When people buy homes, they often focus on appearances – what realtors call “curb appeal.” When it comes to buying condominiums – privately owned individual units in a large property complex – I believe that Americans need to take other factors into consideration.
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To me, what happened when a Florida residential tower collapsed in the middle of the night illustrates how the pitfalls of condominium ownership and management can literally kill people.
Figuring out what
repairs will cost
Some 30 million Americans live in condo buildings, the
Community Associations Institute estimates.
These properties are built initially by real estate
developers and then later managed by homeowners’
associations, which in turn are led by all-volunteer boards.
The members of those boards are residents elected by their
fellow owners and need not have any construction, finance or
property management expertise. The associations collect
money from all owners, with monthly fees that typically
range from US$200 to $600.
These funds pay for roof replacements, insurance, some
utilities and outside maintenance. Some well-managed
associations set money aside each month in a reserve account
to cover future big expenses or an emergency.
There are rule-of-thumb guidelines, such as setting aside
10% or 25% of the annual budget.
But, like all rules of thumb, this one can be misleading.
Instead, I recommend that associations hire a professional
and independent consultant to develop a funding plan based
on a detailed analysis of their properties. Known as a
“reserve study,” this document can help boards decide how
much money to set aside each year.
These studies estimate a condo association’s funding needs
for major repair and replacement expenses for everything
from roofs to plumbing infrastructure to swimming pools and
parking garages.
Typically, reserve studies include annual estimates for
expenditures. Most also include projections for the next 30
years, plus summaries of various options for paying for
those repairs, replacements and upgrades.
Starting when the developer turns the property over to the
condo association, I recommend that the first board of
directors hire an engineer for a structural and mechanical
analysis. If major concerns about the building arise during
that process, it can sometimes help resolve construction
disputes with the developer – or become the basis for
litigation. The initial board should also commission a
reserve study to assess long-range cash flow needs.
A structural engineering report can assess the physical
condition of buildings and must be done by a trained
engineer, who may open up walls and inspect the condition of
plumbing, wiring and other systems.
The Surfside tower pancaked to the ground three years after
an engineering report called for a deeper analysis of how
much it would cost to keep residents safe. The report was
commissioned for a county-required certification once condo
buildings reach the 40-year mark, and construction on the
Champlain Towers South was completed in 1981. Among other
things, the report called for fixing or replacing damaged
concrete and rebar after years of persistent water leaks.
Reserve studies are typically updated every three to five
years. There is no consensus about how often to engage a
structural engineer, however.
Predicting cash
shortfalls
Whether homeowners in these arrangements live in
multi-story-buildings, townhouses or single-family homes,
their associations’ reserves may be insufficient to cover
the cost of an urgent need. High-rise condos have shared
infrastructure, like roofs, plumbing systems, wiring and the
actual buildings.
Most likely, very few condo buildings are on the verge of a
literal collapse. But many condo associations are short on
cash for much-needed renovation and maintenance.
This kind of deficit often accumulates over time. But I’ve
often seen it begin when real estate developers initially
set monthly maintenance fees at unrealistically low levels
because that makes those homes easier to sell.
Decades later, the all-volunteer board of directors has to
deal with the consequences when its members must persuade
their neighbors to pay higher monthly fees or one-time
special assessments to cover the cost of urgently needed
major renovations.
In April 2021, two months before the deadly collapse, the
Champlain Towers South condo association approved a $15
million assessment to pay for – clearly – much-needed
repairs. Examples of this work, spelled out in the 2018
report, included rebuilding and waterproofing balconies,
replacing all the windows and thoroughly rebuilding the
swimming pool and garage.
Owners were supposed to pay anywhere from $80,190 for
one-bedroom units to $336,135 for a four-bedroom penthouse,
either right away or through a monthly fee for the next 15
years.
Not everyone can afford to make such large payments. Owners
may end up losing their homes through foreclosure when they
face huge assessments.
Heeding warning signs
In 2020, California started requiring periodic condo
inspections, including the kind that can spot structural
damage. This change responded to an alarming disaster: In
2015, a balcony collapsed on a fourth-floor apartment
building in Berkeley that was only nine years old. Six
people died, and seven were injured.
The Surfside collapse was taped on a nighttime surveillance
camera and watched by countless people worldwide. State
lawmakers in Florida and elsewhere are calling for new
measures that would tighten the regulation over condo
homeowner associations in an effort to prevent similar
tragedies.
David B. Haber, a Florida real estate lawyer, is calling
for new federal and state loan programs to make it easier
for cash-strapped condo owners to foot the bill for big
special assessments required for health and safety reasons.
I would advise all condo buyers to make sure that an
association overseeing a property that has caught your eye
is good at long-range planning. Try to figure out if the
association’s board is paying attention to whether the
structures it maintains, including plumbing and electric
systems, are sound, and whether the property’s financial
reserves match the levels recommended by independent
professionals.
And I would encourage all condo board members to communicate
often and openly with all their fellow owners. This approach
will help them earn and maintain the trust of their
neighbors as they make the case for raising monthly fees and
moving forward with often expensive, inconvenient but
essential repairs and renovations.