Condos 101: Expert Sees 'Shocking' Lapse In Public Oversight, Gives Advice For Buyers And Owners
Florida Gov. Ron DeSantis won’t commit to a statewide review of aging condominiums such as the Champlain Tower South, which collapsed two weeks ago.
The 12-story beachfront condo has unfortunately become a symbol of the worst in condominiums which are often owned and managed by tenants with little oversight. The incident in Surfside, Florida, has made many condo owners and prospective buyers nervous.
Evan McKenzie, a professor of condominium and homeowner association law at the University of Illinois at Chicago Law School, says five to six-figure special assessments in older condo buildings are becoming more and more common. He wasn’t surprised to learn that owners at the Champlain Tower South building were being asked to pay special assessments of hundreds of thousands of dollars to address an estimated $15 million worth of needed repairs.
DeSantis’ unwillingness to review old condo buildings is indicative of a larger problem. State officials across the country “don’t want to accept any responsibility for making the situation better,” McKenzie says.
McKenzie thinks more oversight and government involvement of condo boards is needed to help prevent future catastrophes. He says roughly 20% to 25% of Americans live in condos or homeowners associations. Despite this, most states “have virtually no oversight in place of the association’s finances,” he says.
Little to no qualifications are necessary to be voted onto a condo board. Being a member of the board comes with enormous responsibilities, but often these volunteer positions go without training or support, he says.
Many states lack important data on condominiums and homeowners associations. States “know virtually nothing about the finances of those associations or the condition of the buildings,” he says. “I think that’s really a shocking lapse in public oversight and it could be easily fixed.”
In some cases, condo owners who are managing these associations can be absentee landlords who own a unit or two in the building but don’t actually reside there. People who own condos as investment properties may not put enough money into the building’s upkeep, he says.
He points to a concept that economists call a “collective action problem” — when individual owners want to keep their payments as low as possible but instead hurt the rest of the community when there’s a big repair and no extra money is set aside to fix it.
McKenzie would purchase a condo himself but only under very certain conditions. One important factor to consider, he says, is whether the condominium has done a reserve study — when a professional assesses the property top to bottom. The professional outlines in detail what may need to be fixed down the road and how much to set aside for those potential repairs.
When buying a condo, ask if a reserve study was done within the past three years, McKenzie recommends, and interrogate whether the recommendations listed in the study were followed.
Also look into whether or not the state or county mandates periodic reserve studies. Florida, where there are more condos than any other state, does not have a requirement for regular reserve studies, he says. That often leaves condo boards with little information for proper maintenance and financial preparation, he notes.
McKenzie also advises insisting on viewing the association’s finances before putting in an offer. Normally a buyer is entitled to see the financials once they’re under contract, but he says to be firm and ask beforehand.
“If I were going to move into [a condo], I’d want to insist on knowing all the details about the financials before I would ever buy,” he says.
In a hot market with bidding wars abound, McKenzie says it’s crucial that buyers do their due diligence in this part of the condo-buying process.
“The way I look at it, the risks of buying into a private community — especially a condo and especially an older condo building — are so great that I would simply forego the opportunity if I couldn’t find out where things stood financially with the association,” he says.
Condos can drastically range in size, some with hundreds of units and some with only two to four. But no matter how big, keep in mind that buying a condo means you are entering into a shared-ownership arrangement with other residents under one roof, he says.
If current owners notice a crack in a structure, McKenzie advises contacting the condo board. If board members don’t act, reach out to the building officials yourself, he says. It’s a public responsibility that municipalities too often view as the condo board’s problem, he says.
“You do have to go to public authorities at times. It has to be done. It can be difficult,” he says. “But if you can’t get any recourse from the board, you may have to do something like that.”
McKenzie says the bottom line is to not overlook any step in the condo-buying process when making such a massive investment.
This article was originally published on WBUR.org.
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