DOs & DONTs of Purchasing Condo Property in Chicago

Lets talk about condos, fellow buyers. When you buy a condo, you need to understand that you are not just buying a condo unit. You are buying a share (%) of an entire building and that any problems that the building has you will share in those costs based on your % of ownership. People don’t really look condo ownership this way and then they learn the hard way what it really means to buy into a condo building and its association.

There are so many clients in the city of Chicago who have had to pay huge special assessments for seemingly hot market buildings with fantastic amenities and great interiors. For example, I had a friend who lived in this amazing loft building in the West Loop where all the units got stuck with a huge bill for masonry tuck pointing and fixing: about 80K per unit!  That was back when people could actually get equity out of their homes. Now they would not be so lucky. Then there was the huge loft building on Michigan Avenue where each unit was specially accessed over 50K per unit to fix the balconies per unit!  When you start educating yourself in condo management and go and talk to other owners, your hairdresser, friends, clients, you find out that these special assessment horror stories are fairly common these days.

Chicago unfortunately has a lot of bad buildings that really need work. I’m sure overlooked construction laws and codes were a problem all over the country in this recent boom/bust. There were so many inexperienced developers trying their hand in real estate,  and for many residents, they unfortunately live in a product of these developers first endeavors–which tend to have problems. These were developers who didn’t have a clue about project management and did not know the true costs of quality construction, so they often had to cut corners on the properties. Where they cut, you usually find out after moving in.

Furthermore Chicago has been far too lenient on bad developers and bad materials. The city also doesn’t have enough people working in the building codes department. So it’s up to the buyer–NOT your realtor, NOT your real estate attorney–and it’s NOT up to the city codes department to protect you. It’s all on you the buyer-and how disciplined you are will determine the outcome of buying a home that will be less head ache free. Because lets face it, anyone who has ever owned, knows there is no such thing as headache from when it comes to owning your home,  but to me its all worth it if the investment is done wisely.

Buyers definitely need to be super diligent, take their time, and hire the right experts to help them navigate the process of buying a condo, townhouse or single family. You will need, no matter what your realtor tells you— the following:

  • certified structural engineer with excellent reputation
  • a very experienced real estate attorney
  • a very experienced “buyers” Realtor

This is the most important factor,  and its also not cheap but well worth the investment! Expect to spend about $300-$900 depending on the structure of the building which determines the time they have to spend accessing it.
Please don’t depend on the banks building to protect you. They will not!  I can guarantee this. I know from experience. And the inspection on the other side is mainly there to “inspect” cheaper items like dishwashers, faucets, hot water heaters….check for weird things like bad electric work, or a toilet that doesn’t work. Sorry, these things are important –but not nearly as important as structural items like masonry, roofing systems, windows, and plumbing that cost your life savings to fix instead of a months salary. If I were a resident, I would take a leaky faucet or replace a new dishwasher over dealing with a new roof rip off any day of the week or bad masonry!

If you don’t find the “big” problems that later come up, then that is quite unfortunate, because you are responsible for paying for them, and typically not the developer. And you can’t just sell and get out of the place scot free. You are legally bound to let the next person who is considering buying your unit, know about the buildings past and present problems and issues with your unit.  Chances are you will not be able to sell unless you have paid for the entire special assessment for that potential buyer. Hence why you need to keep reading.

#2:  Do investigate into Condo Board Matters: Has your building that you love, even had their first condo meeting?  Do Board members have any condo management training?

Believe it or not, there are many small 3, 6 and 12 unit buildings who try not to form a condo board because they fear higher assessments. Or are just too lazy to get it together as a group. Meanwhile, the building doesn’t get maintained and then they can’t figure out why their roof leaks, why their hallways are shabby, why no one cleans the hallways or why they don’t have lawn care or snow removal. For one, there must be a formed association or you run away from the building. You want to know who is President, Secretary and Treasurer. They should be a formal nonprofit corporation . Has this been done?  Check on this with the state or have your real estate attorney check on this. Also very important: Do Board Members have any training on condo management from CAI, or ACTHA? To me, ACTHA has great classes taught by condo management experts. Their Learn and Lead condo management course is excellent for people who want to be on a board and know what they are doing.

#3:   Do get 2 years of condo meeting minutes from the condo board. This is a normal request by a savvy investor so don’t take no for an answer. You want to know what the condo board has on the table coming up as far as expenses but may not have voted on, and you want to know what has been worked on in the past and other past building issues.

#3:  Do check to see if there is a Reserve Study of the Building: Condo 101: Buildings must have a reserve study which is the study of the building, by an structural engineer, instrumental at determining an accurate cost of upkeep of capital costs for that building. So for example you have a roof….the engineer can tell it will last approximately x amount of years and that it would cost x amount to replace. And they do this with all systems all around the building. Then you work backwards to determine your assessment. So that condo associations avoid special assessments and instead are putting the right amount of money away monthly to accumulate the reserves needed when things go wrong. And things always go wrong and systems fail. Especially without maintenance.

Many buildings try to do a reserve study on their own -and often don’t do it correctly–or don’t even know they need one if they are self managed and have no training in condo management. This is dumb because it leaves the board and the building vulnerable to being sued for mismanagement down the line. And it also means that residents often end up with a huge costly special assessment later. Problem with this these days is that people can’t even get home equity loans. So what to do if something really goes wrong?

I was taught that assessments are not determined by what you can afford to pay, but rather the capital costs of the building along with maintenance cost and then you work backwards and split between % of owners. In other words, you start saving for a new roof and things that go wrong the minute you buy into the building. Plus you have maintenance costs  per year like garbage, lawn care, etc. If you don’ t do a reserve study and something goes wrong with the building, and its so costly that residents don’t have the cash (or equity) lying around to pay the special assessment –then the next thing that board members do is go to a bank. The first thing a responsible bank manager is going to ask for who deals with these building cases is the reserve study. The reserve study is a must and very important. It’s proof of professionalism and a high level of organization with the condo board and condo building in general. But ONLY if the correct amount of reserves are put away in  a separate account monthly. There should be two accounts: monthly maintenance and reserves. Banks NOW want to see 30% above cost of maintenance, put into the reserve fund, and not touched.

#4: Don’t wait to move in to see what soundproofing measures have been taken in the construction of your potential building. Be aware of where the unit is and where the loading docs are, garages, etc. This is very important. There are few to no codes on soundproofing condos in the city of Chicago. You can’t tell when you look at the units because the model doesn’t have people living above it or beside it. You only find out about sound issues after moving in. This is a major problem if you can hear your neighbor walking above you, hear their phone conversations. Also soundproofing issues cause discontent among neighbors for obvious reasons.   You don’t typically have to worry about this with a tall high-rise since they use concrete between each floor. But if you buy into a 6 flat and its been remodeled you need to ask what is between each unit and if there is 2″ of concrete between each unit and proper installation for hardwood floors to minimize sound transferring.
Do find out about insulation between each unit because the typical cheap pink insulation doesn’t have good sound proofing properties that other insulation brands like Roxul –do have and having double layers of drywall or using quiet rock….

#5: Kara, my neighbor, made this great point: “The challenge with new construction is that the buyer may not be able to meaningfully inspect anything, as the building may not be constructed enough, which is a consideration in and itself that a buyer should think about before entering into a contract.”. In my opinion: don’t buy new construction until the building is built, and proper inspections can be done.

#6. Don’t buy a building just because it has low assessments. I once knew a real estate attorney who never let his client buy into a condo building under 10 years of age because those buildings are always underfunded because their assessments are too low. Then all of a sudden, something happens and the assessments go way up or there is huge special assessment for the next buyer. So don’t buy into a building that has low assessments. You are going to be paying for all the work that the previous owner didn’t have to do. And the building has not been properly maintained if it has low assessments and is behind in capital improvements typically because noone wants to put out the real dough it takes to fix everything and make the building the best it can be and still have their regular maintenance costs.

#7: Termites:  Okay, termites are more common in some areas than others because of the amount of sand in the soil. The south side of Chicago  and other areas happen to be more termite friendly. Termites are expensive to treat because you often have to drill right through the drywall and sides of the building and the foundation to treat. Obviously, someone may be living in these areas. For our building it was 20K to treat. Plus the cost to fix all the hardwood floors for the units we had to drill in. What a mess. We found out we had them by seeing tiny little black holes in molding and there is usually a tiny bit of sawdust around those holes. Now when you are dealing with a structure where people live, and they live in the basement, the termite guys have to drill through the slab….so the person can’t live there while this is going on. So that is a major consideration. Many Southside homes need framing work if the building is old because of this. You can’t just gut to the framing because the framing is usually pretty hollow after a while. I suggest framing buildings in steel…because then termites are never a huge issue. But definitely have your inspectors and your structural engineer be wary of termites and definitely see if the building and soil were ever treated for them.

#8:  Hire a designer before you buy the condo to access accurate replacement costs of elements you don’t like so you can accurately compare apples to apples when shopping other condos. When you hate the kitchen cabinetry or various aspects, to replace costs far more than most people realize.  That “easy fix” you think you understand cost on is usually not an accurate cost assessment 70% of the time. When it’s a high rise, labor costs more because the building has more laws and it’s not so easy for them to get in and out and do their work. Plus they typically have to carry more insurance and be a more professional outfit to work in nicer buildings.

#9:  Do be firm with your REALTOR about only  looking at buildings that have a financially sound high reserves on hand, and an organized condo board that also have a strong positive knowledgeable management taking care of the building.

#10. Do pay a lot of attention to the grounds of the condo building before you go in because the outside is very representational of management and owners in the building. If there is trash on the ground out front and in the back, then there is not enough neighborhood pride to be living there to begin with– or respect for owners. It also shows that people in that building don’t even respect their own building/property enough to pick up the garbage around them. That’s a bad sign. Secondly, if the grass isn’t being kept up, that is a sign of a struggling association or a cheap & negligent association. If the gates are rusty (how expensive is paint??) then also this is a sign of slacker like management. Look at the masonry, the sidewalks, does the buzzer work, etc? Also what about the hallways?  How does the carpeting and walls look?

Also a designer, I can completely see the pro’s and con’s that a client may not even notice and can spot the space where the interior has the most potential for the clients wants and needs.

As long as the rest of the building is up to par..and free of management and structural defects. I have saved many of my clients from making huge condo mistakes.  They were a little bummed at first and then thrilled when they get the full knowledge and reports back on the building that they had been saved from probably a series of major financial headaches. And now they are all in homes where they are happy and have minimal problems.


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