October 20, 2022
Contemporary home buyers think less in terms of a “forever home” and more in terms of a “now home.” Americans buy “starter homes” when they first achieve a certain salary level. They graduate to larger homes when their wealth and families grow. Later, many people seek different properties with retirement in mind. More people are now retiring in an unmarried state, with less purchasing power and space needs. Many retirement-age Americans are not actually retiring, they just evolve their careers to suit life changes. Developers respond to the changing desires of buyers with an expanding array of options. Most of these housing products include a governing association. Are condominium units good for retirement-age buyers? First, one must consider what these older buyers want. They tend to have similar interests, which define their expectations and preferences post-closing as they engage in the voting and meetings of the unit owner’s association. Let’s take a look at reasons why buyers look at condos:
- Ease of ingress and egress as the owners’ mobility declines. Many condominiums are wheelchair accessible and allow unit owners to go about their daily life with a minimum of walking up and down stairs.
- Proximity to healthcare. Many people avoid remote areas with few doctors, hospitals and clinics. Many retirees want to live close to businesses that provide in-home support as an alternative to assisted or independent living.
- In urbanized areas, such as the Washington, D.C. suburbs, condominiums are typically the most affordable home option. But not all condominiums are really, “affordable housing.” Some luxury condominiums include lavish features and amenities not found in conventional single-family communities.
- Ease of maintenance. A 2,000-3,000 square foot house on a 1/3 to ½ acre lot has substantial maintenance and repair costs. A condominium unit has smaller square footage. The community is in charge of the roof, parking and exterior grounds. Many retirees do not want or are not able to handle the cleaning and repair of a larger home. Adult children don’t want the parent to struggle with cleaning and repair obligations.
- Social opportunities. Condominiums are communitarian enterprises. This is not strictly business. The building may have facilities such as a swimming pool or other recreation where unit owners can get to know each other. If a retiree is moving to a new area to be closer to family, a built-in social outlet may be attractive.
- Confidence that other people will take the lead to make sure things are taken care of. There is a board, a management company, concierge, and so on. The selling point for condominiums, especially in the 55+ options, is often the “care-free living.” Many people are attracted to the idea that the community takes care of the operation, cleaning and repair of everything except the owner’s unit.
- Rules that promote safety, quiet and attractiveness. Many 55+ people have lifestyle preferences that are different from young adults. They don’t want to hear loud noise at off hours. They don’t want a lot of renters or short-term lodgers moving in and out. This shapes their expectations when it comes to the rules enforced within the community.
The housing preferences of seniors, however reasonable they may be, often run up against the practical limitations of the condominium buildings, the other people who live there, and what the condominium instruments require or allow. To answer the question, “Are Condominium Units Good for Retirement-Age Buyers?” one ought to consider the challenges and obstacles of using a condominium unit as a retirement or empty-nester home:
- The cost to the community of maintaining the buildings and improvements on the property continually rises. There are many systems in a condominium building which will one day require expensive repair: elevators, parking lots, plumbing, HVAC vents, sewer pipes, insulation, roofs, windows, balconies, boilers, chillers, even structural components. Condominium leaders tend to defer major renovations and underfund reserves. Condominiums are supposed to base assessments on the operating budget and five-year reserve study. However, boards frequently ignore reserve studies for a variety of reasons. Many people are not able to handle a $10,000-$40,000 special assessment without major life changes. Most 55+ Americans who purchase condominium units for retirement do so to avoid large, unexpected repair bills. Home ownership is supposed to fit into one’s retirement plan. The retirement plan is not supposed to be dictated by the financial burdens imposed by the board. However, in the wake of the Surfside Florida condominium tragedy, the community association industry is lobbying state legislatures all around the country to give condominium boards more powerful tools to collect special assessments. If the condominium building has reoccurring problems there may be an expensive assessment to deal with it, or the deductibles for insurance will continue to rise.
- Condominiums with serious problems tend to experience intense conflict over managerial control. Most people do not want to spend their retirement years in conflict with their neighbors. In theory, the statutes and recorded instruments give the board the power to do what is necessary to manage the business of the association while insuring sufficient checks and balances on the exercise of such power. However, 30–40-year-old legal documents may not adequately foresee tomorrow’s challenges.
- In a worst-case scenario, the unit owner may face loss of their unit through foreclosure or termination of the entire condominium project. Legislative action tends to strengthen remedies such as foreclosure or termination in response to input of lobbyists and action committees for the HOA and developer industries.
- A large number of participating unit owners may not share the same views as the retirement-age buyers. The board of directors may be made up of unit owners with a variety of perspectives: retirees, young persons, real estate agents (or other vendors) looking to build a referral network, unit owners looking to have their own personalized concern addressed, or non-occupants who own a large number of units as investments. No matter how pure or conflicted their motives are, the directors are likely to look at themselves as non-profit volunteers who, unlike other unit owners, won the most recent election.
- Many condominium bylaws include indemnification provisions that protect the association against money damages claims for water infiltration. This is a burden shifting device that lowers the overall operating cost of the association, at the expense of the members. This is one way that condominium unit ownership can create a serious problem for a unit owner.
- Many people assume that there are laws and agencies that provide regulatory oversight preventing homeowners from unduly suffering from condominium governance problems. Government officials looking to be re-elected don’t send citizens written demands to pay $20,000.00. However, the idea behind community associations is that they are self-governing. Many states have boards or ombudsmen that play some role in the legal affairs of community associations. However, such officials often have close ties with the industry. Usually, their legal authority it limited.
- Most condominium disputes go into the courts if they cannot be solved within the association. The statutes and recorded instruments define the enforceable “contract” between the unit owners and the association itself. The obscurity of condominium law and equitable remedies makes it difficult for a general practitioner to navigate the courts for the unit owner client. Yet, condominium unit owners can successfully vindicate their rights vis-à-vis the board where the facts and circumstances allow.
Are condominium units good for retirement-age buyers? Based on my experience representing condominium unit owners, I have concerns about the realities of this form of housing investment. That said, there are many people who have good experiences buying condominium units, living in them or renting them out, and in a few years selling them above purchase price.
Most smart home buyers adequately research and review the potential investment. The process of reviewing the listing online, visiting the property, making an offer, and reviewing the disclosure packet, and considering a home inspection report can be inadequate for a buyer to rightfully feel a high level of certainty. The buyer does not have the experience to understand what they are reviewing (if they even bother to look). Even if they do possess the legal, accounting and engineering acumen, it may not disclose key information, such as the likelihood of a major future assessment or risk of system failure. If there are particular community features or rules which are a “must have,” the buyer ought to confirm that is set out in the recorded instruments, and not rely upon assurances provided during the sales process. Also, disclosure packets cannot predict what a future board might do. Newer condominiums are less likely to require major expenses necessary to replace entire building systems. But new buildings have defects too.
For a condominium unit to fit within a limited retirement budget, the purchaser needs to have a plan for how to deal with potential unpleasant surprises. If the buyer has the financial resources to set aside for a potential future special assessment and/or to litigate disputes, and they carefully review and consider the disclosures and find them unobjectionable, then perhaps they can ride out future obstacles.
Unless the buyer plans on sitting on the board of directors for the entire time they own the unit, they need a strategy for monitoring and engaging in what the board and committees are doing. Otherwise, it’s easy to become blindsided by a new development which had been discussed but not widely broadcast until after a decision is made. Many unit owners find it easiest to network with other unit owners (including some directors or committee members) who share their interests so that they don’t have to listen to or read every document or meeting. The retiree’s plan for purchasing and owning the condominium unit ought to include an exit strategy. Without adequate planning with respect to the condominium investment, the retiree risks having a board of directors overturn the personalized retirement plan.