Challenging condo associations
Today, Sam Schneiderman, broker owner of Great Boston Home Team describes the problems he sees in condo associations.
These days, it doesn’t take much to make buyers and lenders nervous enough to think twice, especially when condos are involved. I constantly come across great condo units in condo associations that have challenges.
Here are the types of associations that I see:
Example #1 – The financially mismanaged condo
Well maintained buildings with inadequate or nonexistent budgets. Any time that work has been done, a special assessment is needed and the owners contribute their share. While that was pretty common for years in smaller condos, especially two family conversions, today’s lending guidelines require a budget and reserves. Once the association learns that, they often get their act together.
Example #2 – The physically mismanaged condo
This association might have a well funded reserve account and think they have adequate operating funds. Maybe they’re planning to paint the building(s) or upgrade landscaping in the near future. While focusing on the obvious expensive items, preventative maintenance items (like gutter cleaning and replacement of aging boilers or water heaters) have never been on their to do list. When a buyer brings in a home inspector, a list of deferred maintenance items along with damage from neglected maintenance is often discovered. The association needs to put together a plan so that the incoming buyer is satisfied that the building will be maintained properly in the future.
Example #3 – The invisible condo association
The buyers in this association bought condos to live the carefree lifestyle that they envisioned with condo living. (While that can work well in large, well managed associations, it doesn’t work well in small associations.) As a result, no one is paying attention to maintaining the association or its assets and there have been no condo meetings. No one wants to be responsible for the building. When a buyer’s home inspector finds extensive damage to the building, the unit owners usually need to come up with the money to do the work or create a plan to address it over time or a smart buyer will not get involved by buying into that association.
Example #4 – The Broke Association
The unit owners may have stretched themselves to their financial limits to buy a unit in the building and they haven’t raised fees or done any maintenance in years. When an owner finally tries to sell, the new buyer (or her honest buyer’s agent) often realizes that the association has been collecting only enough to pay the insurance and water bills while neglecting to do any maintenance on the building. There is no money to do any work and the owners can’t afford to take care of the deferred maintenance. Smart buyers run from associations like that.
Example #5 – The well managed association
The budget is under control. There is a separate operating and reserve account. In their budget, at least ten percent of the association’s income is allocated to reserves. Regular preventative maintenance is part of this association’s plan. They also have a longer term plan and budget to replace large items (i.e. roof, heating system, etc.) in the future.
Did you buy or do you live in a condo with challenges?
Condo owners: what, if anything, are you doing to preserve your unit’s marketability?
