What are special assessments and how or why do they occur within condo associations? That is the question that needs to be answered, but first, let’s assume that you are not familiar with how a condominium association is run, managed, and budgets its operations.
Your condo association has a condo fee that is collected each month. The fee collection is the association’s income (or tax) from each unit owner and that money pays bills related to the consumption of water and sewer usage from the City, landscaping of the grounds, removal of refuse (garbage), cleaning of the hallways, and another big item may be to pay for the cost of gas or oil consumption for the units. Your association has a budget and they match the incoming money from condo fees to the costs for paying the bills that operate the association’s buildings and land. A well managed association will take some of the incoming money from condo fees and put that money into the association’s “reserve” or “rainy day” fund. It is very important to ask how much money is in “reserve”, when you are shopping for a condominium.
Ok. Ok. I have to raise my hand because I have a disturbing question to ask! We are being taxed each month with the condo fee to pay for the operation of the buildings and grounds of the association, but how will the association pay for “out-of-budget” events such as “new roof” or “new heating system” or “replacing the wood siding”?
When major “out-of-budget” events occur at at condominium association there are a few ways to pay for the event (new roof, new boiler, etc.): the condo fee can be raised (like raising taxes) to bring in the necessary revenue; the condo association reserve fund may have enough money to pay for the event; perhaps a combination of raising the fee and using reserve funds will close the budget gap; finally, a special assessment could be levied on each unit.
How much could this special assessment cost your unit? First, this will depend on how much money is needed to pay for the event. Second, the square footage of your unit will determine your percentage ownership in the entire association. Take the assessed amount and factor in your unit’s percentage of ownership in the association (which is based on your square footage). If there is a $100,000 assessment to pay for a new roof and heating system, then you look at your unit’s percentage of ownership in the association and factor in the special assessment to be levied on your unit. If your unit were 500 sf and it was determined that this is 2.5% ownership of the entire association, then your unit would be levied 2.5% of $100,000, or $2,500.
That is your special assessment.
Please feel free to contact me if you have questions related to Boston metro real estate, condos, or wish to hire Willard Realty Group as your professional Buyer or Seller agent.
Willard D. Cunningham
“Your referrals to me will get the best
Willard Realty Group, Inc.