Reserve Funds: Clues You Can Use in Your Condo Buying DecisionOctober 11, 2018
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Before you even start negotiating with a seller, it’s wise to take a look at the condo’s financial statements. For reassurance that the property is being managed well, buyers need to know how much of a reserve fund is set aside for major repairs. Be sure to pay close attention to upcoming work, debt, and any late shared cost payments.
To get the facts straight, a simple call to the condo association manager can be very helpful. You should also read the minutes of the most recent association meetings. The minutes will tell you about financial decisions made by condo owners as well as their concerns and problems they have experienced. All these pieces of information will help you make a wise choice as a buyer.
Special and unexpected assessments
Contrary to what you might think, reserve funds do not cover all costs associated with repairs. In certain cases, the association may decide to set up a contingency fund which, even though not required by law, will be governed by a clause in the condo declaration.
According to a study conducted by the Québec Federation of Real Estate Boards (FCIQ) in 2015, more than half of the managers surveyed (61%) had to impose a special assessment on condo owners. But a special assessment does not necessarily mean the condo is in poor financial health. There may be a contingency for renovating the exterior of the building, for example. It depends on how the board members want to pay for the work.
A close look at reserves
Regroupement des gestionnaires et des copropriétaires du Québec (RGCQ) has introduced a Condo Index on its website. This is a tool to help in planning for the cost of work to be done in the next 25 years. There is an accounting chart where condo managers can list each of the costs associated with their building and compare them to what is standard in Quebec.
The indicator calculates the annual costs and then determines a monthly assessment for each owner to pay into the reserve fund. RGCQ suggests doing this every five years. The RGCQ website also features a Supplier Directory, which is a comprehensive list of condo managers.