Understanding Mortgages: What are Assessments?

In the midst of one of the most uncertain real estate markets in history, it’s more important than ever to be informed. In a continuing series, we take a look at some of the most pressing questions about mortgages, refinancing, home equity, and other real estate options available to you.

(9/13/2012) For those new to condos, one term keeps popping up that may give homebuyers pause.

“Assessments” are an additional monthly fee that buyers must account for when purchasing a condo. The fee is paid to the association to cover a proportional amount of the common expenses of the property. Typically, these expenses can include utilities, cleaning, and insurance for all common areas, some or all utilities for the individual unit, gardening and lawn maintenance, snow removal, trash removal, parking lot maintenance, and more.

The monthly amount buyers must pay for assessments is based on the annual estimated expenses for the property. For each individual unit, assessments are calculated according to percentage of ownership — the value of the individual condo is considered in relation to the value of the property as a whole.

Smart condo associations add a little padding to monthly assessments for the “reserves.” In every building, a need may arise from time to time for repairs in the common areas, or replacement of things like roofs, balconies, heating systems, stairs, etc. If the association has set aside funds each month in a reserve account, they have this to draw upon for these repairs and replacements.

Important to remember with assessments is their ability to change. Assessments may increase or decrease based on changes in budgeted expenses. In addition, if the “reserve” account is low or nonexistent, the condo association may need additional funds for repairs or emergency situations. In these cases, a “special assessment” may be levied. These assessments may or may not involve a vote by owners in the building, but when enacted must be paid. They may be a one-time payment or a series of payments, depending on the extent of the project.

Generally, if monthly assessments are not paid in a timely manner, associations can charge interest and late fees. If special assessments are not paid, these can be charged along with more punitive actions. For these reasons and more, it’s essential to completely understand a condo’s assessments and reserves before purchasing.

For Additional Reading:

Special Assessments: When Your Board Wants More of Your Money: http://www.nytimes.com/2007/04/11/realestate/greathomes/11GH-home.html?partner=rssnyt&emc=rss

What to Avoid When Buying a Condo: http://www.realestateproarticles.com/Art/7463/263/What-to-Avoid-When-Buying-a-Condo.html

Condo Living: Understanding Special Assessments: http://midtown.patch.com/blog_posts/condo-living-understanding-special-assessments




Other related articles:

Understanding Mortgages: Property Taxes

Understanding Mortgages: Selling Your Condo

Understanding Mortgages: Buying a Condo

Understanding Mortgages: The Formulas of Mortgage Approval

Understanding Mortgages: What is Escrow?

Home Insurance Costs on the Rise, Coverage Options Decrease

Tough economic times continue for homeowner associations

Homeownership & Taxes: How Good Records Can Save You a Bundle



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