Buyers who are considering the purchase of a condominium should inspect the health of the home owner's association before they close.
The seller should provide the buyer all financial documents relating to the association in time for an attorney for the buyer to review them before closing.
Here's some advice from Leonard Baron, professor of finance at San Diego State University, about the information that the seller should consider:
- Does the association budget include money for operating expenses such as water, lights, elevator maintenance, and landscaping?
- Is there extra money set aside in a reserve fund for long-term maintenance? If there is an outside reserve study, that should be provided. If not, there should be adequate money in the reserves right now to cover 50 percent of the estimated cost of repairs over the next 30 years.
- Do the condo's expenses exceed revenues due to a high foreclosure rate or other reasons that owners' debts go unpaid?
- If there is a shortfall, does the association have a plan besides cutting back on services for making it up?
Source: The Wall Street Journal, June Fletcher (10/17/2009)