Condominium Purchases: Full Inspection or Interior Only?
Knowledge You Need When Buying a Condo:
Buying real estate involves risk. The purpose of a home inspection is to help you, as a home buyer, reduce that risk by providing perspective on the overall condition of the building you are proposing to buy. This is tricky enough on a house, but how do you go about inspecting an entire condominium when they range from a sprawling group of buildings along a golf course to tall towers of glass and steel?
“Full inspection or interior only?” is an interesting question. But, before discussing the types and scopes of home inspections that are available for condominiums, let’s take a moment to better understand how condominiums work and identify your areas of greatest risk. There is a condo-specific vocabulary you need to become familiar with. To prepare you for the process of buying a condo, I have inserted bold type for important condo-specific vocabulary that you should become familiar with.
Condo-specific vocabulary to be familiar with:
The most important thing to understand about a condominium is that the homeowner’s association (the HOA), is responsible for maintaining the parts of the building that are outside the walls of your unit. They cannot print money when problems arise that require repair.
- If you buy into a condominium that has low reserves of money saved and low monthly dues and a backlog of deferred maintenance, you may be buying into a maintenance liability.
- Most HOA’s have no assets other than the money they collect from you as a member of their collective building.
HOA’s typically make up unfunded maintenance liabilities by assessing individual owners of a condo unit. The special assessment* is a onetime charge to collect money so that the HOA can proceed with needed building maintenance. If there is a serious backlog of maintenance needed to the buildings – outside the walls of your unit – assessments can be expensive. They can even be a significant percentage of the value of each unit.
So when you are buying into a condominium, your greatest risk is usually the overall condition of the buildings combined with the overall, “health,” of the HOA, not the interior of the unit. The interior of the unit may have problems and require updates, but this is often self-evident and can typically be discovered easily during a home inspection.
Making a condo purchase, what to look for:
When you make an offer on a condominium, you will have an opportunity to review a resale certificate. This is your moment to try and assess the overall health of the HOA. Buried inside this mountain of paper, there lies some important information.
- Look for the reserve study: the document in which the HOA projects the costs associated with capital improvements needed to the building. Try to understand how detailed this reserve study is and if the maintenance budget is well-funded.
- HOA’s that have not done a reserve study or disclose little information about building maintenance are generally at greater risk for an assessment.
- HOA’s that demonstrate good reserves and a proactive approach to building maintenance generally present lower risks of a special assessment.
- Look for an envelope study; this is when the HOA has hired an engineering firm to perform a detailed inspection of the outer skin of the building. An envelope study shows a proactive effort to understand the scope of needed exterior maintenance to expensive building systems such as siding, decks, roofs and windows.
What type of inspection should I do?
Full Inspections or Interior Only inspections? Most home inspectors offer two types of home inspection services on condominiums.
- Interior Only Inspections just cover the inside of the unit and do not include attics, crawl spaces, exteriors, roofs, parking garages or other common areas.
- Interior only inspections are best suited to large towers where it can be difficult for a home inspector to contribute much to the knowledge of building maintenance; there is just too much that is inaccessible in these large towers.
- Full Inspections are recommended in most other cases. A full inspection includes inspections of any attics or crawl spaces that attach to your unit and include walking around the exterior, getting onto the roof if possible and walking parking garages and basements.
Full inspections should be distinguished from commercial inspections. They are not that cohesive. But they will give you a good general sense of the overall condition of the building or buildings. You can take the information gleaned from a full condo inspection and hold it up to the disclosure you get from the HOA and try and assess the overall, “health,” of the condo.
*A note about special assessments
Just because a building is having a special assessment does not condemn the building. Some HOA’s prefer low dues and then periodic assessments to deal with maintenance. One way to visualize this is: imagine you are buying a condo that you feel is worth $200,000 and there is a special assessment of $20,000 / unit and you end up paying $160,000 for the condo. Good deal right? Special assessments are not the end of the world, however, they can make it complex to gauge the value of what you are buying. Better understanding the overall value of the condo you are proposing to buy is why I recommend full condo inspections in most circumstances.
I hope this helps explain a commonly asked questions about condo inspections. Remember: happy homebuyers are informed homebuyers. Good luck house hunting!