My D is a structural engineer. She has done many condition assessments (inspection to identify problems and upcoming maintenance concerns so they can be planned for) and repair designs for condo complexes. She’s been to many association meetings and dealt with the boards—and agrees—she would never buy a condo. The board is elected by the owners. The owners tend to elect the people that say they’ll keep the fees low, and then the board is not incentivized to keep the place in good financial and physical shape. This is especially true in the lower price points. The rich folks are more willing to prioritize upkeep.
Ask for the meeting minutes for the last year or more. Ask to see a reserve study. Ask when the most recent condition assessment was done.
One of our kids bought a condo/townhouse. He sent all of the HOA documents to us, as we also live where there is a HOA (due to some commonly owned property). This included two years worth of financial statements.
The buyer needs to be aware of Common Interest Ownership Acts in the state where the condo is located. That’s what it’s called here…I hope all other states have something similar.
Look for loans the HOA has taken, and see when they were paid off, or when they will be.
Look for how recent common area repairs or replacements have been made (roof, common property, etc).
Look for when the HOA dues were increased last. Our family purchase noted that none had been increased for about 10 years…so expected this would increase, and it has. Not an issue as the HOA fees were very low.
Look at the association meeting minutes for discussions of future expenses.
Find out how frequently they have been assessed in addition to the monthly HOA fees. What kind of reserve do they have for a new roof, paving, painting exterior and common spaces. Look at the yearly budget (which should be available) to see how the monthly HOA fees are spent. Do they have a line item for snow and/or leaf removal and general landscaping maintenance. All of these things must be paid in addition to maintenance of elevators, sprinkler systems, etc. I live in a community with an HOA and we are well managed with fiscally conservative board members, so I’m certainly not opposed to living in home/condo with a HOA. Before buying I read the bylaws, looked at the budget, and asked when the big ticket items most recently occurred (roof replacement, driveway paving, etc). I’m no accountant and it wasn’t difficult for me to make a fairly informed judgement. I would want to know why there is a deficit!
Thank you for excellent suggestions. Keep them coming. I am taking notes to pass on.
@Hippobirdy That is an excellent article. It provided a good overview of owning a condo in general.
@mompop and @thumper1 It looks like the deficit is for a capital project that was not budgeted. They can ask about the project. Is it ok if the deficit is one-time happening, not habitual?
ugh. deficit for a one-time capital project? They should have done an assessment.
so now they would be paying for a past capital project and NO reserve. I would have a serious concern about that.
has a Reserve study been done? (How much should they be reserving for capital items?)
There are some other great questions above, but my gut instinct is that they didn’t want to/were limited how much they could increase dues by year over year. Developers (builders) are known for articificially keeping monthly (or annual) dues low to make it attractive. It is not uncommon that they are not sustainable once the HOA is turned over to all residents.
So the fact that it is new might be falling into the trap ahead. If you look at their annual expenses (common maintenance, water, landscaping, management company) - how do they compare to their income from dues?
Are they covering expenses outside of the capital projects? First understand that. Then dig into what this defecit is from.
Something else to be concerned with when buying a condo. Fannie Mae has a “blacklist” of condo’s that it feels does not have adequate insurance coverage or needs to make critical repairs. This may affect both your ability to get a conforming or even non-conforming loan or for a subsequent buyer to get the purchase financed.
My kid got himself on the board of his HOA. Immediately when he moved in. He felt he needed to contribute and he has some valuable knowledge to help with decisions…plus he is very organized!
He has a good understanding of costs, reading bids, and understanding them. He also knows that the financial health of the HOA is important when buyers are interested in buying. And he also knows that the HOA can’t over spend their budget.
I am assuming that the new owner will have to pay an assessment to cover the deficit. And my concern is whether that means there are no reserve accounts to pay for other capital projects that will be needed in the future. Start with the monthly budget and what that covers (and what happens if a unit owner doesn’t pay their dues for any length of time). Then find out if they have reserve accounts for future expenditures.
There is nothing wrong in owning a condo or a coop. In NYC most people own a condo or a coop, only very wealthy can afford a brownstone. Owning single family house has its own challenges and expenses.
I never hired an accountant to review the financials. I reviewed it myself and my lawyer did as well.
I checked to see how much mortgages/loans are outstanding (a condo shouldn’t have a mortgage). Look at the terms of the mortgage to make sure there won’t be a big increase in payment or need to be refinanced in the near future.
My coop board has an accounting firm certify the financial statement. It shows 2 years of accounting (ask to see 2 yrs of financial statements, that would give you 3 yrs). I look for yr to yr increases and see if the condo fees have increases.
The minutes and accountant letter would most likely tell you if there would be big ticket items of repair or improvement.
Check out their condo insurance to see what it covers.
Look at their by laws on who is responsible for what when it comes to repairs. I own a coop, so I am only responsible for everything within my walls. If there is a disaster the coop’s insurance is responsible for the building and I would be responsible for replacing everything inside of my apartment (kitchen, bathroom, floor, furniture, etc). I then took out necessary insurance to cover that, therefore my insurance is a lot less than if I owned a single family house. The condo maybe different than a coop.
Someone mentioned above about assessment. Whoever owns the condo/coop is responsible for the assessment. You may be able to negotiate for a lower price or have the seller reimburse you for it as part of closing.
I would be concerned about the deficit, especially if it is a new condo.
I think there will always be horror stories about condo/coop, but there are a lot of bad stories about single family house too. You just need to do sufficient due diligence.