In this edition of First-Timer Primer, we look into the question of how to determine if a condo building where you are considering buying is in good financial health.
Brandon Green, the Managing Director of Keller Williams Capital Properties, points to four important things that will tell you if the financial situation is sound in a condo building.
1. Are there any delinquent accounts?
Specifically, are there any unit owners who are more than 60 days behind on their condo fees or are there any units in foreclosure? If so, this can prevent financing and be an indication of poor management and/or engagement with homeowners in trouble.
2. Does the building have a budget and are they sticking to it?
Well-run associations will have a written budget and a monthly report showing the budget to actual expenditures. Whether a building is staying on budget or not can give you a sense of how well they are managing expenses. For smaller associations, you may have to look at 12 months of spending records to see how many unexpected expenses came up and how the management handled them.
3. Is the master insurance policy up to date?
You’d think this would be a given, though it’s easy to let it lapse if someone isn’t keeping an eye on things.
4. How much money is in the building’s reserve fund?
How much you need varies depending on the building. If it’s a large building, there should be a fairly recent reserve study report that will tell you how much should be in reserve. If it’s a smaller building, then have your home inspector look around and give you an idea [if any major repairs are on the horizon]. Major expenses in smaller buildings are usually the roof and elevators.
So, how does a potential homeowner go about getting this information? “The best way is to probably check with the management company, order documents ahead of time and then pay a renewal fee when the unit sells,” said Kevin Wood of Wm. Sawyer and Company Realtors. “Another thought is to include in the contract that the seller provide the minutes of the last three [condo] board meetings. This way you can see what is being discussed…aspects which may not show up in the docs or even in any document references to future plans.”