Feb. 10, 2006 - Condo Conversions are not New Construction

Given the popularity of condo conversion communities in the Seattle area, I think it is worth noting what these are, and what these are not. 

I have heard both buyers and escrow companies refer to condo conversion communities as new construction.  Please know that these are not new construction, but remodels, for the most part asthetic remodels, of older, rental communities.  While you are buying the interior, and the interior is remodeled, you are also buying a fractional interest in the exterior.  If there are 100 units, you are taking on a 1/100th responsibility for the new roof or exterior paint and all of the major components shown in the reserve study. 

If you are buying into a condo building or community that has always been a condo community, the monthly dues for the last 15 to 20 years should have provided for an accumulation of reserve funds to replace the roof.   If you are buying into a condo conversion, make sure the developer has contributed enough monies into reserves, to compensate for the fact that there were never before unit owners putting monies into the reserve account toward future replacement needs.

 The roof may be OK today.  But if it is a 20 year shingle and a 15 year old complex, there should be 15 years worth of accumulated monies set aside by the developer before he turns over the complex to the Home Owner Association.  This is to insure that when the roof needs to be replaced in 3 to 8 years, there will be sufficient funds in reserve to buy the new roof.  Also make sure that the monthly dues set by the developer include a sufficient amount for reserves.  In five years when you need a new roof, you will need five years of owner contributions, plus the 15 years worth of reserves set aside by the developer, so that the roof can be replaced without a special assessment.

 Understand that if a condo community or building functions as it should, there should never need to be a special assessment.  Every owner, via their monthly dues, should be paying their fair share of future repair and replacement costs each year.  Its a simple calculation which assures that the monies will be in the reserve fund at the time the Major Component item needs to be replaced. 

So I leave you with this warning.  Find those things that are not new when buying into a condo conversion, and make sure the developer is contributing an amount into reserves reflecting that portion of useful life, used to date.