In a condominium, the fees fund two categories: operating expense and reserve funds. The operating expenses are the monthly costs required for trash, grounds maintenance, and snow removal, administration and condo management.
The reserve funds represent the anticipated cost of replacing and repairing common elements of the property like roofs, sidewalks, and elevators. The amount of money needed in the reserve fund is determined by a study which by law, is undertaken at least every 5 years for the purpose of determining how much money is needed to repair, replace and restore the capital components of the property. Every year condominiums (in Virginia) are required to review their study results and confirm that they are reserving enough money to repair, replace and maintain the property.
Before you choose this form own ownership consider:
- Condo life involves a lot of governance
- Well-run condos always include an active membership
- Some leadership decisions might be unpopular, but ultimately protect the membership from unplanned assessments by insuring that reserves are adequate to meet the expected and unexpected repairs
When looking at condominium ownership, you will have a chance to review a Resale Package that will include the condominium bylaws, rules and regulations, current financial reports, and audited financial reports. Review these carefully looking for potential problems.Questions to ask should include:
- What do the audited financial statements say about the reserve funds? Are they adequate?
- What major projects/repairs are anticipated for the upcoming year?
- What projects were completed in the prior year?
The other thing to consider is what type of condo environment are you looking at? Is there a Doorman, a Concierge? The cost of people always go up, so if you are looking at a condo with these types of amenities you should expect a slow steady rise in condo fees.
Next week: Are you condo fees too low?
