More than at any time in the past, ensuring that a condominium association is financially sound and well-maintained is crucial. Lenders and insurance companies are increasingly scrutinizing condo associations, requiring proper documentation and assurances that there are no significant deferred maintenance issues and that they have adequately identified and are proactively saving for long-term expenses. Without active management of these issues, securing financing for a unit by individual homebuyers can become challenging, potentially reducing property values and limiting marketability. We see this affecting all associations, not just in Phoenix and Las Vegas, but all over the country and includes properties from lower value to those well into the millions.
Key Considerations for Condo Association Funding
- Reserve Funds & Special Assessments
Lenders want to see that a condo association has and continues to maintain adequate reserve funds to cover major repairs and capital improvements related to common components. Insufficient reserves can lead to hefty special assessments for owners when unexpected expenses arise. Further, a reserve study is more than just an accounting exercise – it should be performed by a provider who understands building systems and components and how they fail during the lifecycle of a building. - Operating Budget & Fee Structures
A well-managed association should have a clear budget that covers routine maintenance, utilities, insurance, and administrative costs. Monthly fees should be set at a sustainable level to prevent financial shortfalls and should account for economic changes that can sometimes be abrupt. Further, homeowners should have transparency into the fiscal condition of the association. - Deferred Maintenance Risks
Lenders, insurers, and home buyers are wary of associations that delay critical repairs, since these can lead to costly emergency fixes or structural issues. Associations should conduct regular condition inspections of the building and systems by a licensed engineering firm and stay proactive in addressing maintenance needs. Providing regular and proper manger and board training is also critical to a well-managed and maintained community. - Financial Transparency & Compliance
Associations must provide financial statements, reserve studies, and meeting minutes to demonstrate their financial health. Compliance with lender requirements ensures easier access to loans for buyers and refinancing owners. - Hiring the Right Engineering Firm
Hiring a neutral third party to perform inspections and look out for the best interest of the association, rather than seeking residual ongoing income, is a critical step in obtaining the right guidance. Hiring a qualified engineering firm for your condo assessment, special inspections, and reserve study is critical to the success of your association. A professional evaluation ensures that your building is structurally sound, financially prepared for future repairs, and compliant with local regulations. Working with experts can help avoid costly surprises and maintain property values.
How Owners Can Protect Their Investment
Homeowners are not helpless in the management of their association. In most instances, an association is a type of corporation (such as an LLC), and each homeowner is an actual partial owner of the association – in most instances, each homeowner has an equal share of ownership. Proactive ownership can include many things to include the following:
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- Review association documents before purchasing to assess financial stability. Have a qualified reserve specialist review these documents if you are not comfortable with reading the documents. This is a critical aspect of becoming a proud and informed condo owner. Know upfront what you are responsible for and the potential issues.
- Attend board meetings to stay informed about budgeting and upcoming projects. We understand this is not necessarily fun. However, supporting your elected board member (who are volunteers) makes living in the community more enjoyable when you understand board decisions. Further, your attendance helps the board truly understand the desires of the community members.
- Become a board member and/or volunteer to sit on committees so you can be a leader in the community and bring solutions to the Association, not just problems.
- Advocate for responsible planning to avoid financial pitfalls that could impact unit values.
A poorly managed association can lead to loan denials, declining property values, and unexpected financial burdens. Ensuring the right funding and maintenance strategies are in place, and bringing in qualified support (such as partnering with a Consulting Engineer) are keys to maintaining a thriving condo community that will continue to be a location others want to live.
Call us to see how we can support you and your community on a wide range of services to include:
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- Structural inspections for buildings, walls, staircases, and balconies
- An engineering-based reserve study
- Condition assessments on the entire building, or inspections on individual items such as a roof
- Consulting engineering support to ensure you’re obtaining guidance that is in YOUR best interest