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Before You Buy a Condo or Home in an Association: 4 Things You Need to Do

Category: Active adult communities

July 21, 2021 – So you managed to get lucky. It looks like you might win the bidding to buy that condo, or a home in an active adult community. But before you submit the winning offer and break out the champagne, here are 4 things you need to do first. Your new community’s financial picture deserves some extra looks, particularly in light of the collapse of the Champlain Towers South condo building in Surfside, FL. A community might look healthy, but until you have examined its financial reserves you really don’t know.

This week we listened to an insightful interview on NPR with Robert Nordlund, founder and CEO of Association Reserves. An expert on reserves and the financial health of communities, he lists four things things you need to do before you invest your hard-earned money in a condo or home in a community. We have added some of our own commentary to his questions.

  1. Look at the last year’s worth of the condo or Home Owners Association board minutes. Look to find out what issues they are working on? Are there expensive projects on the docket – and does it seem like the Board has a solid plan for addressing them? If you see expensive repairs that are either unfunded or kicked down the road, be careful.
  2. Ask careful questions of the seller. Have there been special assessments over the years – and how big were they? Do big repairs get fixed on time? Do condo fees regularly increase to keep up with expenses and planned obsolescence? Most experts agree that a well run association does not have special assessments, because the reserves are carefully predicted and collected so that when the time comes to fix infrastructure items like roofs, roads, and elevators, the money is sitting there ready to be used.
  3. Look around and be curious. Do you see cracking, old equipment, tired roofs, and aging buildings? Does it look like the property and buildings are being well-maintained? If not, look elsewhere.
  4. Study the reserves carefully. The association should be able to give you a copy of the reserve study. Is it funded at the level it says it should be, or has the board waived putting money into the reserves? Do the figures to replace major infrastructure look reasonable? If you don’t feel like you know enough, ask your financial advisor or accountant to take a look at the reserve study for reasonableness.

Bottom line. We will never know if recent buyers in the Champlain Towers were aware of the cost of the planned repairs for the building ($15 million), or that the association did not have the money to pay for it. Far too many associations and condo boards either do not have reserve funds or they are woefully unfunded. The NY Times reported today that Mayor Steven Fulop of Jersey City, NJ recently learned of a condo association there that had “almost $50 million in deferred maintenance,” which worked out to hundreds of thousands in future assessments for building owners. Buying into a building in situations like these is just asking for financial trouble, maybe even disaster.

For further reading:

Comments? Have you looked at your association’s reserve study recently? Is it fully funded? Have you backed out of buying property because it looked like the association was in financial trouble? Please add your Comments below.

Posted by Admin on July 21st, 2021

7 Comments »

  1. Thank you so much for this helpful info.

    by Sheri — July 21, 2021

  2. As a board member living in a 216-unit townhouse community in metro Atlanta, I’d like to add to the above. (Our homes are grouped in 5 to 9 units per group; not a tower such as the one that collapsed in Florida.)

    As a private-property townhome community, homeowners are required to maintain the exterior of their units; i.e., painting, wood rot, roofing, etc. All exterior changes must be approved by the Board. Homeowners aren’t always happy about getting the approval, but this allows for continued continuity throughout the community which protects everyone’s property value.

    Many real estate agents will list these homes as condos so be sure of what you are purchasing–condo vs townhome. This will make a difference in who maintains the exterior. The monthly costs for condos will be much higher as they will be responsible for maintaining the exterior such as painting, roofing, etc.

    Our homes were built in the mid-80s with polybutylene pipes which many years later were discovered to cause many leaks so many homeowners footed the bill to have their inside piping replaced. Our community had to pay close to $1M to have our streets dug up and replaced because these pipes were continually breaking, thus special assessments were charged for a number of years to cover this.

    Our community has 2-assigned parking spaces per home. While we do have a few guests spots, there aren’t many (due to the builder) which causes problems and cars are towed. Yes, we can tow because we are private property.

    At closing, ensure that you get all keys, fobs, remotes, mailbox keys, etc.; otherwise, they will come as an additional cost later. We are a gated community so remotes are needed to enter the community and fobs are needed to access the pool and park which leads to an adjoining county’s park (gotta be able to reenter the community). Keys are needed to access your mailbox on the property, but if you don’t receive one at closing, the post office will charge to give you a new one. My point is to ensure that all these necessary little items are itemized in the contract or be prepared to pay for them later.

    Does the community track personal home insurance? We require all homeowners to produce proof of home insurance coverage. If a home burns down, which it did 2 doors down from me, the community needs to be assured that it will be rebuilt.

    How is termite coverage handled? Some termite providers will not cover your home as they can’t be sure if your neighbor has coverage. Keep in mind that coverage is not the same has having your home inspected today to see that there is no current infestation. So while you may not have termites today, coverages ensures that you have year-to-year treatment to prevent infestation.

    As noted in the above, check on the reserve funds. As our units are 35 years old, we are now dealing with erosion problems. This is not uncommon for a property of this age as topography will change over time. We also have a natural area where water runs through the property. This is governed by the Dept. of Natural resources and periodically has to be dredged with funds from the reserve.

    Inquire about what happens when homeowners don’t pay their monthly assessment?

    Read the covenants and any other documents carefully before purchasing. Is their a community website? Drive through the community. Is it well maintained? Ask residents who may be outside questions about living in the community. If you see junk cars parked or unkept units, keep going. Everyone needs to know their property values will be maintained and grow.

    I’ve lived in my townhome 25 years and been on the Board most of that time. I have heard and seen so much, it would boggle your mind.

    My apologizes for the length, but I believe buyers need to enter contracts with all the info they can acquire in order to make an informed decision.

    by Sandra — July 25, 2021

  3. Great post, Sandy. I just sold my condo where I had lived for 18 years and am now renting an apartment. I plan to retire in two years and am still pondering where I’ll live then. Based on my experiences with the condo, I’m in no hurry to buy another one though if I do, at least I’m a lot more savvy now.

    Like you, we had major issues with pipes and leaks. If I had known the extent, I would not have bought there. And while I agree with your advice to talk to residents before buying, people should keep in mind that current owners have a vested interest in pretending everything is fine. I think renters (if the prospective community has any) are better sources re topics such as maintenance issues.

    While I was looking at condos, I met a resident at another community who had just moved in. I asked her how she liked it and she gave me an earful. They had just gotten hit with a major special assessment because the foundation was crumbling. She was planning to sue because she believed it should’ve been disclosed by the seller.

    by Anita — July 26, 2021

  4. Thank you for taking the time to post all this information. You are right on the mark with all of this information.

    by Roberta — July 26, 2021

  5. Sandra, you are right on about reading all those things BEFORE you buy! We have always done that but some Realtors seem very reluctant to obtain those docs for you! You would think it would be part of the For Sale package but often it is not. One house in TN was in an HOA neighborhood and we got all kinds of excuses about the HOA agreement but we insisted. A much copied version was obtained from somewhere and we ultimately bought the house. NEVER NEVER buy something without reading the agreements first because you will have to sign them at closing!!! Some of those COA/HOA’s can be VERY restrictive.

    by HEF — July 26, 2021

  6. Sandra — more kudos for your post. We live in a very different community (private single family, 3-10 acre lots) and yet most of all this article and your appendix applies. I also served long on the HOA. We have very low fees and minimal restrictions and our Boards have mostly tried to be non-intrusive but it’s amazing how many complain about limits purely intended to maintain property value as well as community assets/appearance. Our Covenants require new owners to receive, read and agree to abide by them yet every year someone (new or old) claims “I wasn’t told.”. Fortunately our adherence to our Covenants secured them as the rule of law. Community that do not ensure that Covenants are followed risk having the invalidated under the law.

    All the advice above applies. Stick to it and secure both values and the future.

    by RichPB — July 26, 2021

  7. Thank you for all this valuable informative. Sandra, thanks for that post. ?? Anita, I was thinking in those same lines about owners having a vested interest. HEF, I wasn’t surprised to read that realtors would be reluctant to obtain documents. SMH. RichPB, the “I wasn’t told” or “I wasn’t aware” excuse is everywhere. ????? Once again, thank you for the information!
    Sorry, those question marks are actually emojis. Lol!

    by Deb FH — August 20, 2021

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