By Margaret Heidenry | Apr 25, 2017
As uncomfortable as it might be to get poked and prodded while you’re clothed in a paper gown, medical checkups are essential to maintaining your health. Well, guess what? That same wisdom applies to buying a home—particularly if that home is a condo. Why? Because with condos, you’re paying someone else to be in charge of a lot of the maintenance, from lawn mowing to repairs. What if they slack off and let that stuff go? If so, things will start to break down from neglect—and, like a sneeze spreading through an office, this could ultimately infect your own home, and how much it’s worth. So whether you’re shopping for a condo or just curious to know whether the one you’re already in is healthy, here’s how to conduct a thorough checkup.
Most doctors start a physical by taking a good look at the patient—likewise, you’ll want to give any association a thorough once-over.
“It’s a matter of observing the condition of the entire development, not just the home you’re considering buying,” says Lance Stendal, president of Omega Property Management in Maple Grove, MN. A well-kept association usually signals a robust bank account; one with a rundown appearance may suggest a lack of cash.
In the waiting room, you fill out a stack of papers about your health history because the past informs the future. Same goes for a condo association’s paperwork. As a purchaser, you’ll get a packet that typically contains the proposed annual budget and last year’s approved budget, says Scott Reidenbach, founding partner of Reidenbach & Associates, a Wayne, PA–based law firm.
Make sure the current budget accurately reflects needed routine maintenance; an association that’s consistently over budget is a sickly one. Capital improvements on the horizon should be mostly funded. If there is a shortfall, that money is more likely than not going to come out of your pocket—and possibly bleed you dry.
Questions to ask
A routine checkup may not reveal problems if you don’t ask the condo association board or managing agent the right questions. Here are two biggies:
How many delinquent owners are there? Size matters in determining this. Two tardy owners will have more impact in a 10-unit association than a 100-unit association.
Is there any pending or threatened litigation? If so, say hello to pricey lawyers’ fees.
Beware if condo fees are too high—or low
Condo fees are the price you pay so that you can kick back at home while others are hired to repair roofs and clean the communal pool. So, condo fees aren’t bad per se, but nothing makes a condo owner’s blood pressure rise like constant hikes in fees.
Fee hikes are unpopular and can be prevented with responsible budgeting. So, ask if the board has raised the monthly dues on existing unit owners in the past—or plans to in the future. A consistent rise in fees is a symptom of financial trouble.
On the flip side, Stendal says to be wary of the siren song of low—or no—assessments, which could mean the board isn’t focused enough on the needs of the association. And deferring repairs in order to keep fees low simply digs a deeper hole. Don’t use the fee amount as a gauge for buying in one condo building over another until you understand how those monies are allocated, says Stendal. A fee of $250 might be better than $200 if it’s properly spent on operating expenses, budget, and contributing to reserves.
Measure your condo board’s immune system
A condo’s reserve account is like its immune system—it’s a special force that fights whatever curveballs come its way. To determine if it’s readily stocked with enough antibodies, check out the condo’s Replacement Reserve Study. This report helps a condo prepare for any major financial hits it might face in the future by detailing anticipated income and expenses over the next 30 years for capital projects.
The current balance sheet should show that the association has the money in the bank that the RRS recommends, not just what may seem like a large sum.
For perspective: Divide the total reserve balance by the number of units.
“A million dollars looks like a lot,” says Stendal. “But when you have to divide that among 400 homes, a share is only $2,500!”
If the condo faces an emergency and doesn’t have a full coffer, the owners might be bled dry with a surprise assessment or a permanent hike in condo fees.
If your condo is ailing, many states allow you to back out of a contract. For example, Minnesota mandates the seller provide the buyer with current financials, the most recent annual report, and a copy of the RRS, says Stendal. The buyer is given 10 days to review them. During that time, the buyer can cancel the contract for any reason and without penalty.
If your condo is suffering and you want to help revive it, become engaged in the process. Hold the board and management company accountable for the situation, and consider serving on the board yourself. It might take some work, but this ensures you’ll call the shots on your own condo’s health.
Margaret Heidenry is a writer living in Brooklyn, NY. Her work has appeared in The New York Times Magazine, Vanity Fair, and Boston Magazine.
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