Fear Not! Understanding Special Assessments

When I’m showing condos to buyers around downtown Chicago, among the most frequently-asked questions is: “Are there any special assessments?!”.

While no one likes to hear about a special assessment, there are reasons to take a step back and think about a few things before ruling out a home because its building has special assessment activity. Some food for thought…

Buildings need stuff.

I know…that’s obvious. But I’m pointing it out because people sometimes don’t think about all the moving parts associated with the relatively care-free living downtown condos offer.

Elevators eventually wear out their guts or cosmetics, facades and roofs take a beating in Chicago’s weather, and upgrades to enhance condo values become necessary. People generally associate these things with aging buildings, and that is both logical and true.

However, construction defects can often emerge within a couple of years of a building’s completion. When they do, young condo associations (that haven’t had much time to build up financial reserves) could face “a special.”

Two quick points: 1) at some point, a major capital project or two will eventually be necessary. 2) low monthly assessments ( ❤!) can actually make a future special assessment more likely to occur (because reserves are not being adequately built up).

Seller will (often) pay.

If the special assessment has been declared and billed to the current owner, it is his or her responsibility to get it paid. When selling, many owners will pay the assessment at closing from the proceeds of the sale (not true for banks selling foreclosures).

Of course, it’s negotiable. But if a seller pays, this leaves you free of the obligation, yet positioned to enjoy the benefits of whatever improvements it paid for. See…not so scary after all!

Think about it: if capital projects are inevitable, better to have them be discovered, priced, and paid for than a surprise waiting to happen.

Final Thoughts

While I’d never argue that a special assessment is universally good news, it shouldn’t necessarily be an automatic deal-killer either. When considering buildings you’d like to buy into, keep in mind that paying attention to capital reserves, age of major building systems, and planned projects is an important part of the process.

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