Home values shot up over the past year. Now, in the second half of 2021, demand remains high. But did you know that condo prices, on average, have only risen about half as much as single-family homes?
The difference is especially pronounced in some of the major East and West Coast cities, Bankrate.com notes. For a striking example, take San Jose. The price of an average San Jose home has risen 11% year-over-year — while the rise in condo prices is a laid-back 2%.
What explains the extra high demand (and pricing) for houses over condos? When the pandemic took hold, a wave of buyers headed for suburbia, seeking extra personal and working space. The work-from-home trend freed many to leave condos and apartments near their jobs. The newly remote workers could now buy homes and cabins with space and scenery.
The upshot? Condominiums are available. In many markets, they are still surprisingly affordable. To boost buyers’ savings further, condo insurance is cheaper than home insurance. Plus, condos tend to be compact and insulated by adjacent units, so owners don’t spend so much on heating and air conditioning. Add in today’s low interest rates. First-time buyers have an opportunity here.
☛ Selling your home this year? Many buyers continue to work remotely. New work arrangements are influencing buyer preferences.
Before jumping into condo living, potential buyers might ask: “What kind of title will I actually get?” Or even: “What will I have to do as a condo owner?” Let’s take a look.
The Homeowners’ Association Owns the Land. What Does a Buyer Own?
If buying a condo in a low-interest environment sounds like a great opportunity, you might want to know about homeowners’ associations (HOAs) and condo titling. As a buyer, you’ll get a deed and take ownership of one unit of real estate.
The condo association holds a master deed. The precise allocation of interests is laid out in the property’s Covenants, Conditions & Restrictions (CC&Rs). The arrangement might go something like this:
- The roof and exterior building walls are common elements. Common elements also include the land, and the recreational features and walkways. They are meant for the benefit of the entire community. The association handles hires people as needed to handle everyday maintenance, structural repairs, landscaping, snow removal, lifeguard duties, and office management.
- Appliances, fireplaces, flooring, cabinets, sinks and vanities, and interior walls are all components of the individual unit. It’s up to the buyer to maintain these features. The same goes for ceiling fans and lights, countertops and backsplashes.
- Any alterations that could impact the integrity of the building (the classic example would be wall removal) must be vetted in advance with the management office. Contractors who work on a unit must submit their insurance documentation in advance.
- Outdoor lighting is usually a common element, so it’s maintained by the management. Plumbing, HVAC and electric systems are partly individual, and partly common elements. Balconies and patios can also be a blend; the association and unit owner might split the cost of upkeep. A unit owner might keep the shutters clean while the association keeps them painted.
- The HOA purchases a master insurance policy. Unit owners should check their condo insurance policies against the master policy to be sure all necessary coverage is in place.
In short, condos are a form of real estate, conveyed by deeds from sellers to buyers. Buyers take title to their individual units and may convey their titles to buyers when they later sell — just as they would if they were selling houses. The buying process involves a title search, insurance, appraisals and inspections.
Buyers also receive a shared interest in the common elements described on the master deed. Study the CC&Rs to untangle the situation-specific divisions between common elements and your own features.
Where Is the Basic Titling Information for a Condo Unit Owner?
The master deed is governed by state condominium laws. The condo developer records the master deed at the county recorder’s office, along with the CC&Rs and a map (plat) that shows the common areas and outlines the boundaries of each unit owner’s title. Typical covenants impacting the units’ titles involve rules against nuisances, aesthetic rules, rules governing the type of pets allowed, limits on investor-owners, and each owner’s obligation to pay HOA dues and special assessments to the homeowners’ association.
☛ Buying a condo property? Know your deed restrictions! The way the condo board enforces the restrictions will impact your property ownership.
What is a special assessment? Sometimes, a board votes for a major repair or upgrade in addition to what’s in the regular budget. Every owner is then billed for a percentage of the work. That charge is called a special assessment. If an owner fails to comply with the association’s rules and charges, the unit will incur penalties: fines, liens, loss of the use of amenities, and potential legal actions from other homeowners. If the HOA opts to place a lien on a unit, that individual property can’t be sold until the debt is satisfied.
A buyer should learn whether the board keeps ample cash reserves to prepare for unexpected situations. If not, special assessments may be inevitable. Look also for any pending lawsuits, and the board’s history of fee increases and special assessments. Capital improvements (upgrades and new amenities) usually need the owners’ votes; but remember, you’ll have only one vote.
Pro tip: At closing, a buyer receives a copy of the master deed, a binder containing the CR&Rs, and the bylaws. The bylaws set forth the responsibilities of a particular condo association’s board and owners. Note the way the master deed allocates expenses. If payments are to be made on an equal basis, and you buy one of the larger units, you’ll definitely want to look out for bills that are based on your unit’s size, contrary to the directions in the master deed.
Do Condo Associations Vet Buyers?
The typical condo property lets unit owners choose their buyers. In rare instances, a condo property’s legal documents empower a board to vet applicants. Other properties might reserve the right of first refusal when a unit sells. If so, the association has the option to purchase the property at the seller’s price.
In any case, the association must follow anti-discrimination laws and cannot exclude a prospective buyer on account of national origin or perceived race, religion, sexual orientation, disability, or any other status protected by law. Granted, some may attempt to use neutral criteria to discriminate. Some HOAs go so far as to set their own credit profile minimums and vet applicants online and in person.
During the baby boom, when homeowners’ associations arose as a feature of suburban development, these entities applied deed restrictions to shape communities according to insider preferences, observes Mariette Williams. And to this day, research indicates, there’s less diversity in and around HOAs. Yet HOA bias tends to be hard to prove, and costly to resist. Existing condo owners are in the best position to create fair opportunities, you’ll typically hear — by participating in the governance of their associations. But many condo buyers are not able to devote time to unpaid board positions.
This May Be Your Chance to Get a Great Deal. Just Choose Carefully!
Many condos are decently priced, relative to surrounding houses for sale. The gentler rise in condo property values relative to the skyrocketing price rise in houses may appeal to first-time home buyers or those who’ve downsized their careers in the pandemic. Homeowners’ associations offer attractive amenities while handling routine maintenance so homeowners don’t have to. They offer their buyers ready-made and sometimes close-knit communities.
That said, condo owners live day-to-day under a community’s rules, standards and preferences. Our best suggestion? Carefully study your selection of available condo properties in advance. Hire an experienced local real estate agent to see you through the process.
You can’t prepare for everything. Condo boards change. You’ll be lucky if every nearby unit owner is a kind, considerate ray of sunshine. With some due diligence, though, you can improve your chances of enjoying condo living at its best.
Supporting References
Zach Wichter for Bankrate.com: Slow Condo Price Growth May Be Opportunity for First-Time Homebuyers (Apr. 12, 2021).
Christopher R. Moore, Esq. for Homeowners Protection Bureau, LLC: Condominium Associations – Know What You’re Getting Into When You Buy a Condo (undated).
Michael McDonough for Cooperator News (New Jersey): Owners’ Rights vs. Condo Rules – Sorry, That’s Not Allowed (Oct. 2004).
Mariette Williams for Business Insider: Homeowners Associations Are Still Keeping Black Americans Out (Sep. 18, 2020).
Wyatt Clarke and Matthew Freedman: The Rise and Effects of Homeowners Associations (posted Apr. 2019 by the University of California, Irvine).
Photo credits: Marvin Meyer and Sai De Silva, via Unsplash.