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CONSUMER CONDO CAVEAT

How to buy without getting burned
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THE QUEST for the ideal condominium is becoming as common to our culture as yesterday’s search for the affordable single family home. More than half of us will make this change within 20 years, according to the Department of Housing and Urban Development. If you’ve already begun – or perhaps even completed – your initial search, Grace may have led you safe thus far. But before you sign anything, beware the dangers, toils, and snares Grace the condo agent may have neglected to mention. Or perhaps you failed to understand: Condominium ownership is tricky business.

For many of the nearly 35,000 Dallas condominium owners, it is a business well worth the required research. The much-distributed lists of advantages are long. With condominium ownership, you are entitled to all the tax benefits of home ownership. Your mortgage interest payments and property tax can be deducted from your taxable income. Equity grows. The locations are prime. With a condominium under your belt you can enter the housing market. As construction costs increase, your property will appreciate.

Condo living means someone else will spend his Saturday cleaning the pool and clipping the hedges. You’ll watch the game on the eight-foot screen in the clubhouse.

Decorating and remodeling become more economically feasible than they were in a rented apartment. Your new neighbors, also property owners, take greater pride in their homes than past tenant neighbors.

An imaginative salesperson could triple this list and still sleep guilt-free. And after seeing so many condominium complexes that can be called nothing but successful, ours is certainly not a voice of doom or even skepticism. Only caution.

Caution is advised because, while enthusiasm may be easy to come by, the buying of a condominium is a decidedly more intricate transaction than the purchase of a traditional house. Many of the rights and responsibilities are the same, but the traditional homeowner has more freedom in his investment than does the condo buyer.

All too often, well-intending salespersons, touting the grandeur of a particular complex, sweep “prospectives” off their feet and into chairs in front of stacks of abstract legal papers and forms. Many buyers are quick with their Bics, and apparently without regret. But the nasty headaches that some of the others develop could have been prevented. A little research would have been much less painful than the hidden costs, obligations, and restrictions that sometimes become apparent only after a hasty decision has been made.

Perhaps “an ounce of prevention” is an understated calculation of the work involved in finding the right place and executing a satisfactory purchase. Your first task, before ever beginning the legwork, is to decide if condo living is right for you- assuming, of course, that you know exactly what a condominium is.

Sharon Reuler, a condominium specialist with Trend Realty, describes condominium ownership as “owning the coffee, but not the cup.” You own your unit, usually the “condo air space” bounded by the interior surfaces – the space from the finished floors to the finished ceilings and the finished surfaces of the enclosing walls – and an interest in the common property and community facilities.

Being part of a common interest is what makes condo living complex. Common interest means there are enforceable rules and regulations, and as a result, less freedom. A state law makes you, as an owner, a vote-holding member of a Condominium Owner’s Association, subject to majority rule over property in which you have financial stakes. The condominium complex, which is similar to a small city, functions as a democratic institution. The person who builds the condominiums, or converts preexisting buildings to condominiums, usually transfers the entire responsibility for the property to the buyers. The owner’s association will decide whether to retain the management contracted by the developer or converter, or to increase or decrease management services according to the needs of the complex.

A management contract should detail specific job functions, job requirements, and conditions for the termination of employees of the complex. Managers should arrange for all common property maintenance; supervise all employees; execute contracts for water, electricity, telephone, gas, and other services in common areas; regularly inspect the property; and buy all equipment and supplies for homeowners.

The management is also responsible for record keeping and correspondence. Financial records of the association – including accounting services, preparation of the budget, and monthly statements of cash receipts and disbursements -are also the responsibility of a professional management service.

Keep in mind that the purchase of a condominium is much less transient than apartment rental. If the location, construction, management, or neighbors don’t work out as you had hoped, or if you get antsy after six months at the same address, it may be difficult to unload your condo and skip town.

Consider the complex itself. Is the location-both of the unit within the complex and the complex within the neighborhood -desirable? Are there sufficient parking spaces, and are they included in the price? Will the laundry facilities be available when you are? Are the unit and the complex aesthetically attractive? What about the security, noise, and privacy levels? Weigh all these considerations in terms of personal preference and the effects they will have on resale value. Then be sure the complex is well constructed and well run.

Betty Langford, owner of Condominium Management and Maintenance in Hurst, suggests that a prospective buyer know about the developer’s reputation. Some developers, she says, have come from other countries, built condos, and then left and let someone else take over their problems.

She suggests having a builder inspect the unit, the general area, the roof, and the heating and cooling systems. She says conversions-condominiums that were once apartments or other structures-often have the same problems the buildings had before they were converted. “Some developers just change the sign and call it a condominium. You should do lots of inspection. You can do cosmetic surgery, but if a building had problems before, the problems will still be there, no matter what you call the place.”

And as owner of the condo, guess who’ll pay all maintenance fees? Count on maintenance charges including payment of some or all of the following: real property taxes, payrolls and payroll taxes, oil, gas, electricity, management, repairs, painting, sewer charges, depreciation, reserves for replacements, insurance, service contracts, supplies, office expenses, legal and accounting expenses, petty cash, and contingencies. The total expenses connected with the common elements are apportioned to each buyer in accordance with the assigned percentage of interest each owner has in the project; the more space you own, the greater the expenses. The importance of the management’s role becomes obvious: Sloppy management means frequent maintenance charges.

Check the budget of the complex carefully. Do itemized expenses realistically compare with the maintenance costs you anticipate? If not, your assessment could be increased soon after you move in.

The most important pre-signature step is the meticulous examination of the condominium declaration, the master deed. The deed provides the legal basis by which a property can be owned as a condominium, as well as covenants and restrictions under which the condominium operates.

Eric Ragir, an attorney with the law offices of Ward Williford, warns not to let the sales agent convince you that the thick set of inherently boring documents is not worth worrying about. “It may be a very honest mistake on their part, but nobody is going to be as interested or as affected by those documents as you. In not reading it, you take a chance. Take it if you want, but at least take the chance knowingly.

“Most declarations are no problem, but if they are a problem, there will be lots of heartache later. If you aren’t willing to take the time or don’t understand the declaration and bylaws, spend the $150 it takes to seek counsel with a lawyer and save a lot of grief.” (Ragir says $150 is a “good ball park figure” for legal review of a declaration, depending on how complex the document is. If the client chooses to draw up his own contract, a rather rare decision, the fee will be $250 to $300.)

One thing to note in the contract is whether the deed filed at the courthouse provides for the legal enforcement of the restrictions set forth in documents not filed. If it does, be sure to get a copy of those other documents.

Ragir says to make sure you know the status of the project. Some people buy what they think are condominiums, but turn out to be town houses. Units on top of one another cannot be town houses; with a town house you own a parcel of land. Ragir says it isn’t always possible to distinguish between the two by looking; sometimes it is merely a technical distinction, but it is an important one legally.

Find out if the developer or the individual owners are actually in control of the project; if the developer is in control, find out when he will turn over control to the individual owners. Initially, in all but very small complexes, the developer will contract a management company to carry out the management functions of the condominium. This contract should eventually be negotiated by the unit owners themselves, but until such power has been turned over to them, each owner must accept present management arrangements. Again the importance of the management is clear. (Its reputation can be checked with local municipal authorities.)

If you are buying the condo from a previous owner, know about that individual’s management of his unit and the unit’s status within the complex. Is the present owner up-to-date on payments of his assessments? If not, you, as the new owner, are usually liable. Are there “lingering assessments”-charges that have been assessed, but are not yet due? Usually unit status is not as questionable when you buy from a developer (who is often not liable for dues), but be especially careful when buying from an individual owner in a complex where the developer is still in control. It’s one thing if you get stuck with these assessments and are willing to pay them, but it’s another thing if they arrive unexpectedly a month after you move in, after you’ve already spent all your money on designer wall coverings.

Ragir outlined three other areas of the master deed that deserve special attention. It is important to know the percentage of ownership each space in a complex is assigned. The assignment will control the proportion of the total price each owner will pay and the amount of each month’s maintenance charge, and will often affect voting strength.

The percentage of ownership is, of course,, related to the value of the unit. The value assigned to the unit is usually based on the total square footage; occasionally it is subject to more aesthetic factors such as location within the complex (the higher the floor, the more expensive the unit) or proximity to traffic, elevators, and pool areas.

This information should be clearly explained in the declaration. Know how percentages vary according to unit sizes and the number of units owned. Be sure that you will be able to vote according to the basis of your ownership.

Check the deed and other documents for restrictions. Regulations pertaining to dogs, children, camper parking, awning installation, and even curtain restrictions are frequently not mentioned directly in filed documents, but in other papers. Provisions for such assorted restrictions, however, may be included in the master deed at the courthouse.

Also look into any rights of first refusal that the condominium management or association may have. This option to buy the unit first if the owner decides to sell is rarely exercised, but the procedures that could be employed should be reviewed.

A description of the insurance already provided by the complex should also be in the bylaws and declaration. Jim Farabee, a vice-president of Alexander and Alexander insurance company, says to pay particular attention to the extent to which the condominium association provides coverage. Know how much you’ll need to insure with your own policy and if the policy the complex holds for the commom property is sufficient. Most projects carry fire and public liability policies. The amount carried on the fire policy is usually equal to the original building cost. Check the allowances in coverage for property value changes. The major policy premiums protecting the property and its common elements are usually a part of the operating expenses. The insurance fees assessed to each owner are based on percentage of ownership.

Often the coverage included with the condo provides very minimal protection of the common property. Because of potentially inadequate protection, there is a possibility owners will be assessed repair costs if damage is done to the complex.

Farabee warns buyers to be careful when purchasing individual policies because people often find out too late that their policies don’t cover everything they need covered. Coverage should include personal property, liability, and “improvements and betterments” (which are the same thing). It is important that your agent know that the policy is for a condominium since specific forms will be used that include coverage that other policies do not have. But as with any policy, many individual items are not included and must be insured individually.

With the deed, most projects provide a certificate of insurance verification. An insurance agent can look at it (as well as at the bylaws and deed) and determine how much protection an individual will need. Some complexes have insurance committees to see that polices are up-to-date and adequate by all standards.

The list of exclusions on the individual’s policy should also be read and considered carefully. The standard form excludes property of roomers and boarders not related to the insured party, as well as an assortment of items including animals, vehicles, boats, money, or more than $500 worth of manuscripts, notes, stamps, or tickets. These are not unusual exclusions, but some of the clauses are very different from other dwelling insurance policies and merit extra attention.

All this makes for a pretty thick roll of red tape; you may wonder if it might not be a lot simpler just to move into that garage apartment you’ve been renting to students above the house you’ve decided to sell. Maybe it’s time to look back at the list of advantages and apply a little of the “all things in moderation” psyche to the admonitions for caution.

One book goes so far as to advise a person in the market for a condominium to seek the counsel of an attorney, an accountant, and a real estate appraiser -a veritable troupe of investigators -to research the complex before investing in a unit.

But condo specialist Reuler says this is really not necessary. “Talk to your agent, read all the publications you can find written about condominiums, and then carefully read your declaration. If you still have questions, talk to an attorney. But be sure he is experienced in dealing with condominium law.”

Condominium living is a far cry from renting or living in the single-family detached house most of us grew up in.

“Before,” Reuler says, “it was ’live in a condominium until you can afford to buy something else.’ Condos still provide some owners with the most affordable homes in desirable areas, but for an increasing number of people, condominiums are the first choice -the life-style they choose over all others. Every day there are new buyers, people who have sat down to write a rent check one too many times.”

Many Dallasites are still sitting down, checkbooks before them, writing checks that are often the same size as those they have begrudgingly mailed to landlords. The difference is that now their money won’t evaporate into that ubiquitous cloud of rent, but will become the foundation for property ownership.

Over 90 per cent of these “foundations” are being poured in the northern half of Dallas County. Reuler says that as far as prices go, we will soon see the end of condominiums in the $30,000 price range. But if you hurry, Turtle Creek Terrace ($33,800), Munger Place ($39,500), The Loft ($27,500), and a new U.S. Home development called Richland Trace (423 square feet for $33,450), may still be able to help you beat the crunch of the forties.

But don’t despair if you have money to burn. The Claridge can get you in one of its high-rises at the corner of Turtle Creek and Lemrnon for $3 million, or as little as $464,000, and the more modest Clar-mont in North Dallas will make you a $2-million deal.

The Oak Lawn/Turtle Creek area continues to be one of the prime areas for condo buyers, especially the urban sophisticates who love all the chills and thrills of intown living, mixed with both residential and commercial properties. This area provides easy access to the University of Texas Medical Center and the apparel and trade markets, as well as to downtown.

Greenville and Skillman locations are growing particularly popular with young singles and couples in the condo market. The area’s glut of plush restaurants, clubs, and fashionable shopping centers has long made it popular with renters and buyers alike.

Traditional North Dallas (either side of Preston Road between Northwest Highway and LBJ Freeway) and far North Dallas (along LBJ Freeway and Belt Line Road) are also growing in popularity.

Land near downtown gets hotter (and more expensive) all the time; even Irving and Arlington are certainly not considered unpopular spots for the set.

In fact, although some condominiumsmay be overpriced and others may bepoorly managed, we’ve found few complexes where units aren’t selling like dollarCadillacs.

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