- The Washington Times - Wednesday, February 9, 2005

The frenzied Washington-area condominium market has buyers scrambling to find a home before the prices climb higher or a competing buyer wins a bidding war for the perfect residents. Condominiums continue to be a hot commodity in the District, Northern Virginia along the Metro lines, and in Bethesda and other close-in Maryland suburbs, but buyers should still take the time to do research. No one wants to get stuck with a home he or she doesn’t want when the market eventually cools.

Although all buyers usually focus on price, size and location when searching for a condominium, informed buyers also compare condominium fees and study the condominium documents to be sure the building they are buying into is financially sound and well-managed.

Buying a condominium differs dramatically from purchasing a single-family home because, like it or not, condominium buyers are buying into a community that makes group decisions on such items as when the roof needs replacing, when to redecorate the lobby and how often to have the heating and air-conditioning system maintained.

Not only do those decisions affect the value of each home within the condominium, but they also affect the finances of each owner.

Potential condominium buyers must include the condominium fee in their calculations of monthly costs of homeownership to determine what they can afford. Condominium fees in this area have been rising in recent years, but that increase is not tied to the rising prices of the homes.

“Condominium fees have been pushed up by rising utility costs and rising taxes,” says Tom Murphy, a Realtor with Long & Foster Real Estate in both the Friendship Heights and Foggy Bottom offices.

According to Realtor Ben Gehrig of Long & Foster Real Estate’s Bethesda-Gateway office, “Buyers need to understand that condominium fees are not a profit center. The only people who make any small profit is the management company, but the decision to raise the fees is voted on by the board of directors. High condominium fees are not necessarily bad, because sometimes they are a sign that a building is well-managed and maintained.”

So rejecting a particular property simply because it has high condominium fees might not be wise, and choosing a condominium because it has a low condominium fee might be an even worse decision.

“Consumers need to avoid comparing bare condominium fees to each other,” Mr. Murphy says.

“Some people just try to compare the condo fees for one building with another, but they need to be aware of two things,” he says. “First, fees are generally voted on by the condo board of directors on a cost-per-square-foot basis, so a larger apartment will pay a larger condo fee each month. So buyers looking at two different units in two different buildings need to be aware that if the square footage is significantly different, then the condo fee will be, too. Second, buyers need to look at what the condo fee covers. Some cover utilities and some don’t, and this makes a huge difference in the monthly expenses for each home.”

Amenities in the buildings, such as a front desk or fitness center, also will affect the size of the condo fee, Mr. Murphy says.

Tom Meyer, president and broker of Condo 1 Inc. in Falls Church, says: “The key is for buyers to find out what the condo fees cover. In older buildings, utilities such as gas or electric or both is usually covered, but in newer buildings utilities are usually individually metered. Water is normally included everywhere, and many buildings include basic cable television, building maintenance and a master insurance policy. Some newer buildings include Internet access and satellite television.”

Mr. Murphy had a client who was pushing to purchase a particular property because he noticed that this unit had kept the same condominium fee for the past five years.

“I told my client, ‘There’s no free lunch,’ ” Mr. Murphy says. “Either the fee was way too high in the beginning or the condo board isn’t doing a good job keeping up with rising expenses, such as health insurance for employees and fuel costs.”

In addition to comparison shopping based on the per-square-foot cost and the items covered by the condominium fees, consumers need to be aware of the importance of a reserve fund.

Each condominium building should have a fund to cover major building repair or maintenance projects that will be necessary in future years. Normally, part of the monthly condominium fee will be allocated to this fund.

In many buildings, major projects, such as a roof repair or a parking-lot repaving job, will require a special assessment on the owners in addition to the condominium fee.

Condominiums that are fiscally sound are less likely to require a special assessment. Special assessments can be financially devastating to owners who must come up with the payment, sometimes on relatively short notice.

Condominium documents are delivered to potential buyers after their contract has been accepted on a property, and local laws allow consumers to cancel their contract for any reason during the condominium document review period.

For Maryland buyers, that review period is seven days, and for buyers in the District and Virginia, the condominium document review period is three days after receipt of the documents.

“Buyers should pay attention to the reserve account to be sure that it is being maintained,” Mr. Murphy says. “The reserve-account information is found in the condominium documents. Sometimes, if a condo is having a financial problem, they will stop adding to the reserve fee and just use the monthly condo fee to pay other bills.

“Eventually, the reserve fund will be used up, which is a problem for all the owners, because then a special assessment will be required,” Mr. Murphy says. “Consumers need to ask why a reserve fund seems small or ask if it has been getting smaller over the years.”

Says Mr. Gehrig, “A high-rise of 300 units should have a reserve fund well in excess of $1,000,000.”

When searching for condominiums and when reviewing condominium documents, consumers can rely on their Realtor if they have chosen one who knows the buildings well.

Some Realtors who specialize in condominiums and have been in the business for many years can tell buyers immediately which buildings have a good reputation for maintenance and financial stability and which will need major work in the near future.

Consumers also can contact the management of a building with their questions and to confirm the information they have been given.

“Managers are generally pretty forthcoming with potential buyers about their buildings,” Mr. Gehrig says. “Consumers should ask about the reserve fund, about what’s covered in the condo fee and ask about already-scheduled capital expenditures and how they are being paid for. Some buildings also have condo board members who are willing to talk with prospective buyers.”

Buyers should also be aware of “hidden fees” they might need to pay when buying a condominium.

“A lot of new condominium projects require buyers to put in a contribution to the reserve fund at settlement so that they can more quickly build up a reserve fund,” Mr. Murphy says. “This would usually be about $500 or $600, depending on the building.”

A common hidden fee charged to condominium buyers is a move-in/move-out fee, usually a one-time fee paid at move-in to cover damage to the building. Move-in/move-out fees vary, but they can range from $100 to $500 depending on the building. Sometimes buildings will charge small fees for a garage-door opener or for common-area access keys.

In addition to hidden fees, condominium buyers often have concerns about how grievances will be handled after they purchase a home.

“Condo owners who have a problem with the building after they move in should get involved with the board of directors or join a committee so they can push for changes within the system,” Mr. Meyer says. “Homeowners are sometimes reticent to get involved, but the average homeowner really can make a difference in their community.”

In addition to becoming involved in the management decisions about their community, homeowners can complain to the manager or management company if they bring their grievance to the board of directors.

“The management company only has as much power as the board gives them as far as money goes, or grievances,” Mr. Gehrig says. “Sometimes, condo boards are just a few people and they can change the rules for just one person. But once rules are made, it can be hard to change anything.”

Mr. Murphy recommends talking with neighbors to see if they have similar complaints about the building.

“One person is looked at as a troublemaker, but five people on the same floor complaining about a laundry machine that’s falling apart [would be considered] a legitimate complaint,” Mr. Murphy says.

If a condominium owner remains dissatisfied after making a complaint to the board and the management, the owner can hire a lawyer, sue the board or just sell the property.

“The legal system is in place to handle grievances, and certainly a letter from a lawyer will get more attention than a simple phone call,” Mr. Murphy says. “As a last resort, owners can sue the condo board, but that gets threatened a lot more often than it actually happens.”

“Usually, an issue such as keeping the fitness center open additional hours to accommodate an owner can be resolved without resorting to a lawyer,” Mr. Murphy says, “but condo boards are sued sometimes by employees who feel they have been discriminated against for their age or race….”

Mr. Murphy recommends that consumers also check condominium documents for the record of lawsuits against a building.

“One event could be phony, or it could be real,” Mr. Murphy says, “but if there are a whole lot of lawsuits, then you should look at it as a sign of a real problem.”

As in all real estate transactions, buyers need to research before buying a condominium to check on the financial health of the property.

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