Photo by Fabian Blank on Unsplash
Most articles on condominiums and special assessments are about how to avoid them. It’s easy to think of condominium special assessments as an unexpected disaster that happens to people who don’t do enough research before buying. There is truth to this; however, buildings don’t deteriorate on schedule, and sometimes a special assessment may actually save significant money in the long term. A special assessment can come from a well-managed HOA that is proactively trying to stop a sudden, expensive problem from becoming worse, or it can come from a terribly managed HOA that has no plan and rarely does maintenance.
Regardless of the reasons for a special assessment, you are statistically likely to pay one if you live in a condominium long-term. At least a third of all condominium associations have insufficient cash, according to Robert Nordlund, CEO of Association Reserves. Nordlund should know, as his firm has conducted over 60,000 reserve studies.
Of course, every HOA should have millions on hand to easily and quickly address a massive emergency, but realistically, it’s rare that an HOA is completely prepared for an unforeseen disaster.
It’s not always obvious which buildings are in bad shape, since poor building materials often don’t become apparent for decades. In the Pacific Northwest, many 1970s and 1980s condominiums were built by California-based builders, who used materials for the building envelope that were for dry, warm climates. However, the Pacific Northwest is extremely rainy, so the cladding on these buildings develops mold, rust, and other major problems. This was largely unnoticed for more than 30 years, until recent and rapid deterioration required many of these complexes to spend millions to redo the entire building’s exterior quickly, before further damage, injury, or even death occurred.
Extensive research is essential when buying a condominium. However, no matter how much research you do, you should absolutely plan for a special assessment. Do not assume that because you did research, you will not have to pay an assessment at some point. If you’re expecting the HOA to be proactively setting aside money, you should also be proactively setting aside money in case something expensive happens to your building.
Besides setting aside your own special assessment fund, here are some essential things to consider and investigate before buying a condominium:
-Find out how old the plumbing is. This is a hugely overlooked area of concern, and is a significant sign of how good the HOA is with fixing hidden problems. If buying in an older building, be sure that the HOA has completed or is in the process of completing a full plumbing replacement. If you’re looking at a 90-year-old building that has never replaced the plumbing, be extremely wary.
-Low HOA fees can be a sign that owners do not want to pay for maintenance, or cannot afford to.
-Obtain past maintenance records, reserve studies, and long-term maintenance plans from the HOA board.
-If major building components are not mentioned in the long-term plan, this is a bad sign.
