Condominium ownership is considered a hybrid form of ownership because it falls outside traditional structures of property ownership. Certain legal and technical characteristics help define condominium ownership: Individually Owned Unit
In condominium ownership, an individually owned “unit” is an enclosed space that exists within specified boundaries, as with a one-room unit. The space can also consist of multiple rooms and the interior walls that divide the rooms in that unit, as well as balconies, patios or storage areas. Even though the unit is only airspace (and no land), for legal purposes a condominium unit is still considered to be real estate.
All other parts of the property are called the “common areas.” The ownership of these areas is shared by all of the unit owners. The common areas include:
- All parts of the building other than units, including the basement, ceilings, elevators, floors, foundation, halls, lobbies, roof, etc;
- All installations for central services, including heating and air conditioning, electricity, gas and water;
- The land on which the building stands and the parking areas;
- Community facilities, such as boat docks, clubhouses, gardens, playgrounds, tennis courts and swimming pools.
A condominium unit owner’s interest in real property (or real estate) is conveyed by deed. The interest is comparable to that of any other owner of a freehold estate in real property, and the owner is free to sell or convey his or her interest at will. Like other types of property, ownership can be held by an individual, by two or more individuals as tenants in common, by a husband and wife as tenants by the entirety, or by a business entity.
Like any other property owner, the condominium unit owner’s must pay real property taxes. For tax purposes, each unit and its associated percentage of the undivided interest in the common areas is deemed a parcel and is individually assessed and taxed. The common areas are not separately assessed or taxed, and each unit owner is liable only for the taxes on his or her parcel.
A unit owner’s association, or condominium association, is established at the time the condominium is created to enable the various unit owners to manage and maintain the property together. Often, the association will hire an outside property manager to handle the managing of the development. Certain developments have both a condo association and a homeowners’ association where each is responsible for certain aspects of the development’s managing and maintenance.
The covenants, conditions and restrictions (CC&Rs) of the condominium development are the governing documents that determine how the association operates and what rules the owners (and any tenants and guests) must obey. These are legal documents that are sometimes called the bylaws or the master deed. CC&Rs might dictate, for example, the color of any interior window treatments or the size of allowable pets. The consequences for breaking a rule include fines, forced compliance or a lawsuit. Because the CC&R is a legal document, any questions or concerns should be reviewed with a qualified attorney prior to making any offers on the unit.
Each unit owner is responsible for paying monthly, quarterly or annual dues to the association to cover management and maintenance expenses. The dues cover fixed and variable expenses such as building insurance, garbage removal, landscaping, pool maintenance, taxes and the funding of a reserve fund. If the association has not saved enough money in the reserve fund, a special assessment may be charged to unit owners to cover special projects and improvements, such as a new roof or repairs to the furnace. These topics will be covered in more detail later in this tutorial.
Condominiums versus Townhouses
While condominiums and townhouses appear to be very similar, there are certain legal differences between the two:
- A condominium unit owner individually owns only the enclosed space within the unit. A townhouse unit owner, on the other hand, owns the unit , the physical structure and the plot of land on which the unit stands.
- The common areas in a condominium development are owned by all unit owners as tenants in common. Conversely, the common areas of a townhouse development are owned by a homeowners’ association.
Who Buys Condos?
Condominiums are very popular among retirees, including those who are looking to downsize from their previous homes. A condominium community may offer many opportunities to socialize, and certain developments offer services that cater specifically to retirees and seniors. In addition, many retirees enjoy traveling, and the reduced maintenance associated with living in a condominium is attractive.
A condominium may be appropriate for the frequent traveler for whom keeping up with routine maintenance would be a challenge. Additionally, a condominium unit owner may feel safer leaving the unit unattended for frequent or extended periods of time knowing that neighbors are present.
Young Professionals and Graduate Students
Young professionals and graduate students may be interested in condominiums that are located close to work or school. Condominium ownership may also be attractive due to social opportunities, the proximity to urban conveniences, and because condominiums are sometimes cheaper than a single-family home, while still offering plenty of space.
A condominium can be an ideal starter home for young couples. Like other condo owners, couples may find the social opportunities attractive and may enjoy the community facilities offered by the development. Young couples who are not planning or not yet ready to start a family may find the size and layout of a condominium unit to be more practical than that of a house.
Condo Features To Consider
Certain condominium communities have age restrictions that developments must deal with carefully to ensure they are not discriminatory in any way. Typically, an age-restricted condominium development will cater to the older population, as with condominium retirement communities. Often, these communities are marketed as either “retirement communities” or “active adult communities” and can offer regular social, intellectual and personal enrichment activities. While children and grandchildren are usually permitted to visit, many communities will limit their overnight stays to a certain number of consecutive days per visit or days per year.
Many newer developments will offer upgraded appliances, such as stainless steel ranges, refrigerators and microwaves. Older developments may have standard appliances or, in many cases, will have upgraded to the newer, more desirable stainless steel appliances. Most units will have washer/dryer hookup, though each unit owner typically must furnish these large appliances themselves.
The common areas and amenities are often big draws to particular developments. A boat dock or marina, for example, might be a must for boating enthusiasts. Those who enjoy plants and flowers may be drawn to a development that has beautiful gardens. Since the common area features make each development unique, special consideration should be given to both the amenities that the buyer considers desirable – and to those that do not interest the buyer. The condominium dues, in part, will be based on the common areas. The dues might be very high compared with the rest of the market because of a 50-slip marina, for example. If the buyer will not take advantage of such features, another development might be a better option.
Convenient parking is an important consideration when looking for a condominium unit. Most developments have on-site parking areas in a parking garage, underneath the structure(s) or adjacent to each building. Frequently, each unit will be assigned a certain number of parking passes, often based on the number of bedrooms in the unit. The passes – which could be hang-tags for rear-view mirrors or stickers for vehicles’ windows – must be displayed any time a vehicle is left in the parking area.
Some developments also have gated parking areas or even a gate house staffed by security personnel intended to prevent anyone other than an owner or guest from entering the premises. These added security features are often viewed as very valuable by condominium owners.
In addition to gated parking areas or staffed gate houses, condominium developments can have a variety of other security measures in place to help protect the development and its residents. Twenty-four-hour security guards, cameras and video surveillance, locked exterior doors, locked access to community facilities, well-lit parking areas, hallways and common areas, and community watch programs are all measures that can be used to help keep the development and its residents safer.
Developments may also use perimeter fencing and safe landscaping (clear views on walkways, bushes trimmed below the level of first-story windows, etc.) as additional security measures. Residents may develop a positive rapport with local emergency services personnel, including fire and police. Each unit should also have its own 911 address so that emergency teams can quickly and easily respond to calls. Individual unit owners may wish to install an alarm system.
The development should have a customized emergency plan for dealing with a fire, flood, power failure or natural disaster. The development’s staff, including security personnel and the building supervisor, should have a list of individuals who might need extra help during an evacuation, such as chronically ill or non-ambulatory persons. Large developments will likely have a fire suppression systems (such as a development-wide sprinkler system), and all buildings, including community facilities, must have smoke detectors and carbon monoxide detectors where appropriate.
If social activities are important, buyers can speak with residents about the opportunities that exist in the development. A variety of regularly scheduled events may be offered, such as potluck suppers, book clubs, golfing or pool parties. The events can be either on-site or involve traveling to take advantage of nearby attractions including museums, sporting events, concerts and seminars. Even if activities are not promoted or sanctioned by the development, certain residents may simply enjoy getting together on a regular basis for certain activities, such as beach volleyball or card games.
Space is a consideration in terms of actual square footage and in the number of rooms offered in a particular unit. If a person will be using the condominium unit as a home-office an additional bedroom or bonus room may be essential. A person who expects frequent visitors may also need an extra bedroom. These considerations must be made regardless of whether the buyer is looking at single-family homes or condominium units. Frequently, since condominium space is at a premium, the floor plans in a condominium unit maximize space with little to no unusable space.
Since condominium unit owners typically will not have access to garages, tool sheds, attics and basements, the unit must contain adequate storage space. If storage is important, buyers should look for sufficient bedroom closets, kitchen cupboards, entry closets, living room and dining room cabinets, and bathroom/linen storage. Many developments provide an extra closet outside of the unit for things like beach chairs, bikes and other sporting equipment. Others may provide covered bike racks, where bicycles can be locked and kept away from the elements, or a pool house, where toys and floating devices can be stored.
Units in the same development may have different packages and floor plans from which to choose. Aside from various bedroom/bathroom combinations, certain units may have upgrades that are desirable and important to some buyers. These upgrades, which generally drive up the price of the unit, can include:
- Kitchen upgrades, like stainless steel appliances, granite counter tops and tile floors
- Flooring upgrades throughout, such as tile floors in the kitchen and baths, and hardwood or bamboo in all other areas
- Upgraded window treatments, such as wood blinds or solar shades
- Additional parking spaces
- Luxury bathrooms including separate shower, a Jacuzzi tub and dual sinks
- Stylish light fixtures
- Wainscoting, crown molding and other interior finish elements
- Additional storage space
Condominium fees vary by development and by market. It is difficult to establish an “average” fee since many factors determine each development’s fees. Developments with swimming pools, tennis courts, and fitness centers may have higher maintenance and liability costs and therefore higher condominium fees. Large, multi-level developments – with elevators, fire suppression systems and extensive HVAC systems – may also necessitate higher condominium fees.
In certain developments, condominium fees may be equal to or greater than the mortgage itself. It is important to find out why the fees are so high and to determine if the property is being efficiently managed. Costly repairs and replacements, for example, can often be avoided by simple preventative maintenance. Additionally, property managers may not be taking a cost effective and direct approach to contracting maintenance tasks. For example, a property management company might hire a property manager, who contracts with a pool maintenance company, which hires a foreman, who supervises the person or crew that cleans the pool. Each layer costs the association more money.
Finding Good Deals On Condos
Viewing real estate statistics, including recent and long-term trends, can be beneficial when looking for a good deal. Real estate search websites such as www.trulia.com have a host of tools that provide buyers and sellers with valuable information regarding specific markets and trends. Where prices have been in a downtrend, buyers can expect better deals. If prices have been in an uptrend, sellers will be at the advantage.
Conventions and regulations for condominium ownership vary by state and by market. Seek legal counsel to address any concerns or questions.