The tragic collapse of the Champlain Towers South in Surfside, Fla., has many condo owners raising questions and worries about their own buildings' structural safety and financial health.
Generally, it is considered best practice for a condo association to study how much money it needs to keep in a rainy day fund for future work such as replacing the roof or asphalt.
And although many condo owners focus mainly on their monthly homeowners' fees, they should also be looking at this reserve fund, said Robert Nordlund, founder and CEO of Association Reserves. The group helps condos and other types of properties figure out long-term budgets for major repair and replacement projects.
"The monthly homeowner association dues ... we call that the 'fool's gold,' because that's a number that people like to be low. The job of the board of directors is to provide for the needs of the association, and those needs accumulate over time," Nordlund told NPR's Morning Edition. "Deterioration is real, and so the number to look for is the association's 'percent funded.' That's the indicator of the combined physical and financial health of the building."
Below are excerpts from the Morning Edition conversation, edited in parts for length and clarity:
For some condo owners, the instinct is to be cranky when given a bill for something like a hallway renovation or the swimming pool platform. Is that the way people should be thinking about it?
You would think that that should have been collected. They should have planned for that. And indeed, it's a lot easier to plan for that with an extra $5 a month or $20 a month. And that's what should be. Deterioration is constant. Deterioration is expensive. Deterioration is predictable. And so the board should be setting aside funds on an ongoing basis to offset that deterioration.
Are you saying that if a condo association is good, it keeps increasing the monthly fee a little bit so owners never have a surprise assessment?
These major repair and replacement projects are very predictable. Three out of 10 associations do not have special assessments. Four out of 10 associations have infrequent special assessments, and three out of 10 associations have regular special assessments.
What advice do you have for people who are thinking of buying a condo, but don't want to end up in a situation where major expensive repairs are needed, but there's not enough money in the bank to do it?
It would be nice if the information is readily available, but it's not. Buyers need to do a little bit of digging. But remember, just because things are unknown doesn't mean that they are unknowable. So when people ask me, I counsel them to do four things:
When people see their monthly condo fee go up year over year, rather than being upset, should they view it as a responsible thing their condo association is doing?
We live in an economic environment where there's inflation every year, and so if a board isn't raising the homeowner assessments every year, then that's a tipoff that something is wrong.