Condo boards everywhere are unprepared for serious repairs

I can relate to this. My parents lived in a 22 story building that had water leaks throughout the entire building from construction defects. Until my mom literally got herself elected to be the president of the condo board nobody seemed to care that the building was broken. Many years later and a lawsuit against the developer, the building association and the owners were finally able to get compensated AND have the construction defects fixed.

There is no way you can financially prepare for the magnitudes of repairs needed in their case.

We recently bought a condo after renting in the building for three years. The board, management and staff of our building are phenomenal—an inside bit of information we knew from having lived here.

We looked at a large number of buildings in the area, and was surprised that maybe 1% of the information you need to assess board/management competence is available online. Generally we'd have to do our own DD talking to people in the buildings.

IMO it makes a huge difference, >10% of the purchase price should be on the quality of the board and management.

Seems like a startup opportunity to be Yelp for Condo Boards/HOAs. (I'm sure there are a dozen+, of course. I haven't done the DD on that!)

A good middle ground is condos with a central management company. Dues get a lot more expensive, yes, but residents can benefit from professional maintenance, repairs/renovations, assessments, book keeping etc. without needing to squabble among themselves.

>There could easily be a formula of like 10% of annual dues need to be put in a rainy day fund or something

Fannie mae and freddie mac require at least 10% of gross dues go into reserves. FHA and VA have higher standards. So only cash buyers, or buyers with non standard loans can buy condos that don't meet this requirement. But unless a condo is a townhome style building where there is very little common property this should really be 25% or higher

I sat on the board in my previous neighborhood and served two terms as president, this was definitely true for that community too. And, many other HOAs of individual homes (structures) too.

We were lucky to have a decent management company that provided a lot of guidelines and information about what we should be doing. As well as the things we were obligated to do (either because of bylaws or laws, in Texas). Still, any time there was a storm resulting in additional costs for landscaping/cleanup, or work on a damaged/degrading stone wall, or the pool area, etc. We heard about it from some neighbors who didn't want to spend any money, because it didn't directly affect them.

It's definitely an area that more regulations would help everyone involved. We were not experts, but could make some decisions if we had the right information (or knew what questions we should ask).

"Nobody wants to pay for what is a collective problem."

Yet they choose to live in a collective structure. It's essentially another level of government entered into via contract. Maybe they should choose to live in an independent residence if they didn't want that.

One of the biggest reasons Condos are not for me. I just cannot have my life depend on decisions made by others because we share common areas. Not to mention that Condo monthly fees are still very high and they cannot cover stuff like this.

>Nobody wants to pay for what is a collective problem. Sometimes I think condo's shouldn't even be legal because of this. They should all be apartments with a central management company.

We shouldn't have a democracy; people won't vote for reps who will vote to pay for things that don't directly affect them.

It's a problem as old as time :)

Buying into a condo has the risk of this sort of thing happening. It has to be carefully assessed.

IMO for condos specifically, the board shouldn't have to hold a referendum to do special assessments. It should be a majority of the board.

This. My 36-unit building undertook a massive project in recent years to repair structural water damage under (shocker) a pool deck that wasn't properly sloped. A few owners would yell at the volunteer board and threaten lawsuits at every HOA meeting. Others would idly muse that we shouldn't look for problems lest we find more structural members with damage.

> There could easily be a formula of like 10% of annual dues

I was on the board of a 10 unit condo building. The annual budget for the association was ~$60k. We had a reserve provision of 10% of dues, plus whatever was leftover in the budget at the end of the year.

Even with that budgeting provision we had several additional assessments over the course of a decade. Those assessments were used to address roof issues and interior renovations.

If something more structural had come up, that would have led to another (large) assessment, for sure.

Experienced something similar to with my previous home's HOA in south Seattle. New chairperson took over the HOA and found out that the rainy day accounts were woefully underfunded and several shared roofs were in need of repairs, so dues had to be increased pretty dramatically.

The frustrating part for me as a homeowner was that dues were assessed based on square footage, but out of 200+ homes, ours was one of the only 15 or so that were fully detached. We had use of a communal driveway we shared with 5 neighbors as well as a small private park 2/3rds of a mile down the road, but other than that, we were fully responsible for all of our unshared infrastructure. If our roof had a problem we had to fix it at our own expense, even though we paid in to the roof repair fund.

There were were many more homes (ie. a city or a country instead of a neighborhood) or if there was a greater variety of homes (ie. a larger percentage of detached homes) or if there was some obvious wealth disparity (ie. our detached home wasn't smaller than many of the attached homes) or some other mitigating factors, I'd have been happy to pay in on the assumption that "what goes around comes around" and "rising tide raises all ships", but in this case, my partner and I felt pretty cheated. That said, we didn't make a stink. We just paid the damn dues (...and then later moved somewhere without an HOA).

I was on a condo board for two years. We had regular reserve studies and raised dues almost every single year (1-5%). When I talked to other homeowners and prospective home buyers, they always said "seems like dues are pretty high for that complex". It isn't fun to pay dues that are ~50% of your mortgage payment.

But we were able to pay for repaving the parking lot (5 figure project, I think, I was off the board by then) and replacing two elevators (6 figure projects) without a special assessment.

I would much much rather have dues increase regularly and not have special assessments than the reverse. Deferred maintenance is not good (and obviously can be dangerous). It's one thing when it is happening at a single family home, where all the risk and reward are localized. But when it happens at the group level, being proactive is a huge win, even when it is painful.

A fully rent only buildings are always easier in this regard.

Either the corporate landlord fixes things, or people vote with their feet.

Congratulations on successfully politicking to get those repairs funded.

I lived in a condo complex where the association had its VP resign, so I put my hat in the ring, and even though my track record was only speaking up and attending meetings, I won with N-1 votes out of N.

The board put forward a resolution, which passed by a huge majority, to make most large, non-monthly costs special assessments. The resolution came with written language about how people were going to have to fund their share of large costs like roof fixes from their savings. I though this was reasonable.

The special case here is that 60 units were owned as individual residences and 300 units were owned by a corporation and rented like apartments. So I was amazed that they voted all their votes for me in the VP election, and not amazed that they would want to fund roof repair and such the new way.

The Surfside situation would not have been changed by the resolution about funding repairs. If that corporation had looked at our building before taking over, and saw what the inspectors saw in Surfside, they wouldn't have bought in in the first place.

Bigger condos often include shared facilities and industrial scale equipment that blurs that picture a lot. Not having a pool probably tips the scale in favor of individual houses in many cases.

The lowest cost is probably shorter condo buildings without pools. These won’t include a lot of extra equipment that detached houses don’t use, can use closer to standard sized HVAC and water systems, and benefit from increased economies of scale over detached single family dwellings.

Right. As the owner of a single-family home, I control my destiny. Yes, I may pay more dollars to replace my roof than I would pay to replace the roof on a condo building. But I am in complete control of when it happens, who does it, and how it is done. In a condo building, I am at the mercy of my neighbors to agree to the repair and how it is done. And in any sufficiently large association, there will be at least a handful of people who will fight any expenditure at all (yes, this is rational for short-term owners, but in my experience it tended to be the long-time residents who were the loudest complainers...).

Frankly, I don't have enough faith in humanity to put this kind of trust in a bunch of strangers.

That problem is completely avoided in Belgian law, via the following rule:

When you sell your fraction, you get the corresponding share of the reserves. When you buy a fraction, you must contribute the corresponding share of the reserves.

> It’s not clear that condo units have higher long-term capex costs than single-family homes; arguably economies of scale make their capex lower

Economies of scale have to do with manufacturing identical units. Making 1000 is cheaper than making 10. But stacking units atop each other is not making identical units, so it is always cheaper to build 10 SFH than to build a single building with the same size 10 units stacked atop each other -- ignoring the extra price of land. When you go vertical, you need to set aside more space for services such as hvac and elevators. You need a stronger foundation. You need to deal with wind and earthquakes. You need to add emergency stairs in case the elvators go down. The walls have to be stronger, noise abatement needs to be added. You have systems in place to deal with vibrations. There is no attic in which to run HVAC. Air recirculation is a big concern in condos -- many don't even have windows that open, but they have enormous air filtration and pumping systems to get fresh air to all the units and maintain an air pressure difference. There are entire systems condos have to have that aren't even an issue in SFHs. And those systems require their own control systems, controlled by complex software and networks of sensors, with dedicated building staff to monitor and operate them. This is if nothing goes wrong. Thus the costs per livable square foot go up rapidly as you stack units atop each other, which is why you see condos only in places where land is very expensive. Everywhere else, it is cheaper to build a SFH. It is also why condos tend to be much smaller than SFH in terms of livable area per unit.

In terms of maintenance, all those extra systems condos need are more failure points. Structurally, you have much higher stresses, which requires additional supports and more complexity. All of that increases the damage when there is a failure and increases maintenance costs as there are more systems to maintain. Even something as simple as washing windows becomes really expensive in a condo. Electrical and water repairs that are simple and fast in a SFH can become major engineering projects in a condo. More complex systems that are harder to service and more dependencies add up to higher maintenance costs to match the higher construction costs.

There is an easy fix. Condo finances should be public record, and when repairs are needed, the local code/planning/inspector office reviews with the condo board, approves if necessary, and then puts encumbrances on the units in the complex. Those who can afford the cost pay right away, those who can’t have essentially borrowed against their equity to finance their share of the repairs, with the loans paid back with interest when the property is sold.

Transparency is one part, but also independent oversight and enforcement of the work necessary.

Not only that, but with international buyers, they might only be interested in holding the asset for resale.

And the contractor building the place knows it...

I imagine the phenomenon is due to multiple people being responsible but no singular person being accountable. There is probably a board director / president that SHOULD be accountable, but it's easy for them to either consciously or subconsciously blame the rest of their board for inaction.

https://en.wikipedia.org/wiki/Responsibility_assignment_matr...

I rent but it feels like I'm just throwing away money every month compared to owning a condo. I used to own a condo but sold it years ago and moved to the U.S. for work. Selling it was idiotic in retrospect considering how much the value would have increased these past few years.

IMO the headline should say, "Years of corporate bailouts, military bloat and tax cuts have devastated the US's ability to maintain even the most basic of infrastructure"

The columns gave off signals; there's pictures from the reports of the concrete cracking and rusting rebar. There wasn't any need for fancier sensors and data recording technology than was used.

You'd be surprised. Florida has some of the highest building standards in accordance to disaster/hurricane protection in the US thanks to the major hurricanes of the 80s; this may prove a watershed moment for the same to happen for corrosion prevention & maintenance standards today.

Of course that won't do anything for buildings already standing (in fact this condo would have also been rolled over by a hurricane too given its construction date) but it could be revolutionary for new construction

As someone not familiar with large-scale building materials, what should be used instead?

I agree here. And its not just America but really just any government in any country.

I've come to think of governments/countries as just a very, very extensive, giant home owners association that happens to float its own currency, fund its own schools, etc. The HOA fees are basically taxes and often times fees are accessed by the size of your unit.

Thinking from an HOA perspective - you then become comfortable with all the warts and inefficiencies that a country/government may have.

Serving on the HOA board is quasi-voluntary, tends toward folks with free time and a desire for power, no one is particularly accountable.

The home owners themselves are a fickle and diverse bunch, the vocal ones mostly complain about stuff, the silent ones don't say anything and are just getting on with their lives and all have varying attitudes toward expenses for improvements and investment for the future.

Japanese are known to think very long term as well

Completely agree.

You can abstract this into a general maintenance aversion. Effectively there is a moral hazard here: when problems are put off there is a strong chance that the cost will be borne by others.

The same issue is with houses, and the bigger the house the bigger the issues can be. For a big condo complex, if a problem is truly big, the association can do a bond offering that can be paid off over a very long time (decades).

I would strongly advise against buying a condo in the current environment. I am fighting to have structural issues with a building I own a unit in dealt with, and it's quite the thing.

One of the things I find amazing is how unclear the declarations of responsibility are. For instance, there's common elements, which the association is responsible for, and limited common elements, which are elements that you are responsible for, but the association can demand you fix as needed for the benefit of the building whole. I think there's a third category of building limited common elements. Also, I have a garage, but it's not actually mine, I own the right to exclusive use of it, but not the garage itself, but I also end up on the hook for repairs when it breaks...

What's fun about that is associations basically place the unit owner responsible for all the likely-to-need-work elements that are exterior. Like windows and the balcony, despite both being exterior building elements, the latter made of the same structural concrete as the rest of the building. But if they need to resurface the balcony, you're going to pay for it, and they're just going to tell you how much you have to pay, or else. (I believe my grandmother once got a $15,000 bill for the balcony at her place, and that's just a mandatory special assessment the association can decide to employ. Good luck if you're living paycheck-to-paycheck.)

And then there's just stuff that's completely unlisted in the terms: Building structure is the association's problem, the drywall is generally defined as a unit owner's problem. You know what isn't mentioned at all: Insulation, which is outside the drywall, but not structural. The building can probably refuse to deal with it, and your insurance company can probably refuse to cover it.

Many condos are converted apartment buildings. You can easily find condos which are 100 years old.

They do some nominal renovation, but the bones are essential the same

In older urban areas in the US (particularly NYC), you often see co-op buildings. In a co-op, you buy shares in a corporation that owns the building and get a proprietary lease entitling you to use of a certain amount of space, while in a condo you are buying the deed to the individual apartment you own.

On paper they're different means to the same end. In practice, condos typically have much less stringent approval requirements - board approvals, background checks, character references, and providing a summary of your complete financial situation beyond the details of how you'll be paying for the apartment are normal in a coop purchase process.

The result of this is co-ops tend to have lower turnover and stricter rules overall - in addition to often being cheaper. They also have their problems, because the approvals process can be a mechanism for discrimination against protected classes. But the general perception is that co-ops are harder to get into, and harder to get out of, so the residents (at least in theory) tend to be long term and community minded. In most states, condo boards don't get the right to be selective, and must accept the first applicant who is minimally qualified.

Condos tend to give more power to the individual owner, coops tend to give more power to the coop board.

I can't speak to how other parts of the world handle this problem, but even in the US there is at least one other common model.