Owners paying price at condos without financial reserves
Fred Pilot sent this in. I think inability to pay for major repairs will soon become a big issue for many condos and HOAs. Here's an example. People don't want to pay today for somebody else's room ten years down the road. The article lays that out clearly. Then the inevitable big ticket repair comes along, and it's special assessment time to the tune of about five digits.
But note the incredible comment from Florida's condobudsman Virgil Rizzo, to wit: "I'm against reserves, it puts money into coffers that directors can [illegally] get into," said Virgil Rizzo, the state condo ombudsman. I think that attitude is fairly widespread, but it is a bit strong coming from the condo ombudsman, I think. Distrust of the BOD is yet another reason people vote against assessments that are high enough to maintain adequate reserves. And I suppose all those folks will be quoting Rizzo at the next annual meeting. But look: if Rizzo believes we can't trust directors to handle reserves that are intended for common area repair, and if taking care of the common area is their main function (as it is), then it seems to me he should be working to abolish condos instead of taking a job that is intended to make them work better--shouldn't he? Because what is saying is that we can't trust volunteer directors to carry out their most basic responsiblity (property maintenance), and the only way to fix that problem is to deprive the corporation of a sinking fund. They would just operate on a hand-to-mouth basis, because the directors can't be trusted with anything more than that. That to me is the clear implication of his statement. Any comments on that?
2 comments:
The reluctance to fund reserves in condos reflects the detached, single family home concept of homeownership held by most American homebuyers. Homeowners face the risks and obligations of anticipated and unanticipated repairs individually.
The notion of setting aside reserves and particularly trusting one's neighbors to manage them is simply incompatible to that predominant concept of homeownership.
Condos pose a unique risk for homebuyers. They face the risk of large capital assessments to fund needed repairs and maintenance if they are unfortunate enough to purchase soon before a such an assessment is levied. All indications are the marketplace continues to accept this risk, with condo buyers rolling the dice hoping they can avoid a large assessment. The fact that many condo buyers have a short term investment horizon as first time and last time buyers I believe increases their willingness to assume the risk of a capital assessment.
Few people are more critical of the quality of HOA governance than I. But I don't see how taking away the money needed to maintain and repair the common area is going to make HOA boards do a better job. Without reserves, they won't be able to borrow, so their only recourse will be massive special assessments. Those are about as popular as a tarantula at the annual HOA picnic.
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