Condo Special Assessments

[bagofpucks]

Completely anecdotal, so to be taken with a huge grain of salt, but our friends/family fell into unsurprising three categories for their first house:

1) apartment style condos between $300K-$400K - didn’t have issues selling or renting, but ended up moving quicker than they had initially planned for various reasons.
2) townhouses with condo fees between $350K-$450K - almost all of these have gone poorly. One friend had a $40K special assessment and there was more to come, so he sold at a discount. Another friend can’t sell his unit because of a massive legal battle with the builder.
3) detached home in the suburbs between $350K-$400K - most have either sold or rented and upgraded to a larger house or community closer to downtown. I don’t think anyone has lost money, but a few have not recouped what they put in for upgrades for sure.

It’s been interesting to see how people’s next houses our going. Some decided to buy in older neighborhoods and do renos and others are sticking more to the burbs. So far, none of the renos are going well, but in the long term I suspect they will be quite happy.

[OutOfTheCube]

Don't regret for a second that we sold our townhouse and I will never go back to owning one. Even a $20K special assessment would probably ruin us for a decade, never mind $60K we just wouldn't be able to pay period.

[Cecil Terwilliger]

Funny part is that houses require repairs that costly all the time. The only difference is that in a house you can just choose not to do anything and let it fester and get worse.

If reserve fund studies were mandatory on detached homes like they are for condos, everyone would be bankrupt apparently.

[Locke]

Originally Posted by Cecil Terwilliger

Funny part is that houses require repairs that costly all the time. The only difference is that in a house you can just choose not to do anything and let it fester and get worse.

If reserve fund studies were mandatory on detached homes like they are for condos, everyone would be bankrupt apparently.

But you're talking about very different assets with different valuation methods.

For a house you could tap a HELOC to pay for a roof, etc.

I know that if the day ever comes where I'm going to have to replace my windows I'm going to be a very unhappy man unless some level of Government throws me some hefty ecobucks.

[chemgear]

Originally Posted by Cecil Terwilliger

Funny part is that houses require repairs that costly all the time. The only difference is that in a house you can just choose not to do anything and let it fester and get worse.

If reserve fund studies were mandatory on detached homes like they are for condos, everyone would be bankrupt apparently.

I have this image of a kid sitting in their room on the 2nd floor of a detached house saying everything is fine. Meanwhile the parents are running around on the 3rd floor with buckets as the roof is caving in, the cat and dog in a rowboat in the basement with 2 feet of flood water and the grandparents guarding the front door because it no longer closes properly.

Part of some of the complaints (or negative feelings about a special assessment) from condo owners that I hear seem to stem from the fact that they aren't experiencing a problem themselves. It's somebody else in the building with the leaky ceiling/envelope, elevator that they never use, etc. that some how translates into the belief/desire that the cost shouldn't be borne by them at all. Which isn't how a condo works.

[Cecil Terwilliger]

Overflowing bathtubs and water leaks in individual units should never cause a special assessment in the first place. It should be covered by insurance.

Special assessments are for common areas and part of the structure that have aged or have issues. And even then, they’re less common than people make it sound. It’s just the complaints are always louder and get more attention.

Build quality sucks all around, go ask some CPers how their NHW turned out.

Things like the leaky condos in Vancouver are a real issue but also represent negligent condo owners and condo boards, as well as sketchy builders.

Most buildings now should have a very tightly controlled reserve fund and healthy contributions.

Homeowners also tend to massively understate the costs of owning a home. Comparatively, even with condo fees, most condos are a bargain and make sense in urban areas.

[topfiverecords]

Originally Posted by Locke

But you're talking about very different assets with different valuation methods.

For a house you could tap a HELOC to pay for a roof, etc.

I know that if the day ever comes where I'm going to have to replace my windows I'm going to be a very unhappy man unless some level of Government throws me some hefty ecobucks.

As a homeowner that day will never come. You'll never have to replace your windows. There may be good reasons to, but there's never going to be a law requiring you to replace them as if there's some arbitrary expiration date on glass and wood/pvc. There are consequences to not repairing/replacing failing units but no one can force you to maintain/upgrade your home. Tons of inner city homes have 80 year old, single pane windows. There are also many homes that appear ready to fall over at the next stiff wind.

[Johnny199r]

Originally Posted by jaydorn

Right or wrong, home ownership is still very much a marker of success & the dream for many Canadians. Condos are the first point of entry into the housing market for many homeowners.

I’m sure many would love to skip that step, but scrapping together a 5%-20% downpayment for a $200-$250k property is a much lower bar to clear than a $400-$600 SFH.

It’s a bad financial choice. I get that people in Canada feel they’re only winners if they own something, but I’ll never understand the financial upside of owning a condo. I don’t think going to a condo and then trying to climb the latter to a SFH really makes sense, either.

Renting and investing will make an individual come out ahead financially over a condo, but most peoples grasp on personal finance is so terrible they will never consider it.

[I-Hate-Hulse]

Originally Posted by Cecil Terwilliger

Overflowing bathtubs and water leaks in individual units should never cause a special assessment in the first place. It should be covered by insurance.

Special assessments are for common areas and part of the structure that have aged or have issues. And even then, they’re less common than people make it sound. It’s just the complaints are always louder and get more attention.

You're half right. Yes - special assessments are for routine, expected repairs. But it's also for any reason the Board requires money beyond what's in the budget and being covered by condo fees.

As for your thought that insurance covers overflowing tubs - as you know from your own car insurance - there's the deductible and that can be as high as $500,000 at some condos. As mentioned above - it's capped in AB at $50,000 - where else is the Board going to get $450,000? Someone's got to pay...

The next problem of course is with a claim on your record, your premium and deductible triples next year....

Originally Posted by Cecil Terwilliger

Things like the leaky condos in Vancouver are a real issue but also represent negligent condo owners and condo boards, as well as sketchy builders.

Most buildings now should have a very tightly controlled reserve fund and healthy contributions.

Homeowners also tend to massively understate the costs of owning a home. Comparatively, even with condo fees, most condos are a bargain and make sense in urban areas.

So in *theory* you're right. Condos should function as you describe - a pooling of residential ownership, with common expenses shared, and the building efficiently managed maximizing the use of land in desirable places. Utopian Urban Planning paradise right?

Here's the reality. Condo Boards are reflective of the challenges that face any government. Boards struggle to get honest and quality people to join as ultimately it's a thankless volunteer job that makes you the "bad guy" in the building.

What you're missing is that in a condo you are completely at the mercy of the strugglers in your building. The person who overflows the tub, causing your insurance premiums to quadruple. The person who doesn't wait for the parkade door to close and thieves smash and grab 15 cars. The guy who lets his dog whiz in the elevator.... and it goes on and on. I've always said - condo living requires advanced citizenship - but there is no test to live in one.

Faced with a relentless flow of this - good people leave the Board and move on - upgrading to detached homes so they don't have to deal with this. Which then leaves people of lesser quality to fill the void - like the aforementioned genius who invests the reserve fund in Bitcoin.....

What's the solution? Tightening up the Alberta Condo Act would be a good start, especially around reserve funds, and giving Boards more tools at their disposal for effective and timely governance. Increasing personal accountability for damage would also be big. I'd like to see it mandatory that unit owners carry personal insurance to cover the Condo's insurance deductible regardless of how high it is. Bake that into the condo fees or something to make it easy.

I'd also like to see some sort of option to turn over the Board to become "a ward of the State" when it's truly dysfunctional and incompetent. Maybe something like a Bankruptcy Monitor who takes over the role - for a fee. I've seen some Boards so dysfunctional that CPS was required to be in attendance at the AGM. Ontario requires Board members to take training which in theory is good - but that also acts as a barrier to get good people who are otherwise busy to join.

Do good condos exist? For sure - not all of them are like I've described. But like any form of government, it can turn on a dime as leaders come and go.

I think you mentioned you live in some sort of condo strata - sounds like it's going well for you which is great and certainly does happen. Come back to this thread in 5 years and let's talk about what your experience has been.

[bizaro86]

Originally Posted by I-Hate-Hulse

I'd also like to see some sort of option to turn over the Board to become "a ward of the State" when it's truly dysfunctional and incompetent. Maybe something like a Bankruptcy Monitor who takes over the role - for a fee.

This exists. It requires someone to make a court petition to be appointed administrator, but then the administrator has the powers of a duly appointed condo board. I've been involved with 2 condo corps where this has happened, in both cases a condo management company was appointed administrator. The first order of business in both cases was to get an actual board appointed, because having few fee paying owners plus administrator fees means you're digging a hole pretty fast.

It's not an experience I'd necessarily want to go through again although in both cases it was pretty interesting.

[DownInFlames]

Originally Posted by bizaro86

This exists. It requires someone to make a court petition to be appointed administrator, but then the administrator has the powers of a duly appointed condo board. I've been involved with 2 condo corps where this has happened, in both cases a condo management company was appointed administrator. The first order of business in both cases was to get an actual board appointed, because having few fee paying owners plus administrator fees means you're digging a hole pretty fast.

It's not an experience I'd necessarily want to go through again although in both cases it was pretty interesting.

My building had an administrator many years ago. I’m told the police had to attend at least one AGM. We have a solid board now (I’m biased because I’m on it) and things are going well. I agree that an administrator is a last resort because if they’re like the one we had they’re almost as useless as a board in turmoil.

Having said that I love the freedom of condo living and I couldn’t care less about the status of home ownership. People complain about condo fees and special assessments but gladly spend the weekend doing yard work and other (sometimes costly) maintenace I don’t have to worry about. That’s a fair trade in my book.

[GGG]

Originally Posted by I-Hate-Hulse

As for your thought that insurance covers overflowing tubs - as you know from your own car insurance - there's the deductible and that can be as high as $500,000 at some condos. As mentioned above - it's capped in AB at $50,000 - where else is the Board going to get $450,000? Someone's got to pay...
.

I just want to point out here that if your condo has a 450k gap between what it can recover and the deductible then the reserve fund needs a 450k line item to pay that deductible.

When I was on my board long ago the number of people who asked to keep Condo fees low and to underfund things was crazy. I think tightening up rules around reserve funds and what needs to be covered in terms of unexpected, uninsured items needs to happen.

This needs to happen earlier in life as well. This will decrease the sale prices of Condos as fees would be higher but for any new owners this is a good trade.

[bizaro86]

Originally Posted by GGG

I just want to point out here that if your condo has a 450k gap between what it can recover and the deductible then the reserve fund needs a 450k line item to pay that deductible.

When I was on my board long ago the number of people who asked to keep Condo fees low and to underfund things was crazy. I think tightening up rules around reserve funds and what needs to be covered in terms of unexpected, uninsured items needs to happen.

This needs to happen earlier in life as well. This will decrease the sale prices of Condos as fees would be higher but for any new owners this is a good trade.

The standard for reserve fund allocations is supposed to be equal across time periods, but that is generally not how it works out.

I agree that having realistic condo fees in condo marketing documents would solve a lot of problems, but developers would sell less condos, or sell them for less money, so not exactly a big incentive on their part to do that.

[I-Hate-Hulse]

Originally Posted by GGG

I just want to point out here that if your condo has a 450k gap between what it can recover and the deductible then the reserve fund needs a 450k line item to pay that deductible.

When I was on my board long ago the number of people who asked to keep Condo fees low and to underfund things was crazy. I think tightening up rules around reserve funds and what needs to be covered in terms of unexpected, uninsured items needs to happen.

This needs to happen earlier in life as well. This will decrease the sale prices of Condos as fees would be higher but for any new owners this is a good trade.

Technically under Section 38(1) of the Act, the Reserve Fund is more for capital items (i.e. physical assets of common property i.e. the boiler). The saving of money for a deductible you talk about should probably happen in the annual operating budget which of course sets the monthly condo fees.

Other than that technicality - you're exactly bang on - that's one thing that should be mandated in the Act IMHO. Unfortunately, as you say - that tends to spike monthly fees and the cheapskates would lose it and vote out the Board.

Which is exemplifies the turnover problem with condos. Get in - live cheap with low fees - and get out before the big ticket items come up for replacement in the condo.