version of everything, and we just confirm that what we were looking at originally is, in fact, the most up-to-date info.
Greg: And then, real quickly, before I let you go, if you're working with a client who's selling a condo here in town, same idea, right? You just get all the paperwork as quickly as possible so that everyone knows where they stand, and again, transparency, you just need to get the information put together, so when the buyer comes, you're not dragging things out.
Jon: Yeah, exactly.
Greg: All right, well, thanks for coming in today, and I'll see you on the next episode.
Jon: Awesome. Thanks, Greg.