3B Limo

A big question to ask about any condominium is, are its finances in good order? And one way to answer this question is to look at the condo’s budget. You don’t have to be a financial expert; all you’re looking for is evidence that the condo association collects its fees, pays its bills, and regularly sets aside funds for reserves to cover unforeseeable common-area expenses. If it’s a new development, you’ll have to rely on the developer’s estimates for maintenance costs and other common-area expenses. But you can compare these estimates with the costs you see in other, similar condos to ascertain whether they appear reasonable.
Look with particular interest at the monthly maintenance figure. Some developers establish the base fee far below what it should be in order to attract buyers. Once they’ve bought in, the new owners are faced almost immediately with the need to increase the fee to a more realistic level. Be wary if the developer quotes a monthly fee that seems too good to be true; it probably is. The range of variance is wide, so once again, the best advice on condo fees is to look at the fees charged for comparable developments in the same market area.
If you’re looking at an existing condo, you’ll want to find out how frequently the condo fee has been raised in the past. If it’s gone up 50 percent a year for the past five years, that’s a bad sign. On the other hand, if the fee has never been raised, that could be an even worse sign, since it may indicate that the necessary maintenance is not being done and that a huge increase in the fee, or a special assessment to cover emergency renovations, is likeLy in the near future.
One indication of how well or how badly a condo is being managed is the size of its reserve fund. The monthly maintenance fee covers regular maintenance and operations; the purpose of the reserves is to finance major capital expenditures — replacing a roof, for example, or paying for common- area damages that aren’t entirely covered by insurance. Every condominium should have a regular program through which owners contribute to its reserve fund, but the Community Associations Institute estimates that 10 percent of the condos in the country don’t have any reserves at all, and that another 30 percent have reserve programs on paper but don’t follow through on them every year.
Why should you be concerned about the reserves? Because if the roof caves in or the heating plant has to be replaced, the unit owners are going to have to cover the costs. Such special assessments can amount to several thousand dollars per owner. It’s far better to be in a condo that saves for rainy days than in one that has to soak the owners when the inevitable crisis occurs. One final point about reserve funds: secondary-market regulations require that condos have “adequate” reserves in place. What constitutes “adequate” is left undefined, but attorneys I know who handle real-estate transactions say they base their assessment on the individual condo. An older condo, where more things are more likely to go wrong, needs a larger reserve fund than a newer one, which in theory should face fewer problems involving expensive replacement and renovation.
In any case, if the reserve fund seems low, find out why. It might be because the condo association has not made a contribution to it in five years. This would be a bad sign. It also might be because the association just drew on the fund to finance a needed repair. This would be a sign that the condo is being responsibly managed.