So, you are a first-time homebuyer or maybe an investor thinking that now is a great time to take the plunge and buy that condo you've been reading so much about" and, the price is so low and you just don't think you'll ever get a better deal. Should you do it?

In our recent past, investors fueled the rising real estate demand with their insatiable appetites for condominiums and real estate developers complied. Builders all across the nation rose to the occasion creating a pool of 574,000 condominiums nationally in the last five years. According to the May 15, 2008 edition of The New York Times, Marcus and Millichap Real Estate Investment Services, which is based in Encino, California, estimates that nearly 202,000 condo units will be added this year, bringing a total of 94,166 more units onto the already bloated condominium market.

Sam Chandan, chief economist at the real estate research firm Reis stated "What motivated people to go into the condo market in a way that led to overbuilding was the expectation that it would be easier than owning a home on a maintenance basis, the downside is that your fate is tied to 50 or 100 other people who may stop making their condo payments." When someone purchases a condo, a large part of the appeal is feeling that the monthly condo fees that they pay will cover the majority of maintenance issues and responsibilities that come with home ownership. I find that many people feel as if the condo fee is in effect "budgeting" for these items, so instead of all of a sudden having to pay for a large expense, such as a roof replacement or a siding repair, these things are accounted for in the monthly condo fee.

Most condo fees will cover exterior maintenance and common area maintenance, lawn mowing and even some even cover utilities and taxes. For harried homeowners balancing full-time jobs, family and travel, the promise of easy living and a predictable budget is a huge draw. What happens though when the market starts to turn downward and your fellow condo owners can no longer pay their monthly fees or you move into a new building and the rest of building doesn't fill up as expected? "The New York Times" writer, Christine Haughney also reports "Bargain hunters say that they are reluctant to buy into a building even when the upfront cost seems low because they might have to pay unexpected fees as distressed neighbors default on their mortgages or just stop paying the association fees that cover everything from taxes to pool maintenance to air conditioning repair." According to the National Association of Realtors, existing condo unit sales were down 26 percent in March compared with only an 18% decline in single family home sales.

The trend is not encouraging and has even caught the attention of Fannie Mae who is now requiring an additional 5% down payment on condo purchases, meaning that a purchaser buying a condo with a conventional mortgage will now need a 10% down payment (unless of course they go for an FHA mortgage). So, what should you do, is it time to put away your dreams for a maintenance-free existence? Not necessarily, with a little bit of research and fully taking advantage of the laws in the State of Maryland that are in place to protect potential homebuyers, you can get enough information to know if purchasing a condo is the right decision for you.

Getting to the good part

So, here's where the services of a really good buyer's agent really pay off and where all of our wonderful lawyers really cut us a break here in Maryland. The first thing that you should know is that under the law a homeowner is required to disclose "material facts". A "material fact" is any information that had you been given would have caused you to make another decision. In the case of a condominium, the fact that residents aren't paying their condo fees and the condo association is on the verge of bankruptcy is a material fact. Additionally, all Sellers of condominiums must provide certain information to any would-be purchaser and this information is treated as a contingency to the contract of sale.

In Maryland, the Seller has 15 days to provide the Buyer with a condominium resale packet which the Seller must get directly from the condominium association; this resale packet contains all the covenants and by-laws of the condominium association and requires the association to provide "A statement of any capital expenditures approved by the Council of Unit Owners or its authorized designee planned at the time of the conveyance which are not reflected in the current operating budget included in the certificate".

In plain English, this means the condo can assess fees over and above the monthly fees that are already assessed; however, they need to disclose to you any planned repairs/improvements that aren't contained in the budget already set-forth. Also to be included, among other things, "The most recent regularly prepared balance sheet and income expense statement, if any, of the condominium, the current operating budget of the condominium, including details concerning the amount of the reserve fund for repair and replacement of its intended use or a statement that there is no reserve fund."

As a potential homebuyer of a condominium it is your right to review all of the documentation contained in the condominium resale packet for seven (7) days upon receipt of the resale package and if there is anything in those documents that you feel is questionable, you have the right to enforce this contingency and declare your contract of sale "null and void"" for "no stated reason". Following your review of this documentation, you should have a pretty good idea of the financial viability of this particular condominium complex. Walk around and observe the common areas, is there trash lying around? Is the landscaping well tended? Does it look like the common areas are well maintained? Do you see peeling paint or rotting wood? You can also talk to the residents, ask them their opinions, do they like living there? Your Realtor can also provide you with some valuable clues by pulling up comparable sales and checking the average time that units stay on the market and how many of the units are rented.

An additional layer of protection is also provided by your lender in the form of an appraisal. Most appraisers require that condo associations fill out a "condo questionnaire" that is done to determine the ratio of residents who are renting in the complex as compared to the owners. FHA looks at this factor very closely when determining whether or not a particular condo complex will be deemed "FHA approved".

Is a condominium a good investment for you? Only you can decide, but armed with a little bit of knowledge and a good Realtor, I am confident that you now have the right tools to make the best decision for you.