Condos and townhouses are growing in popularity with Americans leaning toward purchasing smaller homes. But while condos and townhomes come in a variety of designs and styles, they also come with contracts and specific processes. Here are some questions to ask when buying a townhome or condo to ensure you’re making the best possible choice.
What is the developer’s reputation?
Homebuilder reputation goes a long way, and this is no different with condo and townhome developers. Have previous projects by the builder gone under financially? Have there been any lawsuits? Visit properties and talk to residents; have their homes withstood use and time, or were they faced with poor construction and major issues soon after moving in?
If you’re purchasing a prefab condo or townhome, pay a visit to the construction site and check in with the subcontractors: are they getting paid? A developer not paying the subcontractors can indicate problems to come. Additionally, when you meet with the developer, inquire about what lender approvals they’ve received. If none have happened yet, it could simply be too early in the process, or it could mean lenders don’t want to work with the developer because the project isn’t financially sound.
What do Official Documents Reveal?
Spend some time going over the covenants, conditions, & restrictions (CC&R’s) for the property you’re interested in. These outline expectations placed on residents, and might include rules on lawn maintenance, or restrictions on where trees can be planted. You’ll also want to see if any modifications you’re planning, such as adding solar panels or a patio deck, are preemptively prohibited in the CC&R’s.
If the property has a homeowners association (HOA), review the minutes of recent meetings. These will key you in to any financial problems the community might be having, as well as any upcoming assessments you may need to contribute to financially. And, while familiarizing yourself with the HOA, determine what the fees will be and what all is covered, as this varies between properties.
What is the Offering Plan?
Although this is yet another document, it is specific to pre-construction properties. The Offering Plan outlines everything to expect from the property you’re investing in, as well as the reasonable changes the builder might make in the future. This is important because, unlike brochures or conversations, the Offering Plan is legally binding.
Pay particularly close attention to the “special risks” section in the Offering Plan. This functions as a summary of all the special circumstances to consider before buying. For example, there might be a contingency stating that even if you don’t secure financing through a lender, you’re still legally obligated to close on the property.
Special risks might also include information on whether the developer is allowed to rent out units that don’t sell, or what occupancy is required for certain amenities to become available, such as planned pools or eateries. If there are going to be commercial businesses on the lower floors, the special risks section can also indicate what types of businesses may occupy the space.
What do Future Developments Look Like?
Finally, take a step back from the property itself and consider the surrounding area. Are there any businesses you’re not keen on? If the area surrounded by empty lots for sale, check with zoning authorities to get a sense of what future developments will be like. That skyline view shouldn’t be a deciding factor if it’s going to be blocked by a concrete shopping center in a few years. Don’t forget you’re not just investing in a property, but in your future; be sure you consider the decision from all angles.
What does your Gut Say?
While there’s no ultimate guide to red flags in the condo and townhouse buying process, there are certain areas where you should pay close attention. Trust your instinct, and if you’re particularly uneasy, connect with a real estate attorney to help guide you through the process.
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