Buying, Selling, Renting

Does the Amount of Reserves Matter When Buying a Condominium?

Does the Amount of Reserves Matter When Buying a Condominium?

Condo association reserves fall into the category of things no one likes to think about until they’re sorely needed. Does the amount of reserves matter, whether you’re buying a condo or are an existing owner? Absolutely. Having a shortage of funds can result in the dreaded “special assessment” – an extra fee levied on owners when the association’s reserves can’t cover a repair that has to be done quickly.

How much should your association have in reserves? The truth is, the amount varies depending on the size of the building and the maintenance costs associated with it. A prudent association will have a reserve study done every few years. A reserve study is a project done by an outside company that evaluates all the expected (and potential unexpected) costs your building is likely to have in the near future. There are some management companies that will also conduct an informal inspection report to help the Association plan for future projects. Your association doesn’t actually have to have the entire maintenance amount in reserve at all times (after all, the amount accounts for some worst case scenario repairs), but a good general rule is that the association should have 70% or more of the recommended amount.

So, when you’re evaluating your future (or current) condo’s reserves, it’s important to gain access to the details of the reserve study. If one has not been done recently, you might be able to get some indication of upcoming expenses by finding out what was spent on maintenance, upkeep, and special projects for last year, and comparing that amount to the amount of reserves (apply the rule of 70%). And, if you’d like more control over the financial health of your building, showing up to association meetings and getting a seat on the association board will allow you to influence future reserve policies.

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