We have previously noted that condos are different than other types of real estate without getting into the how or why. The main difference is that you, as the owner, do not have sole discretion over your property. Individual condominium units are part of a larger community. You have to follow its rules and pay a monthly homeowner association fee (HOA) to support the shared services and amenities.
There are good reasons to choose a condo over other types of real estate, but also some issues to think through before making a deal. Below are three advantages and three disadvantages that condominiums have over other types of properties.
Advantage 1: Location. Many condos have a location advantage over other types of properties – they are in closer proximity to something important. For some communities it is a Downtown area, for others it is an important commuter route, and still others it is the surrounding neighborhood. But no matter what the location advantage is, there should be a compelling reason why the complex was built where it was built – location is an important part of its value.
Advantage 2: Simplicity. Another primary attraction of condos is that they are (supposed to be) easy. The association takes care of the landscaping and snow removal. They stay on top of the exterior maintenance of the buildings. They hold the primary insurance on the property. And if the community has recreational facilities, they maintain those too. In some cases the association even maintains the heating and hot water systems. Owners are responsible for the inside of their units and enjoying their lives – that’s about it.
Advantage 3: Affordable. Most condos in the Greater Hartford area are smaller, and more affordable, than single-family homes. For example, those interested in West Hartford Center can either buy a condo for about $200k or a slightly larger single-family for about $300k. West Hartford Center is a rare example of a “Downtown” location in which both property types exist within easy walking distance (Note: prices as of August 2012, and will change over time).
Disadvantage 1: Less Control. As the proud owner of a condominium, you have a lot of freedom to make decorating decisions in your new home. You are able to improve the inside of your unit – say the kitchen and baths – but will generally need to run the plan past the Board. You have little ability to control what the common areas of your building or the exterior look like. There may also be rules about what you can and cannot do with private outdoor space, like a porch, if your unit has that sort of thing.
Disadvantage 2: Politics. The Board, which makes all the big decisions in the community, is an elected body. This is a political process, and takes different forms in different communities depending on the specific dynamics. Debates can get heated, and some issues cannot be resolved in a manner that is satisfactory to all owners.
Disadvantage 3: Marketability. Condominiums demand has fallen considerably over the past five years, and the condo buyers that are out there face additional challenges. Changes in the financial and mortgage world have limited the ability of buyers to mortgage condominiums. Some communities have yet to update their FHA status, which eliminates buyers who don’t have cash for a larger down payment. Other communities have a high percentage of rented units, which prevent even conventional mortgages from clearing underwriting. There are condo communities in which you have to pay with 100% cash in order to successfully buy. Owners need to understand the dynamics of the community, and that the value of their unit reflects its marketability.
Condominiums appeal to many different types of buyers. They have definite advantages over single-family homes based on their location, simplicity, and/or affordability. However, there are additional dynamics with condos that buyers need to think through.
To summarize, here are the key questions to consider before taking the plunge on a condo purchase:
1. Is there something about the location that makes the community attractive?
2. Is the community run in a responsible manner – financially and in other respects?
3. Are you comfortable ceding some decision making to the elected Board members?
4. Do you understand that factors outside of your control could limit your ability to sell?