Why do reserves matter so much with condo associations?
Mortgage companies will let a potential buyer and seller know the purchase potential early on
When I walked in the door, I was amazed. Brand new cabinets. New stove. New shelves. Two bedrooms. Fresh-out-the-box air conditioners. Quiet residential block. Washer and dryer included. I could not find one thing to dislike about the place, and I told my Realtor I didn’t need to see any place else. She glanced down at the posting, flipped through some paperwork and said it was time to leave. I was perplexed. Why did we even come here if she didn’t want me to see it?
But then she did something even stranger. She stopped to talk to one of the residents in the building and asked her how she liked living here. The older woman smiled and said she loved it, and she’d been living her for years. My Realtor smiled politely, made a few more remarks, and kept heading down the stairs and to her car. Riding shotgun, I hopped in to ask her why weren’t we talking about putting down earnest funds.
“The mortgage company will never approve this condo,” she said. “Unless you want to pay out of pocket, and a sizeable amount at that, this place is too risky.”
I still didn’t understand. She pointed to fine print in the posting. It was a warning about how this condo association (COA) had a zero balance in reserves. Being a first-time homebuyer, I didn’t quite understand what “reserves” were.
(Note: COA reserves — also commonly required for homeowners associations, or HOAs — are funds set aside for future repairs, replacements and emergencies. They cover everything from tuckpointing to pipe damage. COAs and HOAs need a healthy reserve fund to avoid requiring Special Assessments anytime something falls apart in the building’s common areas or structure.)
I initially tried to argue that the building looked like it was in great condition and everything in the condo unit I wanted was sparkling new. My Realtor shook her head no.
“If a tornado happens tomorrow and the roof needs to be repaired, the entire association could put themselves on the hook for all repairs, plus their regular assessments,” she said. “I don’t know how they got to zero reserves. But a mortgage company will absolutely not sympathize. Their answer will be an automatic no.”
We drove to the next condo unit on my list. To my frustration, the mortgage company had a bone to pick with this second place too.