If you are considering purchasing a condo (as opposed to a detached home) in San Diego, one thing you should consider as you put the pieces of your condo-buying puzzle together is: Can you afford to pay a special assessment if your condo complex levies one (and what's the probability of that happening)?
What is a Special Assessment?
As a homeowner in a condominium in San Diego, you own the space between the walls of your condo unit AND a fraction of the common areas of the complex. Every month, you pay your HOA fee (whether it's $300/mo or $2,000/mo), and so do all the other homeowners in your complex (hopefully).
The HOA's board of directors takes the money everyone pays every month and budgets for all the ongoing expenses the complex has (landscaping, maintaining the common areas, painting, fixing this, fixing that, etc.). The Board also should be setting money aside every month for savings (also known as "condo reserves").
What happens if a complex only has $100,000 in reserves and they happen upon a major expense that must be completed which costs $200,000? Obviously, they don't have enough money, so they have to ask all the homeowners to chip in.
If there are 50 units in the complex, and they need $100,000, then they would need to ask each homeowner to chip in an extra $2,000 that month (on top of their normal monthly dues).
When I say "ask" I really mean "require." This extra required payment is called a special assessment, and if you're buying a San Diego condo in this market, you need to consider the possibility of being hit with one at some point.
Just like you need to have money set aside for upcoming projects when you own a house, a condo complex (or an HOA) needs to have money set aside for future repairs.
What happens if a large percentage of the homeowners are not paying their monthly dues? The HOA may be struggling to pay the monthly expenses, let alone putting aside any money for reserves.
What if the HOA mismanages their money? The HOA could have plenty of money coming in, but if they spend it wrong, they could be hurting financially.
Every year, San Diego condo complexes are required to hire an outside accounting firm to perform a Reserve Study. The study may show the HOA has reserves that are more than 100% funded, 50% funded, 10% funded (or whatever it is). If the reserves are poorly funded the Reserve Study will recommend either a significant increase in monthly dues or a special assessment (or both).
How Much Can a Special Assessment Cost?
It just depends on how much the HOA needs. A special assessment could be any amount. I've seen special assessments in San Diego condo complexes anywhere between $5,000 and $50,000, and I've heard of special assessments as high as $100,000+ in really bad situations.
How to proceed? Work closely with your San Diego exclusive buyer agent to determine the "financial health" of the HOA in any condo complex you are considering. If you are not working with an agent who is explaining the importance of the HOA's financial health, consider hiring an exclusive buyer's agent who is looking out for your interests and is advising you on all the important real estate matters pertinent to your purchase transaction.
Justin Gramm is the founder and principal broker of Globella Buyers Realty, your San Diego Exclusive Buyer Brokerage. He also writes this blog, "For San Diego Home Buyers."
Exclusive Buyer Agents do not list homes for sale and never represent sellers. They have no "inventory" to try to sell you. They can represent you in purchasing any home. They are specialists at representing buyers only on the buyers' side of the transaction. Exclusive Buyer Agents work to get buyers the best price and terms when they buy a home.
If you have excellent credit and plan to buy a home or condo in San Diego County within 90 days, contact Justin Gramm to hire an agent on your side of the transaction. Call Justin at 858-437-2662 or E-mail.