Do You Know What’s In YOUR Reserve Study?

For many condominium owners who bought prior to 2008, the term “Reserve Study” may not be familiar terminology. Since then, however, it has become mandatory for all condominiums with more than 10 units to have a Reserve Study prepared, update it periodically (every 3 years for an onsite visit and updated annually without an onsite visit), and provide owners and prospective buyers with a Reserve Fund Disclosure. A condo complex of less than 10 units can be exempt from having a reserve study if 2/3 vote to opt out of doing one.

Since major maintenance expenses are inevitable in order to keep a condominium complex in good repair, and to avoid surprise “special assessments”, the Reserve Study is an ideal way of budgeting for significant repair or replacement costs over a 10-15+/- year timespan. Then the funds are there when needed.

The study recommends the ideal amount for the HOA to allot to the reserves from the monthly dues in order to be sure that anticipated costs are appropriately funded for each component on the list based on when those components will need to be repaired or replaced. These are usually items such as roof replacement, deck repairs, exterior painting, asphalt resurfacing or resealing, etc. The list is usually quite comprehensive.

The study will show what percent of all the anticipated costs are being funded at any given time. If your association is 0-30% funded, your chances of an unplanned Special Assessment can range from about 20-50%. At 40-60% funded, the chances of a Special Assessment drop to about 2-10% while if you are funded at 70-100%, the chances of a Special Assessment are negligible.

By planning for these expenses in a logical and reasonable manner, your HOA will be proactive in making your home financially stable as well as acceptable to FHA requirements for buyers to obtain a mortgage to purchase in your condominium complex.

Dues and Don’ts

Monthly assessments, better known as Homeowner Dues to condominium owners, are made up of a number of combined costs necessary for the upkeep and smooth running of your condominium complex. Many buyers – especially first time condo buyers – are somewhat mystified by how their individual unit’s assessment is determined.

In general, your dues cover the upkeep of everything outside your “four walls”, i.e.: common areas, maintenance of amenities, exterior and roofs, insurance of various kinds and repairs when needed. When an unforeseen cost arises that hasn’t been budgeted for, homeowner associations may vote to impose a “special assessment” to cover these expenses if there isn’t enough in the reserves. While most well run complexes keep a healthy reserve fund for planned expenses, special assessments are usually implemented for unplanned occurrences.

Buyers sometimes ask why three similarly sized units of a similar age in different condominiums have widely varying dues. This is usually due to the type and number of amenities. A complex with no amenities will have far lower dues than one with 24hr. concierge, pool, exercise facility, onsite manager, etc.

It’s important to remember that the higher the dues, the lower the buying power for those obtaining financing. Depending upon current interest rates, a buyer may have $10,000-15,000+/- extra buying power for a $300,000 condo if the monthly dues are $100-150 less than another $300,000 condo with higher dues. This means that the buyer could likely qualify for a higher priced unit with dues of $200/mo. or only a lower priced unit with dues of $350/mo.

Each unit is designated a percentage of common ownership by the original developer based primarily on size and sometimes height, view, etc. This percentage governs not only what your dues are (compared to others in the complex) but the weight of your vote when voting for Board of Directors positions or a proposed rule or amendment to the existing CC&R’s. Carefully reading the resale documents, recent homeowner association meeting minutes, reviewing the current budget and the Reserve Study for the complex is the best way to understand how the dues are being allocated and if the finances are being handled in a fiscally responsible manner.

Shh… My Condo’s For Sale

Every now and then, I am contacted by a potential seller who is dead-set against advertising that their home is for sale or having any kind of signage to alert passers by of the availability of the property. This is especially true of some “high-end” condominium complexes. Some even prohibit a generic “Contact Your Broker” sign!

The scripts for this rationale are amazingly similar and usually fall into one or more of several categories:

 

• “If you know of any buyers looking for a property like mine, I’ll pay you a % of the sales price – but I don’t want to put it on the market.”
• “I don’t want the neighbors to know I’m selling and have them traipse through my home during an Open House.”
• “I don’t want the hassle of having my home ‘picture perfect’ for showing every day.”
• “Having no ‘for sale’ signage of any kind is a mark of exclusivity for a high-end condo community.”

If this sounds like you or someone you know, it’s time to get on board with 21st century marketing! With the reach of all the real estate oriented websites, as well as real estate company and individual agent websites, the number of potential, serious buyers who have access to your property’s information is hundreds if not thousands of times more than the number of people who may pass by a “For Sale” sign or actually be working with an individual agent.

As for letting the neighbors see that your home is for sale, they are often the best ambassadors for a seller since they know the neighborhood and may know people who are looking to move into the area or condo complex!

In the age of the Internet, most buyers start their search online and the main marketing tool that engages them enough to call a REALTOR and go see the home is the quality of the PICTURES! Yes, it may be a hassle to prep your home for sale and keep it looking “picture perfect” for showings, but it will take much less time to find your buyer than just waiting for the right buyer to drive down your street by accident or contact your “agent friend” whom you’ve asked to bring any clients they may have that are looking for a property like yours.

Last but not least, exclusivity may sound attractive however everyone will be a seller at some point. The more buyers that are exposed to your listing, the better chance you have of getting the very highest price. Even the wealthiest among us can appreciate that!

What? No pets?

Many of us grew up with a beloved pet (or two or more) that taught us care and compassion and also how much fun and comfort they can provide. Fast forward to now, when we are condominium owners whose main concern is keeping the values up for our investment and keeping anyone out who might not fit the desired “profile”, i.e.: pet owners.

Although many condominium complexes do allow pets (with some restrictions, i.e.: size, type, number of pets) those communities that do not allow pets of any kind are limiting their buyer pool of resale buyers more than they realize. Most sellers in these pet-free complexes may never know how many buyers were discouraged from even looking at their units because the listing indicated “no pets.”

The main reasons for most of these restrictions are noise or un-picked up waste. Many times, these concerns are based on what non-pet owners think might or will happen if any pets are allowed to reside with residents. In truth, noise can be dealt with just like any other noise (loud music, door slamming, using appliances during “quiet hours”) by penalties, removal of the offending noise-maker or escalating fines spelled out in the CC&Rs. Any pet “accidents” can be dealt with by fines or now, DNA tests on the offending droppings for comparison to mandatory swabbing of resident pets.

Owners may not realize that as they pass more and more restrictions, i.e.: no pets or a very low rental cap, they are really restricting the buyer pool for their neighbors and ultimately for themselves when the time comes.
When it is a sellers’ market, these concerns may seem trivial but when the pendulum moves towards a buyers’ market as it eventually does, these restrictions can make a significant difference in a timely sale or not.

The most important unpaid position any condo owner will ever have!

Along with the “easy living” style that condominium ownership can bring, there is also an unspoken responsibility to join with your fellow owners to be sure that the complex is run in the best way possible in order to enhance the value of everyone’s investment. No matter what your profession or that of the Board of Directors members, chances are that no one has been trained to be a professional property manager. Many times, the process of running the complex or overseeing the Management Company is like the old tale of the blind men touching an elephant and everyone having a different impression of what the animal is like.

Ideally, all members should strive for the best, long term plans for keeping the complex in good repair and also the policies adopted (or not adopted) to make sure that the units keep their salability in terms of price AND ease of purchase for new buyers.

As a former President of a large HOA (222 units), I found that a combination of Board members’ professional skills and experience, ie: doctor, teacher, engineer, artist, homemaker, etc., need to agree that getting professional advice is crucial to making the best decisions for all. Additionally, Board members need to keep the needs of ALL owners in mind – not just their own.

One case in point is having the complex FHA approved if it qualifies. Many people still think that FHA loans are for low income buyers and not necessary for purchasing units in mid-higher priced complexes. In reality, the current 2015 loan limit for both single family and condo purchases is $517,500 which certainly isn’t a “low income” property price! Many buyers use an FHA loan so that they don’t have to disturb their other investments for down payment money which is earning better interest. In addition, it would be worthwhile to invite a lender who is familiar with FHA approvals and a Realtor to speak to your HOA meeting so that residents understand the positive aspects and requirements of being FHA approved.

For more information, check out this page from FHA.