Purchasing a condominium brings numerous advantages, such as shared amenities, maintenance services, and a sense of community. However, condominium owners may occasionally face planned or unexpected financial obligations known as special assessments.
A special assessment is usually a one-time fee imposed on unit owners by the condominium association or homeowners’ association (HOA). This fee is separate from the regular monthly dues or fees and is usually issued when there is a significant need for additional funds for specific purposes. Special Assessments are voted on by the trustees appointed or elected to the condominium board or Homeowners Association (HOA).
No different than a single-family home, sometimes unexpected circumstances may arise which include some of the following:
- Emergency repairs: If the condominium faces unforeseen and urgent repairs, such as damage to the roof, plumbing failure, or structural problems, the association may levy a special assessment to cover the costs.
- Capital improvements: When the association plans major renovations or upgrades to shared facilities like elevators, parking lots, or common areas, a special assessment may be necessary to finance these improvements.
- Legal disputes or lawsuits: In the event of legal action or litigation involving the condominium association, special assessments might be imposed to cover legal expenses or settlements.
- Insufficient reserve funds: If the association’s reserve fund is insufficient to cover unexpected expenses, a special assessment may be levied to make up the shortfall.
While this can happen under any type of property ownership, the major difference from owning a single family home to a condominium is that you would be sharing the cost and responsibility with your fellow homeowners.
Important Tips I Give to My Buyers:
- Ask for a copy of all the condo docs: Every buyer should ask for a copy of the condominium documents which govern how the association is run and managed. These documents may include but are not limited to: Master Deed, Declaration of Trust, Master Insurance Policy, Fiscal Year Budget, Balance Sheet, Condominium Questionnaire, Meeting Minutes of the Association and Rules and Regulations Governing the Association.
- Inspection & Due Diligence: Many associations are responsible for the exterior maintenance of the property and if you have shared utilities, the systems that accompany those. Find out as much information about the major components that are covered under the association such as roof, siding, decks, roadways, drainage, septic systems, interior shared systems for HVAC, amenities such as pools, tennis, pickleball, and basketball courts, playgrounds, etc. Think critically as to when you feel these may need to be replaced. I recommend you do a home inspection which shed more light and give you valuable information. Try and find out from meeting minutes or other homeowners in the association, if there has been any discussion on upgrades or repairs. Determine whether the association has a plan in place and savings to address future needs.
- Get to know the Management: Depending on the size of an association, a condominium may have an onsite or off-site management company. Small associations may choose to have one of the trustees or an appointed homeowner run the association. It is important to assess whether the current management and structure is effectively managing the day-to-day operations, budgeting and future planning needs of the association. It’s also important to find out if the trustee or condo board works well with the current management and the vision of the current board. Even a well-run management company can fall short when not given property authority or a sufficient budget to meet homeowners’ expectations.
- Does the association have cash reserves: Special assessments often occur because the association lacks the reserve funds to address the maintenance issues or capital improvement. You should look to see if the association has a healthy reserve. I generally like to see an association that has a minimum of 10% of its annual operating budget set aside in a savings account as a reserve. An association that has little to no reserves will have no choice but to either continue to neglect the issues or impose a special assessment.
- Condominium Fee: You should assess the budget to make sure that the condo fee being assessed each month is reasonable. In some instances, an HOA board may decline a modest increase in condo fees each year. While not increasing condo fees can seem attractive, you should keep in mind that inflation may influence planned budgeting and tightening the availability of resources available should a need arise. Determine if the monthly condo fee meets your budget and whether it is reasonably covering expenses. A good association should be setting aside money each year for the reserve account.
Important Tips I Give My Sellers:
Condominium special assessments can significantly impact the sale of your home in multiple ways:
- Financial burden: Special assessments require homeowners to pay a lump sum or spread the amount over a specified period. This unexpected financial burden can strain personal budgets, especially for those who are unprepared or facing financial constraints.
- Affordability and market value: Special assessments can make condominium ownership less affordable for some buyers, potentially affecting the market value of units. Prospective buyers may be hesitant to purchase units in a building with a history of special assessments.
- Mitigating risk and maintenance: Special assessments are often necessary to maintain the building’s infrastructure, prevent further deterioration, and ensure a safe living environment. By addressing these issues promptly, homeowners can protect their investment in the long run.
If you’re considering selling in the near future you can take certain steps to mitigate the impact of special assessments and make your association more desirable. I suggest you do the following:
- Budgeting: By setting aside funds for potential special assessments, Sellers and Homeowners can be better prepared for unexpected expenses.
- Active participation: Engaging in condominium association meetings and decision-making processes allows you as a homeowner to stay informed about the building’s financial status and potential future assessments.
- Reserve funds: Encouraging the association to maintain an adequate reserve fund can help minimize the need for special assessments, provide financial security and boost the desirability of your association.
Condominium special assessments are important financial obligations that may arise in response to unforeseen circumstances or planned improvements within a condominium community. While they can pose challenges for homeowners, sellers and buyers, they are necessary to maintain, repair, and enhance shared facilities. By understanding the purpose and impact of special assessments, you as a homeowner can navigate these situations more effectively and protect their investments in the long term.
I recommend to Sellers that are faced with an upcoming special assessment to do the following:
- Disclosure: It is necessary to disclose to any prospective buyer knowledge you have of an upcoming special assessment or special assessments currently being imposed. You should get as much information about the nature of the special assessment, the percentage your required to cover based on the condominium documents, any financing options that may be available and when payments will be due.
- Paying Special Assessments: A popular option to bolster the value of your unit would be to pay the special assessment ahead of time or in full at closing. This provides a benefit to the buyer, alleviating them of the financial obligation and providing them the benefit of the upcoming improvement. You also have the option, if properly disclosed, to shift this burden to the buyer of the unit. In a hot Seller’s market, it may be more prudent to have the buyer assume the responsibility.
- Keep it positive: Many special assessments are for the future improvement of the association. It’s important to look at what’s happening and market the positive aspects to potential buyers.
The information in this blog post is for general informational purposes only and does not constitute legal advice. Anyone needing legal advice should seek counsel from a licensed attorney in the state they reside or have the legal matter.
If you have any questions about this article or you need help buying or selling a condo in Massachusetts or New Hampshire, please do not hesitate to contact Joe Ready via email email@example.com or cell phone 978-884-6972.