Does reserve money affect property value?

Here is the scenario: I live in a 13 building conversion condo that was turned over 12/06. The roofs are 30 year comp replaced in 1991. One of the buildings roof is leaking. At our last meeting the BOD said that they getting bids to replace all the roofs since it would be a significant savings to do them all at once. No numbers were given. In order to do all the roofs it will completely wipe out our reserves and cause an additional $750 assessment. I think this is wrong. What about the annual replacements and maintenance that needs to be done? What happens if we have a pipe break or dry rot? I can't imagine any saving that would be worth depleting all of the reserves. I say replace the one roof and replace the rest in a few more years when the money is there. I did get booted off the HOA website for asking if a decision had been made regarding the roofs. Does a lack of reserve money affect selling a condo? I think someone would have to be crazy to buy if there were no reserves because any maintenance or replacements would come out of your pocket. Our bylaws give the BOD the right to spend the money with out consulting the homeowners and I am worried. I want to get a petition out before it is too late and the money is gone. Any suggestions?

ChloeL:
Not sure I understand your problem with the roofs since they were replaced in 1991--16 years ago, but you state the turnover occurred in 12/06. At turnover, or at roof replacement in 1991, wasn't there some type of warranty given?

The BOD dismissed the idea of warranty, said it probably wasn't possible to find out who even did the work in 1991. I don't doubt that the roof of one building needs replacing, I just don't think we are in a position to replace all the roofs since they don't need it and we don't have the money in reserve. Let's say the BOD did have all the roofs done, our reserve account is at zero, and the owners pay a one time assement of $750 or they raise our monthly dues (that is all the BOD is trying to come to terms with, how to get the extra money from us). What happens then if I try to sell, does the value of my condo drop significantly because of no reserve money and how long would it take to build the reserve back up? The developer funded the initial reserve account. Our dues are approx 185 a month, with 35 units. Help, I am terrible with numbers.

We are in the first year of this condo conversion. I think our reserves are around $45,000. Most of which the developer seeded the account with. It looks like the board did respond to my question on google groups, but since they booted me this is all I can read from a web search result:

Q:
Has the board figured out what is going to
be done in regard to the roofs that are leaking? Is there going to be a vote
involving all the homeowners in this plan?

A:
We've already had problems with leaks, and we want people to live in their homes
comfortably, and not have to worry about a leaky roof in the winter. We are
presently working on the details, and plan to get started on this project in the
next couple months. Because we have a limited amount of money to work with, ...

That is exactly my point, but the BOD won't listen to me or any of the other home owners. I am going to have to make a petetion and take it around and have everyone sign it. I am just making sure I am not in error here in my thinking. Any ideas on how to word a petition to maximize agreeability?

We, the homeowners of xxxxx, do not want all the roofs replaced because of the affect it would have on property value and future capitol improvements and replacements due to the depletion of our reserve account. ?

Normally docs would require a membership vote to approve a special accessment or a raise in dues over a certain percentage.

A HOA is ONLY funded by it's members for it's members. Where else do you think the HOA is going to get it's money for these repairs? It has to be the reserves (which were to be setup for these situatiions) and/or a special assessment. The BOD has decided it must use BOTH options to accomplish the job of repair. Why they are doing it altogether may be that the contractor they plan to hire will give them a discount if they get ALL the condo's and NOT just one at a time. Contractor often give "deals" if they can get the whole job and not just parts. It's a cost savings on both ends overall.

I don't see how the lack of reserve money is going to effect the resale of any property. There are so many other issues that distract buyers that this is the LEAST of their worries. It may be the lending company or HUD's concern but it's not high on the list of a potential buyer.

I often hear people think their property values are going to effected because of their neighbor's messy yard/house, or that the HOA runs it's business nightmarishly. You can't control why a purchaser will not purchase a home. It can be as small as not liking the location of a toilet in the house or the fact they may already HATE HOA's.

Property values are really based on what other houses similar in size and condition have sold in the area. If a 3 bedroom 2 bath 2500 square foot house sold for $500K within 2 miles of your home, and you own a 3 bedroom 2 bath 2,450 square foot house, you can expect to put house up on the market for $495K - $505K. However, if you own a 2 bedroom house with 1 bath instead, you can't expect to get $500K for it. That doesn't mean your property values are low. It's just your house isn't in the same description as other similar houses in the area. It's the same with the CONDITION of your home. If you own a fixer-upper and the one that just sold was a complete remodel, don't expect to get the same price.

There's ALOT more that goes into property values. This necessary repair may actually help sales and improve the condition of the homes in the area. Although it stinks the money has to come out of the reserves and the special assessment, it's best the HOA does get it done for everyone's sake. Ironically, it's this repair that has more effect on the property's value than the size of your reserve fund. Reserve funds can be rebuilt. Condition of houses, has to be built in.

A new roof is a good selling feature but if it's being purchased on credit as the payments are being passed along to a new owner in the form of increased dues to fund the reserves then the property becomes that much less attractive, especially in a buyer's market.

All it takes is one seller to cut their price before all are forced to follow suit. You could conceiveably lose 50K over night while a new roof will add little to no value as all properties are expected to have a roof that is performing.

As a potential buyer I would have much more interest in a property that had a 16 y/o roof that was performing and the reserves funded for future replacement than a new roof with depleted reserves and the only source of money to fund the reserves and pay for unexpected repairs will come from my pocket. Always have to look for hidden costs when buying property.

ChloeL:

To further substantiate your petition, it would be well for you to learn what the BOD has consistently put into the reserve fund since the developer's turnover. You state the developer did put money in the reserve fund, but that was quite sometime ago. It is the BODs fudiciary duty to properly plan a budget with an assessment fee that will allow for an amount of money to consistently go to the reserve fund. This is what the capital reserve items (roofs) are to be funded with.

This responsibility should also be outlined in your official documents. You would be well to research this to learn what has been done if anything. The annual financial reports, from inception, should show clearly if the reserve fund has been properly handled. Make your request known to the BOD in writing; state your purpose. They can not rightfully deny you access to the reports and if you have to go to the 'office' where they are filed, then make the appt. and be prepared to be charged for the copies.

Once you have the appropriate 'backup' you can then plan your course of action.

The key word is CONVERSION. The first of perhaps many problems has now arisen, one roof. here is a checklist -
1)What about the other 12 roofs?
2)What about the wiring?
3)What about the plumbing, galvanize vs copper?
4)What about ADA access?
Unfortunately, as you pointed out, this was an "as is" conversion, with "no warranty". Just last week I has a conversation with someone from CCHAL about this topic, and they pointed out that legislation is sadly lacking when it comes to consumer protection and conversions.

Bring up your concerns in a BOD meeting. If you ask questions in a public forum, more homeowners are apt to get involved and want answers to questions you have brought up. Many times the BOD is only focused on the project and not options.

You may need all the roofs replaced, but what about increasing the dues, and then use the option JohnC proposed, this will hopefully give the board pause.

Is Regenesis your management co? They are a very good company for reserve study's. This looks a reguration of a past report. By your figures the HOA has income of $77,700 per year. This report may be from years before.

Is the HOA reporting on a cash or accural basis?
Why do you owe taxes? How is the HOA filing 1120 or 1120H?

The financials you want are a Balance Sheet, this shows the cash and the liabilities, it should also have a breakdown of your reserves on the operating side. Income/Expense Statement, this will show you all income from dues and other and any expenses and what they are being appropriated for. You may want a General Ledger, this will show you all the checks and how they were posted and to what account. The Balance sheet and Income/Expenses statement are important and should tell all.

When all is said and done run for the BOD. If you want changes this is what it takes, put your energies where they can make a difference. Don't wait for a situation like this to propel you.

Sorry to disagree with the comments made regarding property values being affected by lack of reserves or poorly run association (which generally go hand in hand...)

As a Realtor with 11 years experience I can attest that the market has changed althoughten years ago, it may not have been an issue. My market is the Chicago area. And with the atate of the mortage market, buyers are way more cautious with all aspects of a purchase as are the banks who are funding their loans. No one wants to get stuck a year down the road.

Many attorneys for buyers and banks are now requesting a copy of the financials for an association and any pending special assessments or increases be provided before closing on a home.

If there is a problem (like, no money in reserve or old buildings with some repair needs but very small reserves) buyers will walk away. I have seen it manytimes. With so much inventory around, why risk it? Would you want to buy a condo you love in a great location and get a bill like Chloe will very likely be seeing AND a raise in the dues you thought you would be paying?

When I was looking around for affordable housing we came across a nice condo with all the amenities, golf course, pool, lake access, etc. However, they were reasonably priced because of the $10,000 a year assessment for the next 5 years or so because all the units were affected by dry rot and the outsides had to be all replaced. That's how I became aware of special assessments in condos. My insurance policy protects me against special assessment, with a deductible of course so I am not worried about coming up with the money, just a lack of reserves and potential for not being able to sell. I am going to write down your suggestions and take them to the HOA meeting and see if I can maybe get the BOD to see beyond the roof line! Thank you all for sharing your knowledge and expertise with me, it has been very helpful. Has anyone here had to ban or been banned from your homeowners association website?

There are other options for your association to consider besides depleting reserve funds and doing a large increase at once. The Association as a borrowing entity can take out a loan. The loan can be fixed and spread out over many years- up to 10-15 to cover the payment of the roofs. The loan to the association is not secured by real estate, but by an assignment of assessments and the associations rights to collect them ( so just the condo fees). This is a very popular option for associations to consider. Depleting reserves now will just make you have to "catch up" for many years in the future.

It sounds like the board is determined to do all the roofs this year, the pres told me that legally they can't deplete the reserves so they are looking into a contractor spreading out the work in several stages over several months, discounts to do the roofs through the winter months when work is typically slow for contractors, etc. I feel much better that the BOD is looking beyond the roofs to the future. The BOD is doing all this "secretly" to avoid having to answer all the home owners questions. They don't seem to understand that the more they shut out the homeowners the more upset the homeowners get. The BOD is looking to get a new PM because they are acting on their own without asking the BOD permission for capitol repairs and all the complaints from the homeowners.

I was afraid of special assessmets when I purchased this condo, so I spoke with my insurance agent and got additional coverage that will pay the special assessment so it doesn't sink me financially. There would be no way for me to come up with even $1,000.00 at a moments notice.

I would love some advice. I purchased a beautiful, new condo in a very small complex. The units are nicely done and are 1 and 2 years old, respectively. We did not have an HOA Board until three months ago when we all discovered that there were no capital reserve funds and the HOA fees were only breaking even. Two assessments have been levied for 2007 and 2008 with an increase in HOA
fees. These assessments are to keep us afloat and the montly outlay of expenses are really not grossly extravagant. The common areas are maintained well and everything is new. The condos have a high chance of appreciation for all of us.

The prior management was the developer who was very inexperienced in the business of running the association. What to do? Several of us feel very foolish not having known or even asked for the budget information during the purchase. I am not sure many buyers really look at that beyond falling in love with what they are buying and spending more time with realtors on inspections,etc.
But now, until the capital reserve savings account gets going there is no money and we are starting from scratch. Any advice? I really hate to sell in this market and get out when I really think in a few years the value of the property will serve well to all the owners.