When considering the purchase of a condo, it is crucial for service members to thoroughly research the condition of the building and its financial status, as these factors directly impact you as a buyer. Here is essential information you need to know before making a decision.
Key Facts about Condos
All condo buildings have a homeowners association responsible for the property’s management. The association’s board of directors is elected by the unit owners, who comprise its members. In many cases, condo boards hire professional management companies to handle property maintenance, enforce rules, collect monthly dues, and manage the budget.
Monthly Condo Association Dues
The monthly condo association dues cover the maintenance expenses for the building, its common areas, and amenities. Common areas, such as parking lots, sidewalks, landscapes, hallways, lobbies, elevators, and stairs, are accessible to all owners. However, individual owners are financially responsible for the interior of their units. Monthly fees can vary drastically from one condo to the next.
Building Safety and Inspections
The association board is responsible for regular safety inspections of the building, and the inspection reports are considered official documents of the association.
Significance of Reserve Funds
Condo associations must budget for routine repairs, insurance coverage, and allocate reserve funds for long-term maintenance projects. Reserve funds are crucial for significant capital expenditures like roof replacements, facade renovations, and other major repair projects. Ideally, a healthy reserve fund should hold 70 percent of the required funds at all times. A reserve fund with 30 percent or less available is considered financially risky.
The Role of Reserve Studies
To properly fund the reserve, condo boards should consider hiring a specialized consulting firm to estimate the lifespan of structural components, determine future repair costs, and establish a timeline for saving funds. This process, known as a reserve study, helps ensure the reserve remains adequately funded.
Special Assessments and Funding Shortages Insufficient funding in the reserve may lead to special assessments, which are additional fees charged to owners to cover the shortfall when major repair projects arise. These assessments can impose a significant financial burden on individual owners.
Important Questions for Buyers
If you are seriously considering purchasing a condo, it is crucial to ask the following questions:
- How much are the condo dues, and how often have they been raised in recent years?
- What is the current balance of the reserve fund?
- Has a reserve study been conducted, and if so, when was it last performed? Is the reserve fund adequately funded as advised by the consultant (at least 70 percent)?
- Are there any planned or under consideration special assessments?
- What is the percentage of owners who are more than 60 days behind on condo dues? A high percentage is a cause for concern.
- Has the condo building undergone a recent comprehensive inspection? What were the findings, and how frequently are inspections conducted?
- What is the ratio of owner-occupied units to investor-owned rentals?
- Does the condo association have sufficient property and liability insurance, including a master policy that covers the structure and common areas not owned by individual owners?
Please note that the condo board or management company should have access to this information, although they may not provide it until you are under contract for a unit. Additionally, if you plan to secure a mortgage, your lender will scrutinize the condo association’s financials and inquire about these matters.
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