What should I consider before buying a condo? (Oregon Law)

January 1, 2011 | By: A. Richard Vial

Q: What complication can arise when buying a condo project?

A: Condominiums are a type of common-ownership interest property that falls under the responsibility of a homeowners’ association. Condo homeowner associations–as well as owner associations for townhome or single family planned unit developments come in a wide range of development types that affect the level of interdependence among owners. Generally speaking, the higher the level of interdependence among owners, the more risk associated with buying into a largely unsold project, where the developer retains most of the remaining units or lots…

Q: If the developer is unable to sell all the units in a timely manner, are the homeowners association fees higher than they would be otherwise? What happens to resale values in such a scenario?

A: Slow sales are every developer’s nightmare, and this is particularly true in a common-interest project. For the early buyer, slow sales often mean that the project is not maintained to the level that the developer expected — or perhaps promised — it would be.

The developer may subsidize fees for a period of time in order to keep them low and attract buyers. Often, when reality sets in and the developer is unable to continue to subsidize, fees increase dramatically. In addition, a developer who has difficulty selling the project may also be experiencing problems in other areas, such as defects in construction.

Many times it is construction defects that lead to slow sales. Resale values will obviously be affected by these types of problems. A buyer should exercise diligence in investigating the seller’s ability to weather the problems encountered with slow sales.

Q: What warranties, if any, are typically offered on condominiums?

What questions should a prospective buyer ask about warranties?

A: Common-ownership interest properties usually have one of two very different types of warranties. For new condominiums (newly built or completely remodeled, not former apartment units being offered for sale), the Oregon Revised Statutes provide for a one-year warranty on all common elements and on the unit itself. One of the problems with the one-year warranty on common elements is that it runs from the date the first purchaser, other than the developer, takes title to a unit. If a buyer is one of the first purchasers of a project and the developer remains in control of the homeowners association, the buyer may have to hire his or her own attorney to ensure that the one-year warranty is protected. The warranty is protected by providing notice to the developer of the defect. Thereafter, a lawsuit must claim on the warranty.be brought within four years or the owner may lose any right to. With respect to all other types of projects, including the conversion of apartment units to condominiums, there is no required warranty. The law does give owners a right to make claims for implied warranties, however, and often the developer will offer a warranty as part of the sales contract.In the event that problems are suspected by any owner in a common-interest development, legal counsel should be immediately consulted to avoid losing the right to pursue legitimate claims. While most developers are responsive when problems arise, occasionally owners are told that items will be fixed, only to find that sufficient time has passed barring them from bringing any legal action.

Q: What should buyers know about homeowners association reserves and determining whether they’re adequate to cover future expenses?

A: For virtually all common-interest developments, the law requires the owners association to determine what repairs it is responsible for and what items may require repair during the next three to 30 years. This is called a “reserves study.” Once the reserves study has been done, the association assesses the owners at a rate that will let the association cover the repairs when the time comes from its accounts, without the need for a special assessment. Occasionally, developers will intentionally set the reserve amounts low so as to generate a lower overall assessment. This may help buyers qualify for loans or attract them to the project. Prospective owners should ask for a copy of the reserves study and review it to make their own determination about its reasonableness.

Q: What questions should a prospective buyer ask to determine whether a common interest unit is a good investment?

A: It’s an adage that the three most important issues in determining property value are location, location and location. The same is true of condominium and planned-community lots. But buyers should also remember that every homeowners association is a community unto itself. It is the most basic form of democracy, and, therefore, one is at the mercy of the attitudes and intentions of his neighbors. While issues regarding adequate reserves, quality of construction and assessment levels are very important in determining value, all of these items pale in comparison with the importance of a well-managed and emotionally cohesive community.