Purrfect Properties Blog

If it Looks Like an Under Priced Condo, Beware of Looming Assessments!

Hi Folks,

You might be looking at buying a condo these days.  They are an affordable option for many reasons; perhaps you plan to be sailing your boat in another country while you’re in retirement and you don’t want to have to cut the lawn or shovel the snow.  Perhaps you’re new to home ownership, and your funds are limited to the townhouse range of condos.  In any case that you might find yourself in, if you live in Edmonton, you’ve recently heard of the outrage surrounding Oliver Gardens Condominiums and the $56,000 special assessment each owner in the building was issued.This month, I had a very affordable, built in the 90’s condo recently go up for sale, and it sold in 10 days.  That’s it, 10 days. It was listed for $147,000.  It was one of the Savills Condos over by NAIT on 118th ave and 101 Street. I got quite a few calls from the public, wondering about this condo and if it has any special assessments on it.  Thanks CTV and Global, no special assessments or levies here.  The condo fees were reasonable at $308 per month, adjusted last year to make up for a projected shortfall in the future.

Edmonton Special Assessments

Special Assessments for Condos in Edmonton

Condo fees go to the management and operation of the condo and some of your condo fees go into the Reserve Fund.  The Reserve Fund is meant to cover future expenses on the property.  Sometimes though, there just isn’t enough money. Too much maintenance at the end of the money.

A Reserve Fund Study is prepared…

You see, the rules are that every five years a condo board has to have a reserve fund study completed on its’ property. Thanks to the Government, years ago, it was decided that condo corporations were being run into the ground,too many sellers were being foreclosed upon and properties were being under-maintained and under-managed.  So the powers that be decided Reserve Funds were the answer, and to re-visit those reserve fund studies every five years, with a commence-able action plan as a result of the study.

A certified personnel member (hopefully an Engineer) of an accredited organization with a permit to practice will come out and perform a review of all the elements in the property.  Everything from roof top units to parking paint lines is reviewed for deterioration as well as remaining age and assigned a remaining life expectancy.

A Reserve Fund Plan is created…

The results are cross referenced to the expected amount in the reserve fund and both charts are placed together to compare results and see if there will be enough money in the reserve fund when the time is necessary.  These Reserve Plans can be made for 5,10,15,20,25 or even 30 years into the future.

Sometimes, it is easy to cover the shortfall over a large number of years, and a condo board may opt to choose a recommended plan that only increases the condo fees by a small percentage.  Perhaps the fees are increased gradually over a number of years.  Though the worst is that sometimes, a special assessment is needed to cover major repairs that are immediately necessary.  Special assessments are generally not approved just to put money in the bank and gain interest.  I have seen special assessments as low as $200, and I have heard of special assessments at $90,000 here in Edmonton.

Some board OPT and VOTE NOT to complete these studies and surveys because they don’t have the money or feel it is a waste of the owners’ resources.  I’m not sure why they get away with it for so very long; however I have seen with my own eyes, a condo corporation that has not done a reserve fund study for 20 years.

The Vote is Cast by Your Board Members…

That’s right, your friendly neighbours on your Condo Board voted which way to go, how much the special assessment was going to be (within the confines of the Condo By-laws) and out went your notice in the mail.  It will be nearly impossible for you to get a loan to cover the assessment from the banks, unless you can pull some money out of a line of credit, etc.  Hopefully if that doesn’t work, you’ve got enough equity built in the property to sell, cover REALTOR costs and pay off the special assessment.  You will need to as the contract states the Seller is responsible for all special assessments up to the closing date.  If not, the next options aren’t going to get any more pretty.

In the end, it is up to you, BUYER BEWARE.  READ your Condo documents. The Savills Condos turned out okay, but they don’t all go so jolly.

Often when I am showing condos to my clients, I will find someone in the hallways and ask them if they live in the property, for how long, if they have any problems with the condo board, if repairs are coming up on the building and what the reserve fund is it.

Whether it is a high number or low, 99% of the people I run into can’t tell me what’s going on with the maintenance of their building or where the reserve fund is it.  Why they don’t know is foreign to me.  In fact the last woman I ran into, who had lived at her home for under a month responded with:

“Oh I don’t know, all those documents are still with my Lawyer.”

The best part, when we got to the main floor, the Reserve fund amount of $825,000 which is awesome (Go Carrington build, Promenade Eaux Claires) was posted on the Condominium board, right outside the elevator.

Let your Lawyer rad your documents, sure.  Let your Lawyer give their advice to you about the future of the property.  Get your REALTOR to help you.  I know I can’t sleep at night unless my client is making a solid investment that I CAN COUNT on.  Just read those documents for yourself folks, know what’s going on, be involved, be a board member, send your proxies to the meetings and remember, even one voice can make a difference.

How to save thousands on your next home.

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