With The overabundance of downtown condominiums for sale in the Chicago “green zone,” it is certainly a buyer’s market. Many sellers are desperate to get out and willing to take five figure losses. Some are negotiating short sales with their lenders or just outright handing the keys to their lenders. This is because they owe more money than their condo is worth.
Buyers today are very picky, requiring all the bells and whistles such as granite countertops, maple cabinets, and stainless steel appliances. However, are they missing one of the most important issues? Many of these condominium developments built in the last 10 years during the bubble were built with poor construction standards. Developers tried to squeeze every penny out of these condos and in the process compromised construction standards. They then turned these buildings over to condominium associates with inadequate reserves and low assessments. In addition, city inspectors for the city of Chicago were often inexperienced political hires who did not hold developers feet to the fire when it comes to building code violations.
In order to protect themselves from a large special assessment in the near future to repair or replace common elements of the building such as masonry, roofs, or elevators, buyers need to look at the reserve levels of the association. Reserves should be sufficient to repair or replace these big ticket items mentioned above. Depending on the size of the building, these costs can ranch from hundreds of thousands to millions of dollars. Buyers should also have their attorney review the association meeting minutes and the annual budget to see if any special assessments have been discussed or if there are any unusual or unbudgeted expenses in the budget.
If the association is inadequately funded, buyers should ask if a reserve study has been performed on the building to determine future capital expenses. If the condominium building was built during the bubble, there are inadequate reserves, and no reserve study to determine future costs, buyers are subjecting themselves to significant cost down the road.
While features such as granite countertops and stainless steel appliances are nice, purchasing a condominium in a well built building with an adequate reserve account is just as important. If you are looking to purchase a condominium downtown, make sure this is a priority for you and make sure you have a lawyer who will do the proper investigation for you.