How important is it for the Homeowner's association to have a capital reserve fund?
Posted by Allison Simson on Thursday, December 6, 2007 at 12:00 AM
By Allison Simson / December 6, 2007
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Question: I am thinking of buying a condominium in Summit County and want to find a property with low homeowner’s association dues. How important is it for the association to have a capital reserve fund?
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Answer: Condominium buyers should be wary of associations that lack adequate reserves--money set aside to pay for emergency or major repairs--because they could be forced to pay special assessments to cover costs when the association cannot. Additionally, a future sale or refinancing could be denied based on the association's reserves; and it is difficult to find a buyer under such conditions. Insufficient reserve funds can lead to declining property values, as educated buyers refrain from purchasing condos in the community, according to the Community Associations Institute, a national nonprofit organization that educates and provides resources to homeowner groups.
Annually, an association's board of directors is required to predict the next year's income and expenses--usually through a reserve analysis study. This report consists of a property evaluation--architectural and engineering--by qualified engineers. The engineers determine the useful life and repair costs of things like boilers, elevators, and roofs to determine how much money should be set aside each year to plan for future replacement.
The reserve funds are generally collected from the condo owners on a monthly or quarterly basis and deposited into Treasury bills or other secure government-insured funds. If a repair is necessary and the association needs to raise the money immediately, there are three steps it can take: increase the monthly assessment amount; impose special assessments, in which the owner immediately pays a fee based on the percentage interest he/she has in the association (sometimes amounting to hundreds of dollars); or get a loan.
For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Â
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