Insiders say healthy reserve funds are ‘essential’ for condominium associations
In the wake of the Surf tragedy, some local municipalities are pushing for condominium associations to reconsider their inspection policies and become more proactive in carrying out necessary repairs.
But a local lawyer says state law must change if condo associations are to be expected to stay on top of maintenance and repairs.
Condo reserve funds are accounts used by associations to fund renovation and repair projects, and although many local buildings have significant funds, Florida law allows condo owners to vote to defer, partially fund or even completely eliminate funding for these accounts.
Lawyer Brennan Grogan says it allows condominium associations to attract new buyers by keeping appraisal fees low, while kicking the box when it comes to making necessary repairs .
“If something is too good to be true, it probably isn’t true,” Grogan said. “If the valuation is really, really low in a building, it’s probably because they don’t take care of the things they probably should pay for.”
Grogan says the fact that the valuation at Surfside was $ 15 million before the collapse tells him there were significant issues with the building that have not been addressed.
“We saw it with Surfside,” said Grogan. “If there had been money in the reserve accounts that had funded the reserve studies properly from the start, you probably wouldn’t need a special $ 15 million contribution.
Real estate expert Bonnie Heatzig says many buildings in Palm Beach County already have reserve funds in place, but some do not, so it’s important for potential buyers to inquire about reserve fund accounts. before buying a condo.
“This is a critical question everyone should be asking themselves, whether it’s a condominium association or an owner,” said Heatzig, executive director of luxury sales at Douglas Elliman. “You first want to know if there are reserve funds held by the association and if so, how much and what percentage are the reserves of the annual income budget? And all of these questions put together will give you an idea of the financial health of the building. ”
Heatzig says these questions become all the more important the older the building is.
“You would like to see a higher percentage of reserves held if the building is older,” he said.
Grogan says buildings that have been around for decades should be given priority if the state were to create new condo reserve mandates.
Currently, Palm Beach County has no recertification requirements for older buildings.