Reserve Funds and Reserve Fund Studies
From the Volume 29 issue of the CCI Eastern Ontario Condo Contact Magazine
Purchasing residential real estate provides a buyer with many opportunities to review the things that matter most to them: size of the living spaces, access to local amenities, the type of heating and cooling systems, and numerous other items that help the buyer to decide to make an offer on one property over another.
There are numerous additional considerations when buying a condominium unit: the Declaration, by-laws, and rules that govern the community; amenities; the upkeep of the common elements; the status certificate; and so on.
One thing that can be misunderstood when purchasing a condominium unit is why the reserve fund matters, what its purpose is, and why a buyer should ask questions about it.
Those of us who live and work in the condominium community hear about and discuss reserve funds on a regular basis, yet many people don’t consider how consistent and attentive review of the reserve fund and reserve fund study by condo directors and managers plays a key part in the marketability of a condo unit to a potential buyer.
The common elements are seen and enjoyed by unit owners, whether they be the greenspace, party rooms, or common hallways, laundry, etc. These spaces and their upkeep are taken into account by those looking to buy a particular unit within that building or condo corporation.
Delays in common element maintenance, repair, or replacement can not only be costly for future fee increases or special assessments, but they can also affect future valuations of the individual units when an owner looks to sell. Similar to purchasing a detached freehold house that has obvious signs of neglect (curling shingles, hanging siding, or an old HVAC), the price that a buyer will consider paying is weighed against the other properties that have sold in the area and what condition they were in. The same thought process can be undertaken by a prospective buyer and comparing it to the physical appearance of the unit and the common element spaces.
One of the greatest benefits of condominium living is the reserve fund, as it creates a formal process for saving and planning to ensure the brick-and-mortar portions of the condo community are cared for and set up for years of enjoyment and use by the residents.
It is critical that Condo Directors take the management of the corporation’s finances with both the short view (i.e., operating fund) and the long view (reserve fund) in mind so that the balance between both of them will continue to show prospective buyers that the community is well cared for and well managed.
Condominium living has excellent benefits and continues to be a terrific place to create your home. Condominium corporations with healthy reserve fund and strong repair and maintenance schedule will be better able to attract prospective purchasers at fair market value!
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