Formula or Rule of Thumb for Condo Reserves? (Sunset, Longboat Key: for sale, insurance)

[bbronston]

Did the manager tell you about the kickback? If not, how did you learn about this?

[Cardiff by the Sea]

^^^
Very interesting. Our management company never recommended maintenance. If they had, it would have made them very unpopular with owners who don't want to spend an extra dime.

We did see the phenomena you describe, being used by specialty inspectors when we sold our condo. The string of motivations went like this.

1 Buyer has agent who prides herself on protecting her clients.

2. Buyers agent selects an extremely nit picky inspector. (We sold 11 properties last year, so we have a good basis to understand what the average inspector calls out.)

3. Inspector finds a hint of possibility of 10 year old mold behind a baseboard (good catch actually).

4. Buyer's agent brings in a mold inspector and water intrusion expert.

5. Mold inspector exaggerates extent of mold and refuses to tell us, the owner where it is and what the readings were.

6. Water intrusion expert can't find any evidence of water intrusion using infrared camera, but on the basis of mold inspectors claims (not supported by testing), claims we need a $50,000 rebuild to a wall which included replacing 3 sets of French doors, tearing out stucco, tearing out decking along the wall and replacing it.

7. Owners conclusion: Water intrusion expert gets kickback from buddies in construction industry who would do the work.

8. Mold remediation company who was never even in our unit sends us estimate of remediation costs based on conversation.

9. Outcome. We used a different remediation company who charged us what the other remediation company would have. They identified the water intrusion issue, which had been failed caulking around the windows on the upper floors. This issue had been resolved 2 years earlier when the building was painted and the windows re-caulked.

10. Owner's conclusion: All of the $50,000 of work recommended by the water intrusion expert would not have solved the problem because the problem was mis-diagnosed. There is no regulatory body controlling water intrusion experts, so they can say pretty much what they want under their "expert opinion". And they think seller's will just suck it up because otherwise they won't be able to sell after potential buyers see their report. They were wrong though. :-)


But again, I am glad to be out of a condo, because where I lived, most owners had never owned a house before and had no understanding of maintenance or construction. They objected to doing anything, but once they decided to do something, they would believe anything a so-called "expert" told them. And a lot of these so-called experts were people who picked up tools and just started doing a line of work and had almost no training.

[Cardiff by the Sea]

Originally Posted by bbronston

Did the manager tell you about the kickback? If not, how did you learn about this?

Yeah Bob. People always tell everyone about the kickbacks they get.

[Sunshine Rules]

Originally Posted by GreggT

There is supposed to be a Reserve Study done every 3 years based upon Florida Law. The study lays out the anticipated replacement costs and useful life of all the items that should fall under the Reserves (basically everything that is not considered an expense). Normally a professional firm is hired to do the study then reviewed by the board. It dictates how much should be set aside for Reserves. If the board decides to not fund the Reserves at 100%, an owners vote must be taken to approve what ever the percentage the board proposes.

Emphasis on the "supposed to be." Some condo associations have gotten rather creative to make their reserve funds position look healthier than the reality. For instance, there is a particular condo association on Clark Road that, as of 2013 budget, was claiming the asphalt roads (which already had big cracks and pot holes) had a life expectancy of 75 years. Look very carefully at the reserves portion of the budget.

It is also a good idea to get at least the last 3 months (6 months is even better) of minutes of the condo board meetings to see what is being discussed. That is how I learned that a condo community in Palmer Ranch is having issues with water intrusion around windows on some of the buildings.

When buying a condo, it makes sense to also get a copy of the Rules & Regulations before you write an offer to review for things like pet restrictions, parking restrictions, rental restrictions. Many condo associations now have those on pdf files and will email them to you or your agent if asked.

The state of FL requires a condo addendum to the purchase contract that gives buyers a 3 day review time period once they have received the required condo documents, with an opt out if the buyer finds the documents unacceptable, but I prefer to get certain information like R&R and budgets before buyers write an offer so they don't spend time and effort submitting an offer for a condo in an association that obviously doesn't meet their needs once those documents are reviewed.

The time to research the financials and other pertinent documents pertaining to a condominium association is before you buy a unit there, not after.

[bbronston]

Originally Posted by Cardiff by the Sea

Yeah Bob. People always tell everyone about the kickbacks they get.

Exactly my point...

[Restrain]

People will talk. Comes under the secret too big to keep scenario. Someone getting the kickbacks or paying the kickbacks will talk, and that person will talk.....

A HOA association and Condo Association can be corrupt, or can be honest. That is why I always recommend that you talk to people who live in the development before buying,

[Avalon08]

Originally Posted by Restrain

People will talk. Comes under the secret too big to keep scenario. Someone getting the kickbacks or paying the kickbacks will talk, and that person will talk.....

A HOA association and Condo Association can be corrupt, or can be honest. That is why I always recommend that you talk to people who live in the development before buying,

Some people wonder that about our Property Manager, too. She always wants to use certain contractors....hmmmm, is she getting a kickback? But then again, sometimes it's better to go with a trusted reliable contractor with whom you have a relationship. Trying to get multiple quotes for every project (with FL contractors) can really drag things down, and going with the cheapest quote is certainly not always the best idea. It's a conundrum.

[dpbarr2000]

If you are getting a mortgage, some lenders will not make a loan in a condo complex with a high percentage of rental units.

[Cardiff by the Sea]

Originally Posted by dpbarr2000

If you are getting a mortgage, some lenders will not make a loan in a condo complex with a high percentage of rental units.

In the last year we sold a lot of our rental condos in CA in order to be able t move to FL. The above guideline used to be an issue, but it seems that recently lenders shifted to applying this limitation only to investors. If the purchase was for a personal residence, the ratio of renters/owners didn't matter.

[Sunshine Rules]

Some lenders are not only doing mortgages on condos, they have reduced the restrictions. If the buyer is putting 25% or more down, some lenders will do a limited review.

On a limited review the condo complex:
cannot be in litigation
cannot be a condotel (condo/hotel with check in desk)
cannot have structural problems
no short term rentals such as daily, weekly
commercial space cannot make up more than 20% of the complex
one person/entity cannot own more than 10% of the units
construction must be complete
at least 90% of the units must be sold and closed

Nothing mentioned there about number of units being used as rentals vs owner occupied.


One other very important piece of information -- condo conversion communities may now qualify for financing.