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Message # 921 Buying a condominium (Pt. 1)

mp3 #921 Buying a Condominium Part I (mp3 file)


Until just a few years ago, the average homebuyer had never heard of condominiums; today, thousands of Californians are living in them.

Fortunately, California is among the few states in the nation which have strict, comprehensive laws governing the construction and operation of condominiums.

Condominium buyers actually own their own units (which includes the area and fixtures within the walls of their units), plus an undivided interest in the building, the land and whatever else is placed on the land. Buyers obtain their own financing, receive a deed for their unit, and pay taxes on it. A condominium owner receives the same tax benefits as the conventional homeowner, which is one of the most significant factors in the rapid growth and interest in condominiums.

In the case of outright ownership called (fee simple), each condominium owner takes title to an undivided interest in the entire land area of the project. If the land is under a lease (called leasehold), each owner pays rent on the land as specified in the unit lease.

The main difference between a condominium and a "planned development" is that in the planned development, the owner owns the land under the unit, as well as an interest in the common elements (such as greenbelt, roads, recreational facilities). A townhouse is usually a planned development, but can also be a condominium.

What Are The Pros And Cons Of Condo Living?

A survey of condominium owners residing in 15 California projects, conducted in 1972 by the Urban Land Institute, revealed the major reasons for purchasing a condominium as well as likes and dislikes of condominium owners.

Freedom from house and yard maintenance was the leading reason for buying a condominium. Other motivations for buying were: building equity as a property owner instead of paying rent; desire for recreational facilities; cost advantage over choosing a single-family home; and the desire for a better environment.

Some of the common complaints expressed were less privacy and quiet caused by overcrowding and noisy neighbors. Children and pets disturbed many residents. Residents especially noted the need for good soundproofing.

Insufficient parking spaces or not enough off-street parking for owners and their guests was another major complaint. Even though most condominiums in California provide a garage or carport, sometimes residents use this space for much needed storage purposes. This leads to parking on the street, which residents claim interferes with a pleasant environment.

Poor construction of their unit and lack of response (or sometimes no response) to service calls from the developer were considered the worst features of their condominium by many owners, even those living in expensive projects.

A close relationship existed between density (units per acre) and owner satisfaction - the lower the density, the higher the owner's satisfaction. Unfortunately, lower priced units tend to have higher density.

Owners also objected to units being rented out by other owners in their project, and felt renters lowered property values. Dissatisfaction with their Association management was another common complaint.

Unlike a private home, condominium living means cooperative living. You must share the common elements - swimming pool, tennis courts, laundry facilities. You may not be allowed to keep pets, and your neighbor may ask you to turn down your stereo at night. Even your choice of window coverings may be restricted by the regulations governing the condominium project.

Condominium living has advantages which can compensate for some of the privacy sacrificed. By sharing overhead costs with your neighbors, you can afford that swimming pool or golf course. When you take a vacation, your unit is protected and your mail and newspapers can be stored. And, in most condominiums, you are free to decorate the interior of your unit as you wish. Another important factor is that in most condominium projects, maintenance is handled by professional managers.

The Association is the major factor in making the condominium project work successfully. The developer must set up a Homeowner's Association before units can be sold. The purpose of the Association (though an elected Board of Governors) is to manage, maintain, repair and operate the condominium project. The Association also establishes house rules to govern some activities of the unit owners.

As a condominium owner, you will automatically be a member of the Association with voting rights. You should be prepared to attend meetings of the Association and vote on the issues, many of which will directly affect your daily living conditions.

Before searching for the right condominium, decide what you want to buy and why. Do you want a condominium for your principal home or for a vacation retreat? Or is it primarily for investment?

When buying a condominium for your principal residence, price alone should not be the most significant factor. Do you really like the place and its surroundings? Is it convenient to schools, shopping, medical facilities and public transportation? What is the zoning around the project? Is parking adequate and convenient? What about noise?

If you are buying a second home, price is more important. Can you afford a second monthly mortgage payment? If necessary, will you be able to generate enough rental income to help defray all or part of your overhead? What is the history of the rental market in the area? Is the security adequate to protect your unit during your absence? Will you be able to attend the Association meetings? What assurance do you have that the property manager will protect your interest and your investment?

For an investment, you must consider all of the above, plus several other points. Will the property increase in value? Is the investment for a profit - or a tax loss? What are the local and state tax laws, and are they adequate for your needs? How much does the property manager charge for caring for the property?

California condominium laws cover out-of-state developments advertised or sold in California. In fact, since out-of-state subdivisions are considered as securities, they are subject to more rigid regulations than in-state subdivisions. An out-of-state developer must apply for a permit and be issued a Public Report by the California Department of Rea1 Estate before units can be sold to Californians.

If you are interested in an out-of-state subdivision, contact the California Department of Real Estate to find out if it has issued a Permit on the project.

If not, the subdivision is being sold illegally in California and you may be taking a big risk in investing your money. Department of Real Estate offices are located in Sacramento, San Francisco, Fresno, Los Angeles, and San Diego.

One offspring of the condominium boom has been the conversion of existing rental buildings to condominiums. If you are buying a unit in a building which was converted from rental apartments to condominiums, get an engineering report (required for FHA-insured mortgages) to determine if the structure is sound. The report should cover wiring, plumbing, heating and air-conditioning systems, roof, elevators and other structural elements.

Unfortunately, an independent engineering report may be prohibitively expensive. If you feel you cannot afford one, at least hire an independent home inspector to inspect the premises, or talk to the county building inspector who inspects the premises. In California, a converted condominium usually must meet county building code regulations, provisions of the Subdivision Map Act, and local county or city ordinances before the units can be sold. A public report must also be obtained from the Commissioner of Real Estate.

When you look at new condominiums, the contractor's reputation and ability are very important. You should investigate the builder as thoroughly as possible. Contact banks, and title and real estate companies which might know the builder's reputation. Ask if they would recommend that person as a contractor. Check with the Chamber of Commerce and in larger communities, the Building Industry Association's Regional Office, or other contractor's groups. Contact one of the 33 District offices of the California Contractor's Licensing Board to find out if any disciplinary actions have been taken against the contractor. Inspect Federal Bankruptcy Court records to see if the builder was ever in a corporation that went bankrupt.

For additional information, review SmartLaw message #922, "Buying a Condominium, Part 2".

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