What to look for as condos become more popular housing option in Chattanooga
As condominiums become a more popular housing option for Chattanoogans, experts say there are special factors buyers need to watch for unlike purchasing a single-family home.
Insurance, condo boards, special assessments and maintenance history — especially in light of the tragic Surfside, Florida, building collapse — are among the differences.
“If you’re a buyer of a condo, due diligence is a must,” said Mike Mallen, a Chattanooga attorney.
Mark Friedlander, director of corporate communications for the Insurance Information Institute in New York, said condo owners should hold adequate coverage to financially protect their assets just as for a single-family home.
But condo insurance is intended to cover “inside the walls” of the unit, Friedlander said. An individual condo policy doesn’t cover the physical structure of a property. That coverage is rather by a master condo association policy, which protects the entire structure including common areas shared with others, he said.
A property management company or an association’s board of directors is responsible for the master policy with the premiums paid by each unit owner’s maintenance fee or association dues.
Friedlander said the most common type of master policies is “bare-walls coverage,”
in which the condo association is only responsible for insuring the bare walls, floor and ceiling. In a covered disaster, the individual unit owner is responsible for elements like kitchen cabinets, builtin appliances, plumbing, wiring and other similar elements plus personal possessions, he said.
Friedlander said it’s important to know which structural parts of an owner’s condo are covered by the master policy so a person can properly insure the unit through an individual policy.
“You want to make sure you have enough coverage to completely replace your unit at its current market value in the event of a catastrophic loss like the Surfside, Florida, building collapse,” he said. “You also want to make sure you have enough coverage to pay off your outstanding mortgage balance.”
Friedlander said owners should work with a local insurance agent to review the master policy, shop for coverage and get multiple quotes.
Mallen, who worked in South Florida and started his career in the 1980s representing condo and golf course developers, said every unit owner “thinks we have insurance.”
“Someone has to think about the coverages and what are the exclusions of coverage,” he said. Some policy language is “a little bit uncertain,” Mallen said.
For example, if there’s a sudden opening of the ground, some policies may offer coverage, he said. But, Mallen said, if the opening occurred slowly, the coverage may not be there.
“There’s language in a policy that may offer coverage or exclude coverage,” he said. “It may depend on the facts and that may not be known until after a problem.”
Colin Gough, of the Bob Spilski Insurance Agency in Knoxville, said a lot of people aren’t fully aware for what they’re liable.
He said that people having $25,000 worth of coverage may think that covers personal belongings and materials inside the home.
“They’re liable in some cases for electric, plumbing, in some cases, drywall. It adds up,” Gough said, noting the price of materials and labor in the Knoxville area has jumped up to 60% in the last year.
Mallen said condo buyers need to look at any potential lawsuits, claims, and if the association is meeting its obligation in terms of reserves.
“If I was buying a condo, I want to see two to five years of meeting minutes,” Mallen said. “I want to look behind the curtain and look at the minutes. Meeting minutes are a good history lesson.”
He said a condo association is similar to a miniature city council for a community, and he’d like to know if maintenance on the structure is being done.
“Is a list of things piling up because there’s no money?” the attorney asked. “Are they kicking the can down the road?”
If there’s a condo association in which members know they won’t be there in five years, there’s “a natural mentality” of not wanting to pay a $10,000 assessment per unit, he said.
Mallen said a mindset could be “let’s draw this out and let the next owner worry about it.”
In the wake of the Surfside building collapse, he said he foresees activity at state legislatures and at the federal level in terms of making sure there are adequate capital reserves for properties.