Researching Condos and TICs

By: John M. Lee

With our single-family home market so hot, many people are purchasing condos or TIC’s (tenancy in common) as their first home. If you are thinking about buying one, carefully investigate the Homeowner Association, finances, management, and current or potential litigation before proceeding.

When you are serious about a condo or TIC project, start your investigation by studying the Covenants, Conditions, and Restrictions (CC&R) By-laws and House Rules. These are documents that tell you what you can and cannot do in your own home. A occupants of the project are expected to abide by these rules. They will contain items such as pet restrictions. Do they allow dogs and cats? If yes, is there a size restriction? Is there a quantity restriction? Can the pets go into the common areas such as the backyard? Can you install hardwood floors to the unit? Can you install a satellite dish? These are some of the common areas of concern for a typical buyer.

Next, examine the financial records. Is the homeowner association (HOA) maintaining financial records? They should have current and past year’s budgets and income and expense statements. Also, they should have a current balance sheet showing their financial position. Look to see where the association is spending their money. What is included in the HOA monthly dues? Are there any upcoming special needs which will require a special assessment on the homeowners? How are the reserves? Have they done a reserve study? Is there enough to maintain the property and to take care of some unexpected issues which may come up? 

When buying into a common interest development, you also need to decide whether a large or small project is for you. Larger condos tend to have professional management and more amenities where the smaller ones usually are self-managed with fewer features. But the trade-off many times is higher monthly HOA dues. Do you want others to manage the property or are you the type who needs to be involved in all the decisions? Who is in charge of the HOA? Are they qualified and experienced to run the HOA? Remember, you will be entrusting your monthly dues to them. Walk around the complex and see how well the common areas are being taken care of. Is the maintenance adequate or will it require a special assessment on the homeowners to bring it up to par? 

Is there any current or potential litigation? Some banks do not lend on projects which have litigation. If enough banks reject the project, financing will be hard to come by, which limits the number of buyers, inevitably resulting in lower valuation of units in the complex. Also, while in litigation, many HOAs tend to raise the monthly assessments to offset the legal and attorney fees. 

Examine the insurance coverage for the complex. Do they have enough coverage to rebuild the property if it suffers major damage? What exactly is covered? Policies usually cover fire, general liability, board of directors’ insurance and fidelity bonds. What other type of insurance do you need? Does the HOA carry earthquake insurance? Do you need it?

Buying a condo or TIC is more complicated than purchasing a single-family home because you have to make joint decisions with all the other owners, and others will dictate to a certain degree what you can and cannot do with your own home. Hopefully, this has not scared you into not purchasing into a common interest development. But because purchasing real estate is a big decision, you need to investigate and understand fully how this type of purchase will impact you.

John M. Lee is a broker at Compass specializing in the Richmond and Sunset districts. For real estate questions, call him at (415) 465-0505 or email john.lee@compass.com.