Your guide received condominium documents over the weekend for a buyer who just went under contract for a very cool loft in Chicago’s South Loop neighborhood.
When you buy a condo, you are entitled to a giant stack of documents that you get to look through as part of the discovery process – learning everything there is to know about the association, the building, the finances – pretty much everything about the building.
In this building, the financial disclosure revealed a 13th month assessment that the association uses to build up its reserves.
13th month assessments were devised as a rather clever way to build up a bunch of money in savings rather quickly and without too much pain on the part of the members. Often times, 13th month assessments are enacted for only one year, or perhaps two. Usually just for a few years at most.
The way they work is the association bills the home owners for one extra month worth of assessments at some point during the year. Many times right at the beginning of the year. Equally as often at the end of the year. Since the first or the last month of the year usually coincide with the Holiday Shopping Season, I’ve seen a few associations bill the extra month in June.
In my example, we discovered that the 13th month assessment is due on November 1. This cleverly is one day after we are scheduled to close.
Our contract has a paragraph where the seller of the condo swears that there are no special assessments. And that if there ARE any special assessments, details who is supposed to pay for it. In our contract, the seller indicated that there is NOT a special assessment, and the rest of the paragraph is scratched out.
So on the very first month of his ownership, my buyer (theoretically) gets whacked with a special assessment. Of course, as a practical matter, we’re going to require the seller to pay the assessment since it has been planned for all year long, and the seller failed to disclose it.
My second problem is that this budget trick makes the assessments look better than they are. In our example, the advertising and the MLS say our assessments are $270 per month. But if the association uses a 13th month assessment year after year, the TRUE assessments are 10% higher – or a little more than $300. When comparing this unit to others in the neighborhood, typically, the one bedrooms have assessments in the $250 per month range.
In fact, in THIS buyer’s instance, I searched out condos with assessments LOWER than $300 per month. And the budget trick allowed the marketing to reflect the false (lower) figure.
It’s the duty of the manager as well as the board of an association to accurately show the true condition of the association, both physically and financially. The 13th month assessment scheme does mask the true financial picture for the association, and in that regard, Your Guide is not a fan.