Condo Buying Guide: Condo Characteristics

A condo is considered a hybrid form of ownership because it falls outside the traditional structure of property ownership. If you’re thinking about buying a condo, it’s important to understand how ownership works so you know what you’re getting into. Several legal and technical characteristics help define condominium ownership.

Individually Owned Unit

If you buy a condo, you own a single unit within a larger building or community. Your unit (the part you own) consists of all the rooms in the unit (e.g., bedrooms and kitchen), the interior walls that divide the rooms, plus any balconies, patios or storage areas. Unlike other types of ownership, you don’t own any land, but it’s still considered real property (the legal term for real estate) for legal purposes.

Common Areas

All other parts of the property are called the limited common elements or common areas, and the ownership of these areas is shared by all unit owners (including you). The common areas include:

• All parts of the building other than units, including the basement, ceilings, elevators, floors, foundation, halls, lobbies, roof, etc.
• All installations for central services, including heating and air conditioning, electricity, gas and water.
• The land on which the building stands and the parking areas.
• Community facilities, such as boat docks, clubhouses, gardens, playgrounds, tennis courts and swimming pools.

Property Interest

As a condo owner, your interest in real property is conveyed by deed. The interest is comparable to that of any other owner of a freehold estate in real property, and you are free to sell or convey your interest at will. Like other types of property, ownership can be held by an individual, by two or more individuals as tenants in common, by a husband and wife as tenants by the entirety, or by a business entity. (For further reading, see Holding Titles on Real Property.)

Taxes

Like any other property owner, you are responsible for paying property taxes on your condo. For tax purposes, each unit and its associated percentage of the undivided interest in the common areas is deemed a parcel and is individually assessed and taxed. The common areas are not separately assessed or taxed, and each unit owner is liable only for the taxes on his or her parcel. (Read more in Property Taxes: How They Are Calculated.)

Homeowner Association (HOA)

A homeowner association (or condo association) is established when a condominium development is created to enable the various unit owners to manage and maintain the property together. Often, HOAs hire outside property managers to handle the upkeep and maintenance of the common areas. As a condo owner, you are obligated to join the HOA and pay the monthly or annual fees. (For more, read 9 Things You Need to Know About Homeowners’ Associations.)

Covenants, Conditions and Restrictions

In addition to maintaining the common areas, the HOA establishes the covenants, conditions and restrictions (CC&Rs) of the condominium development. These are the governing documents that determine how the association operates and the rules the owners (and any tenants and guests) must follow. These are legal documents that are sometimes called the bylaws or the master deed.

CC&Rs might dictate, for example, the color of any interior window treatments or the size/breed of allowable pets. The consequences for breaking a rule might include fines, forced compliance, a lawsuit or even foreclosure. As such, always review these documents with an experienced real estate attorney before making any offers on the unit. If you can’t find the CC&Rs online, ask your real estate agent for a copy or contact the HOA directly.

HOA Dues

Each unit owner is responsible for paying monthly, quarterly or annual dues to the association to cover upkeep of the building, common areas and amenities, such as swimming pools and fitness centers. If there aren’t enough funds in the HOA reserves to cover a major expense – such as replacing the roof or installing a new sprinkler system – the association will charge a one-time “special assessment” that can run into the thousands of dollars, depending on the scope of the project and the number of homeowners in the association.

Condos vs. Other Homes

Here’s a quick rundown of the various types of ownership.