We all know that the major type of property changing hands and being built in the city of Chicago is Property Type-2.  The formal term is Single Family Attached and what most people call a condominium or townhouse.  With condominiums you will more than likely find a condominium association.  Condominium associations are set up to maintain the building and therefore maintain or improve property values. With the association comes fees which are called assessments. They are usually a monthly bill the owners have to pay so the association can pay for the exterior building insurance, building exterior maintenance, grounds upkeep, water, common area electricity use, and possibly trash removal.  (In Chicago, if the building has four or less units, trash removal is payed by the city.) Other possible expenses that would be covered by the assessment include door people, management company fees, maintenance person, elevator service, etc.

Decs & Bylaws, Rules & Regs

The typical association is set up by the original developer of the building, whether it be new construction or gut rehab. With the condo association there should be formal legal document called the condominium declarations (often called decs & bylaws), which describe the property, percentage of ownership, limited common elements such as hallways, parking, etc.  There will also be another formal legal document called the rules and regulations (commonly called rules & regs); they lay out what can and cannot be done in and around the building.  Examples of rules and regs are pets rules, pet weight limits, use of common areas, and even restrictions on smoking to name just a few.

Condominium Associations can be self managed or run by a management company.  Typically a smaller association will run itself.  This means each unit owner will more than likely take a roll in the management of the building. Electing a president, secretary, and most importantly the treasurer.  The treasurer is the person responsible for book keeping, paying bills, and making sure everyone turns in their monthly assessment on time. 

Small vs. Large Buildings and Associations

Smaller associations tend to have lower assessments.  This is great for the cash strapped buyer.  However, the buyer beware! If the association is not putting enough money away to adequately pay for regular expenses and even worse, the occasional problem, there is a high probability the building will see a special assessment.  A special assessment may be levied against a unit for many items. A common one is having to put on a new roof.  This can be quite costly.  If the unit owner does not pay the assessment a lien can be placed on unit.  The lein will prohibit the owner from selling or refinancing the unit.  There is something to be said for strength in numbers.

With a larger association the buyer will run into higher monthly assessments.  This can be a good thing or a bad thing.  In a full amenity building the assessments can run to $1,500 per month or even higher.  This is especially true in older and vintage buildings that require relatively more maintenance than newer buildings. With larger buildings, the association will be run by a management company.  Depending on the management company, their fees can add quite a bit to the monthly assessment.  But, if you want a well run building you have to be willing to pay for it.  If the building is not well run, you at risk of your asset (home) depreciating.

Eight Questions to Ask Before Buying a Condo

My advice when out condo shopping is simple: ask as many questions as possible.  Here are my top questions:

1. What are the assessments?
2. What do the assessments pay for? What don’t they pay for?
3. Is the building self-managed?
4. If the building is managed by a property management company, what is the company? (Do some research and find out if they are reputable.)
5. How much money is in reserves?
6. Are there any special assessments now or expected?
7. Has there been any updating to the building, and if so, did the association do a special assessment or did they use funds from reserves?
8. Are there any pending lawsuits against the association?

Many first-time condo and townhouse buyers don’t completely understand what they’re getting into. It’s not bad, but it is something that should be understood completely before signing the mountain of papers at the closing!

Photo by Lucius Kwok

Townhouses

I live in a fee-simple town home. Last night the officers of the association had a meeting, and whether I like it or not, I had to go because I’m the president. What? If you understand why this is weird, read on. If you don’t understand why this is weird, read on.

Fee simple is one of the bits of real estate legalese that Chicagoans may occasionally hear in conversations standing at the water cooler or sitting on a stool at the local hole-in-the wall. “My place is fee simple, so I don’t have assessments…” What the…? Hang on, it’s not all that difficult.

Fee-simple in Chicago (the general, legal definition is below since it’s far less interesting) usually means that the home is a townhouse where there is no property held by an association. In fact, there is usually no association at all. To understand what this means, it might be easier to compare it to a typical Chicago condo or townhouse.

A Typical Condo

In a typical condo or townhouse, parts of the property are held by, and the responsibility of, all of the owners?in other words, the association?and are usually called common areas. Some examples of common property are lobbies, roofs, courtyards, and often windows.

A Fee-Simple Townhouse

However, in a fee-simple townhouse there is nothing that is owned by the association. The owners own their roof, their windows, the land under and around their townhouse. That means the individual owners are responsible for taking care of any lawn, painting the outside, fixing leaks in the roof, and shoveling the snow.

In my case, I live in a courtyard townhouse. There are two rows of homes with a beautiful little courtyard filled with trees and flowers (or mounds of snow) between them. A sidewalk runs down the exact middle. Only the end units face the street. I own, and am responsible for, the part of the courtyard that extends from my front door to the middle of the sidewalk. I have to pay for and plant the flowers. I have to cut my grass. I have to clean my gutters. I have to rake the leaves that fall on my bit of grass.

The only thing that I share with anyone are the walls dividing my home from the homes on either side of mine. If something were to poke a hole in either of those walls, both my neighbor and I would have to pay to have it fixed. If the damage is just on my side of the wall…it’s my problem.

Luckily, this complex of townhouses decided that it was nuts for each person to mow their own 10 foot x 10 foot bit of grass, shovel half of the side walk, and clean only their gutters. About 20 years ago, well before I bought here, they formed a loose association. We all pay a very small assessment so we can hire someone to do all these odd jobs that impact all of us. In our case, the association owns nothing. It just exists to buy services that all of us need and benefit from. This is why I was at the meeting last night?looking at expenses.

What Are The Pros & Cons of a Fee-Simple Townhouse?

The first pro you will notice is that there are no assessments. This, in my opinion, is a very big advantage. It means that you can pay more for the home. When you are looking to buy and you know you can spend $1,000 a month, that whole $1,000 can go toward your mortgage. None of your monthly payment is going toward an assessment. The added benefit is that all of the interest on a mortgage payment is tax deductible where an assessment payment is not.

The other pro that springs to my mind is the feeling of independence you have versus a standard condo. You don’t have to worry about what the neighbors think; they can’t make a rule about the size of your dog or how you empty your garbage.

The cons are just the other side of the same coin: you can’t control your neighbors in any way. So, if your next door neighbor?the person you share one wall with?decides to paint their house black with lime green accents, there’s not a thing you can do. If they decide to dig up their bit of grass and replace it with a spongy-floored play area for their kids, your hands are tied.

But What Does Fee Simple Mean in General?

Fee simple is a legal phrase that indicates the highest form of property ownership. Fee comes from the word fiefdom, which means the legal rights in land. Simple in this case means without constraints. So, fee simple ownership of a bit of property means the absolute and unqualified legal title to the land and any permanent buildings on it; no one else has any claim to the property at all. It’s the most common form of ownership.