Buying a Condo: Frequently Asked Questions
- Is a Condo Right for Me?
- When is the Best Time to Buy a Condo?
- How Long Does it Take to Build a Condo?
- If I Buy a New Construction Condo Do I Have to Use the Builder’s Lender?
- What is the Typical Out of Pocket Expense for Owning a Condo?
- If I Buy a New Condo, What Upgrades Should I Have the Builder Include and What Should I Do On My Own?
- What Can I Negotiate with the Builder (New Construction) or Seller (Resale)?
- Should I Get An Inspection?
- How do HOA Restrictions Affect Me?
What is your lifestyle like might be a better question. One of the great features of condos is that they are typically “lock and leave”. Meaning you don’t have to maintain a yard, exterior maintenance such as a roof or siding. Also, if there is a major expense like a roof needing to be replaced, the HOA will either have a reserve account to pay for the large expense or you’ll be able to share the financial burden with your neighbors which can be significantly less expensive than if you have to pay it on your own as is the case with a house. Another aspect for condos is that typically, you can purchase a condo in a much nicer neighborhood than you could afford if you were buying a house. For example, in the Tarrytown area of Austin a tear down house will cost $500,000 where you can get a great condo starting at $200,000. Also, repairs in a condo can be significantly less expensive simply because of the size. Replacing an AC unit for a 1000 sqft condo is less money than replacing a unit at a 2000 sqft home. Some of the downsides are privacy and yard space. If you need a small yard for your dog or you don’t want to share any walls, condos can be limiting.
If you’re purchasing a resale condo, then the answer is easy, buy when you find something that you like in the price range that is comfortable. If you’re buying a new construction condo, the further along the condo is to completion typically the more negotiating power you have. However, if a specific view or location in the complex is important to you then you might not have the luxury to wait until you have more negotiating ability at the end of construction.
This is a hard question because it depends where the builder is in the process. For example, do they already have a permit? Are the roads in? Are you in the first or last phase of construction? Answers to these questions can be the difference between your condo being completed in 3 months vs. over a year.
While you are not required to use the builder’s lender, many of the financial incentives the builders offer are tied to using their lender. For example, the builder’s lender’s fees might be $2,000 higher than an independent lender, however if you don’t use the builder’s lender you might be responsible for the title policy and no longer receive the builder paid 2 points towards your closing fees or ½ off upgrades. In this scenario, any of these incentives, let alone all three, seriously outweigh the lender’s higher $2000 cost.
If you’re purchasing a resale condo, estimate 2% of the sales price. That will cover the earnest money, option money, inspection fee and loan application fee. If you’re purchasing a new construction condo then each builder will have a range and the out of pocket expense will may depend on what phase of construction the condo is at when you execute the purchase contract. If you’re building from scratch, the builder typically requires 1-2% of the sales price as earnest money and then ½ of all upgrades paid in advance. If you go under contract when the condo is almost finished or all upgrades are already selected by the builder, then 1-2% might be your only upfront requirement. Other expenses include, your own independent inspection, approximately $400 and loan application $400, this amount usually includes the cost of the appraisal ($350).
- If I buy a new condo, what upgrades should I have the builder include and what should I do on my own?
This one is a little tricky. First off, do you have the financial ability to pay for upgrades out of pocket out after closing? If the answer is no and you need the upgrades to be included in your loan amount, then just make sure you don’t go over board. Here are some factors to consider, how much of a mess will it cause if I try to do the upgrade with the builder vs. after construction completion, i.e. will a subcontractor have to cut into walls and rip up flooring? Does the type of upgrade I’m considering need a warranty, i.e. is it related to electrical and plumbing? Lastly, do I really need it and if so, do I need it now?
Everything! More importantly, the closer the condo is to completion or the longer it’s been sitting on the market the more negotiating power you have over the builder or seller. That said, you can negotiate the title policy, closing costs, upgrades, HOA payments, down payment, you name it. The best advice is to always get the condo for the lowest price possible, so try not to load your loan. If buying a new condo, the builder would always to prefer to charge a higher price and give more upgrades, so it doesn’t hurt the market comps in the neighborhood and while they might say an upgrade is worth $5,000 in most likely only costs them $2,000. Negotiating goes back and forth numerous times and it’s a dance of when and what to ask for.
ALWAYS! Even if the builder or seller tells you that they hired their own independent inspector to inspect the condo for you. If you’re not paying the inspector, they are not working for you! Spend the couple hundred dollars and possibly save yourself thousands by hiring your own independent inspector.
On the positive side, they can prevent nightmare neighbors who park 5 cars in the street, play loud music, have violent breed dogs, leave trash around, park their boat in the driveway, etc. Also, they can provide great amenities such as pools, parks and sport facilities. On the negative side, if you won’t use the amenities that you’re paying for or you need more flexibility like being able to park your RV or boat, then an HOA with neighborhood restrictions might not be for you.
