In 2012 I became the proud owner of a condo in Glover Park, excited about the next stages of my life but clueless about how condo finances or boards worked. Because I was the first tenant to move in, I was default president of the board where I remained for the next three years. Now, math isn’t my thing, so I basically had to have a crash course in condo finances (plus a great Realtor and management company that helped me understand the complexities). As a new building, there were no reserves, so we had to figure out the best way to build our accounts without charging astronomical condo fees, which was the most appealing part of owning in our building compared to others in the area.
If you look at many of the condo’s on the market around the city, you will notice monthly dues are incredibly high. Now some of these are because of amenities like swimming pools, fancy common spaces, gyms, and doormen. Others seem like they are pretty average in terms of amenities and still charge thousands of dollars a month. If it isn’t a co-op (where your condo fee is a part of your mortgage because you effectively buy a percentage of the building when you move in, not your specific unit) to me this is a red flag for mismanaged finances. Sure sometimes there are special assessments (our builder made some errors that we ended up shelling out for, like not installing insulation by the sprinklers…) but these are one time charges (hopefully) and should not occur too often. Before jumping in, here are some questions to ask. Your Realtor will be able to help you make the assessment and get all the information you need.
- Are there 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. NOTE: The entire first year I had set my monthly dues to automatically deduct $1 short of what they actually are (whoops), so keep in mind technical errors and don’t make assumptions over $12 in overdue payments.
- 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.
- 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.
- How much money is in the building 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.