Lack of Reserve Fund Hinders Condo Sale


L.C. from outside of Connecticut writes:

Dear Mister Condo,

I’m getting ready to put my condo on the Market, but just found out the our HOA has no money in reserves fund. They just decided on an assessment and will take effect next month. Will I have trouble selling? Should I wait until there’s money in the reserves fund?

Mister Condo replies:

L.C., I have good news and I have bad news. The good news is that your association is taking corrective steps to get their financial house back in order. The bad news is that you will be the one contributing to the Reserve Fund on your way out. Also, depending on how large an assessment is levied, it could effect your ability to attract a buyer. For instance, if the assessment is spread out over a few years for multiple projects, you would have to convey the assessment information to a potential buyer. Would you buy a unit knowing that a large assessment is looming? Not likely! It would actually be better to get the assessment out of the way (at your expense) and know that the association is back on sound financial footing. That way prospective buys wouldn’t be hesitant to purchase knowing that the investment is sound for the immediate future. I am sorry that your association didn’t take better care to properly fund the Reserve Fund over the years, which would have avoided this unpleasantness. Of course, that would have meant higher common fees, which can also dissuade prospective purchasers. One way ro the other, the unit owners always end up paying. I think it is better to put the money away over time in a proper Reserve Fund versus levying special assessments or taking out association loans. That way, the folks who have consumed the usable life of the common elements are the ones who have actually paid for those common elements. Good luck!

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