Question: How did Arlington’s condo market perform in 2020?
Answer: I ended up writing a lot about the condo market during the second half of 2020 because of the historically high numbers of units listed for sale from July to November, falling demand, and falling market values (compared to the first half of the year). However, there were slightly positive signs in the last month of 2020 and early weeks of 2021 that the negative trends are reversing. Despite a 2nd half that looked very different from the previous three years, 2020 overall was still a strong market for condos in Arlington. Let’s take a look at how things played out…
Prices Up, Volume Down, Pace Mostly Unchanged…
The average and median price of condos increased by 4.2% and 6.3%, respectively, a strong performance but a bit short of the nearly 8% growth in 2019. I wouldn’t be surprised to see no appreciation or slightly negative appreciation in 2021 as a result of changing housing priorities from COVID.
Despite the late surge of condos listed for sale, the number of condos actually sold in 2020 dropped 8.3% from 2019 and 19.3% compared to 2018.
The speed of the market remained relatively unchanged, with average days on market staying put at 7 days and median days on market decreasing slightly from 19 days to 18.4 days. However, my preferred “speed” metric, the percentage of units selling within one week, dropped to 48% in 2020 from 52% in 2019, but still well above 2018’s 29%.
Six Interesting Charts
Below, I put together a series of charts to visualize how the Arlington condo market performed in 2020 and how that performance compares to the 2015-2019 markets.
If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.
For the first time since June, we’ve seen a reduction in the Months of Supply (MoS) of Arlington condos. Months of Supply is a great measure of supply and demand (lower MoS = stronger market with higher demand and less inventory).
While the reduction in MoS is slight, it’s a positive sign nonetheless that the market is either closer to finding its level again or may soon show signs of strengthening. However, one month, particularly a winter month, is not enough to establish any real change, we will need to see what the next 3-6 months bear.
Multiple Key Indicators Show Positive Signs
My hope for a settling or strengthening of the condo market is not solely based on one metric, there are other key metrics that suggest November may be the first month of a settling or strengthening condo market.
Absorption Rate (Figure 2), a measure of demand, increased ever-so-slightly in November, the first increase since May, albeit still down nearly 68% from the December 2019 Absorption Rate.
The number of condos for sale during November decreased for the first time since May (Figure 3), albeit slightly. The better news, however, is that the decrease in total condo inventory doesn’t seem to be caused by frustrated sellers pulling their condos off the market, rather due to promising contract activity (Figure 4), which was up 41% year-over-year in November.
Looking Ahead, Eyes on March-May
Over the next few months, I’ll be looking closely at whether these trends (stronger demand, falling inventory) continue, find a level, or revert back to what we’ve seen since this summer. I’ll be particularly interested in what year-over-non-COVID-year numbers looks like and if we settle into normal spring activity for inventory and demand.
For example, while the charts above are positive indicators for the condo market, Figure 5 shows just how much inventory (new listings) is still coming onto the market, with November generating nearly 79% more condo listings in 2020 than in 2019, but only a 41% increase in contract activity.
I think that March-May 2021 are going to be very interesting months, statistically speaking, and will be excellent indicators of what the market might look like for the next few years, until the next major market event (e.g. Great Recession, Amazon HQ2, COVID). I think/hope that by then, we will also have a better understanding of how the Federal Government and private companies will address teleworking beyond COVID and thus whether commute time will be prioritized differently by buyers.
If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com
Question: Have you seen a decrease in condo values with all of the inventory currently on the market?
Answer: Over the last few months, I’ve written about the shift in the condo market (links here and here and here), which began around July and can be attributed to a historical number of units listed for sale while demand simultaneously dropped due to COVID. Indicators such as Months of Supply, Absorption Rate, Days on Market, and Sold to Ask Price Ratios have shown a more favorable market for buyers for the last four months, but it takes longer to establish changes in pricing (need enough data).
It’s been my experience working in this market over the last few months that prices seem to be down about 2-5% in many sub-markets, compared to late 2019 and the first half of 2020 (after surging since 2018). However, I dug into the data a bit more to see how condos that went under contract after July 15 compare to the sales of condos that went under contract from Jan 1 – July 14 2020. I used July 15 because that is when I really start to see changes taking shape in the condo market.
One point I’d like to make prior to sharing the data findings is that the data is based on condos that have sold/closed and there are many condos still sitting on the market or under contract that won’t show up in this analysis. The market has also worsened (for sellers) each month since July, so properties that went under contract in July/August likely did better than those later on in the year. Therefore, it’s likely that as the units close that are currently struggling to sell, or just now coming to market, the data will get worse (larger decrease in values).
I chose to segment the market in a few different ways to get a sense of how different sub-markets are experiencing the condo shift. When comparing relatively small data sets (like we have here), the best conclusions can be drawn by analyzing market segments that have lot of similarities such as condos along the R-B Corridor built in the last 20 years or mid-1900s (older) buildings. Here are some highlights from the data sets I reviewed:
1BR and 2BR condos along the R-B Corridor, built in the last 20 years, sold an average of 2.2% and 5.8% less, respectively, after mid-July. If you look at $/sqft, prices have dropped 1.1% and 3.6%, respectively. I believe this is the data set that most accurately reflects what’s happening in the condo market.
Older, less expensive condos across the County seem to have held onto their values better than newer, more expensive units. More expensive condos are closer in price to townhouses and I’ve seen more buyers favor lower-priced townhouses over higher-priced condos, as a result of COVID concerns. Buyers of less expensive condos don’t have many alternatives at that price point, other than renting.
The apparent appreciation of South Arlington since July 15 can be attributed to a different distribution of sales (higher volume of more expensive properties and lower follow of less expensive properties) than comparable units actually selling for more
The indicators (Sold to Ask, % Sold in <7 Days, and Days On) are what I find most interesting and a sign that the actual decrease in condo pricing isn’t fully reflected yet in the current data set:
Across every sub-market, including those where the average price didn’t drop, buyers negotiated significantly more off the original asking price. Earlier in the year, three sub-markets averaged buyers paying at least full price and since July 15 there were none.
The most interesting indicator is the huge drop in the percentage of units that go under contract within the first week.
As I mentioned in the third paragraph, I expect future data sets for condos sold in the last quarter of 2020 and very early 2021 to show even larger decreases in values, relative to the first half of 2020. However, I think that with more positive news on COVID-19 vaccines, the start of the 2021 spring market, and more people returning to work (and realizing they value commuting convenience over extra space) I believe there’s a good chance the negative trends of the last 4-5 months will level off soon and begin to reverse by February/March.
I will continue to track trends in the Arlington condo market and provide transparency into what we’re experiencing. The townhouse and single-family home markets remain strong and I fully expect another appreciation cycle in 2021 for those sub-markets.
If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.
The number of condos listed for sale in Arlington during September (261) ranks as the 2nd most in any month over the last 10+ years, trailing a record-setting April 2016 volume (268) by just seven. The last time we had this much active condo inventory on the market in Arlington was September 2017 and you have to go back to September 2016 for a month with higher Months of Supply (measure of supply and demand).
Our neighbors in DC blew past all-time highs over the last 10+ years with 969 condos listed for sale, well above the record set this past July (863). Three of the four months with 750+ condo listings in DC have taken place in the last three months. You have to go back to June 2011 for a month with more active condo inventory in DC and July 2012 for a month with higher Months of Supply.
Fairfax and Loudoun County Condos Doing Fine/Better
While Fairfax and Loudoun County condo markets are seeing a similar late-season surge in listings, those markets are doing a better job of absorbing the inventory, so Months of Supply measures are still much more favorable for sellers with Fairfax County getting only slightly worse in 2020 and Loudoun County actually getting even more competitive.
Arlington Single-Family Market Stable
Arlington’s single-family market remains stable and is more reflective of the slight slowdown we expect around this time of the year, especially one month from an election. Single-family homes are still selling at peak prices, albeit sometimes with slightly higher days on market and fewer offers than earlier in the year.
We’re experiencing unusually high listing volume for this time of year, but that was expected given how little inventory was listed this spring/early summer. The number of single-family homes listed for sale in the 3rd Quarter of 2020 is up 42.5% over Q3 2019, but active listings are up just 2.1% for the same period, suggesting that the market has had no problems absorbing the extra inventory…and higher prices.
Sellers have not missed the memo that prices and demand are up in Arlington for single-family homes. September is the first month in 2020 that the median asking price of active single-family listings dropped below $1.5M.
I hope you’ve found this market overview interesting and/or helpful. If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.
If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local Real Estate, please send an email to Eli@EliResidential.com. Call me directly at (703) 539-2529.
Question: I’ve seen a lot more condos come to market and also some staying on market longer than before, is that part of a larger trend in the condo market?
Answer:In July, I predicted there would be a surge in housing inventory that was held off the market this spring because of COVID. That has proven to be moderately correct for single-family housing and very accurate for condos. The market has had no trouble absorbing the extra single-family housing, albeit with less competition than before, but the condo market has not absorbed the extra inventory and has undergone a significant shift in the last two months.
In short, listing volume for Arlington condos reached historically high levels in July and August, absorption (demand) is down, and months of supply is the highest it’s been since the fall of 2017.
Historically High Listing Volume
July (253 listings) and August (229 listings) had the 5th and 13th highest months for listing volume in the last ten years. Prior to this year, the top fifteen months for condo listing volume fell in April or May (peak demand offsets higher listing activity), with the exception of June 2015. This is the first time that the number of condos listed in July or August has ever exceeded 200.
Pre-Amazon HQ2 Demand
Since Amazon announced plans for HQ2 in November 2018, condo demand was through the roof with 15 straight months of more condos going under contract than listed for sale (over 1.0 in the chart below), beginning January 2019. Absorption levels, a strong indicator of demand, are now more reflective of 2016-2017 which brought very little real appreciation in the condo market.
Monitor Months of Supply
The Months of Supply metric combines inventory levels and rate of absorption (supply and demand). It measures how long it would take to sell out of existing inventory given the current pace of sales. Most housing economists say that ~6 months of supply is needed for a well-balanced housing market, a number we’ve never come close to in Arlington.
Given that it takes ~6 months of supply for a balanced market, Arlington is still very much a seller’s market, but nowhere close to what it’s been over the last two years. In August, Months of Supply exceeded 2.25, higher than it’s been since October 2017 (2.32). Compare that to December 2018 – March 2020 with an average of .67 (just over two weeks of supply) and high of .88, and it becomes clear why many buyers and sellers are experiencing a different market now than they were as recently as June.
Condo Market Stronger Across Northern VA
The rest of Northern VA also experienced an increase in condo supply in July and August, but not nearly to the extent of Arlington. Absorption (demand) has also remained pretty close to the strong numbers seen since January 2019. As a result, Months of Supply for the entire Northern VA condo market has increased slightly over the last two months and fits normal seasonal patterns.
What About Washington DC?
It’s worth noting that while the overall Northern VA condo market is performing well, the Washington DC condo market looks more like Arlington. In July and August, Month of Supply (2.73 and 2.80, respectively) reached the highest levels since October 2012 and were the first and third highest monthly listing volume over the last ten years. July (863 condo listings) is the first time in over a decade that more than 800 listings came to market. Previously, the record was 762 set in September 2019. There were 757 condos listed for sale in August.
It’s still too early to know if/how prices will be affected, but it almost certainly means longer days on market and fewer multiple offer scenarios. The effect on pricing will likely depend on whether this is a short-term shift that will correct itself come Q1 2021 or a more long-term change in urban buying patterns. My money is on this being short-term and the market returning closer to its two-year averages by February or March 2021.
In the meantime, I think we’re in for a frustrating few months for many condo owners due to the combination of surging listing volume (increased supply), an upcoming Presidential election (fear of an unknown future), and uncertainty around the timing of a widely available COVID vaccine (less demand for multi-family/urban living).
If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.
Question: How did Arlington’s real estate market perform in the first half of 2020?
Answer: What a wild year it’s been for real estate. After a huge 2019 (SFH/TH review, Condo review), the 2020 market took off in January with prices and competition up sharply. When Coronavirus hit, that momentum tapered off for a couple of months but prices remained steady because of low interest rates and low supply. The Arlington housing supply was down about 400 listings from March-June, but listing activity is surging to historically high levels in July and August, which is traditionally when we see the spring market momentum slow down.
Note that all of the data used in these charts is based on sales that went under contract from January-June in order to provide the most accurate reflection of the market during the first 6 months. I don’t like using the date a home sold/closed for analysis like this because closing date often lags 30-60 days behind agreement of sale (contract). I also removed sales of condos in 900 N Taylor St (The Jefferson), an age-restricted community.
Average and median price continued to rise, but not by nearly as much as last year. The total condos transacted in the first six months of 2020 dropped significantly to 484 from a previous 5-year low of 614, established in 2019.
The Rosslyn-Ballston Corridor, made up of 2201, 22203, and 22209 is by far the busiest condo market in Arlington and 22204 offers the most affordable options, by a significant margin.
The volume of one- and two-bedroom condo sales was nearly equal during the first six months, but I’ve seen a shift over the last few years in buyer demand over the last few years towards two-bedrooms.
Studios/efficiencies (no separate bedroom) are very difficult to come by in Arlington with very few being delivered over the last 20 years. The Eclipse in Crystal City and Trafalgar Flats along Columbia Pike were notable for delivering an unusually high number of studios in the last 20 years.
The demand for larger condos with three-bedrooms has increased significantly over the last 3-5 years as owners of large homes have looked to downsize. However, the market is severely undersupplied with units that meet the needs of these buyers, with just 18 three-bedroom condos selling in the first half of the year.
One of the measures I like taking to gauge market competition is the percentage of condos going under contract within the first week and how much buyers are paying relative to the asking price within that window. An incredible 36% of condo contracts were accepted within the first week this year and the average buyer paid 1.5% more than the asking price to secure a home that just hit the market.
The key takeaways are that good condos sell very quickly and if you love a unit that has just hit the market, be prepared to pay the asking price or more to secure it because if you don’t, there’s a good chance somebody else will.
As the chart above showed, this is a fast-paced market and it got even faster in 2020 with the median days on market for condos remaining at six days and the average dropping to just two weeks.
Question: Do you know when Pierce condos sales will begin?
Answer: Penzance’s ambitious Pierce condo project, the high-end 104-unit building that is currently under construction in Rosslyn, began setting pre-sale appointments last week and taking their first deposits this week for condos expected to deliver in 2021. Their sales team set over 50 appointments during an invite-only event last week, indicating plenty of interest in the building…but will that interest turn into the 10% deposit needed to secure a unit in Northern VA’s most expensive building?
When 2000 Clarendon in Courthouse began sales there was no question the demand would be through the roof given the lack of condo supply and that pricing was within range of other condos in the Rosslyn-Ballston Corridor. However, Pierce is a different product and very different price point with over half of the units priced over $2M and many units going for $1,100-$1,200/sqft.
The most comparable building we have to this in Arlington is Turnberry Tower in Rosslyn (the blue glass building) which has had 85 sales in the last five years, 20 of which have been over $2M and only seven at $1,000/sqft or more. Pierce will need to sell 104 units in a lot less than five years with more than 50 units being $2M+.
Is the luxury buyer market in Arlington/Northern VA deep enough to support these sales? I’m looking forward to finding out.
What Will You Get?
The amenity package at Pierce includes a 24hr concierge staff, rooftop pool, two-level gym, and a rooftop club room and terrace.
Each unit is being designed with the same finishes and color package; there will not be any options/upgrades for buyers. The package includes Thermador and Bosch appliances, custom Snaidero cabinetry, hand-scrapped hickory floors, quartz countertops, and many units with direct-access elevators. There have been other high-end condo projects in the region that have taken a similar approach of not offering finish options for buyers, so there is some precedent.
Below are some renderings and finish samples courtesy of The Mayhood Company:
I think there are a handful of units that will sell quickly. The ~$1M 1BR+den and 2BR units on lower floors, a few units with massive terraces, and premier units with unobstructed views of the Potomac River and Georgetown. I included some of those floorplans below courtesy of The Mayhood Company:
This is easily the most ambitious project in the Arlington pipeline and quite possibly all of Northern VA so I’ll be keeping a close eye on it and hope to bring you some updates over the next year or two on how sales are going.
For those of you interested in the building, a sales office is located a block away that include a partial model unit to show off what the kitchen and living space will look like. You can email me at Eli@EliResidential.com to schedule a visit or make a pre-sale appointment.
Question: How did the Arlington real estate market do in 2019?
Answer: Arlington’s real estate market made the national news cycle more than a few times in 2019 with some pretty extraordinary references to rapid appreciation – some accurate and some not. I’ve seen prices in some pockets of the market surge 15-20% in 2019, but for most of the market, appreciation was strong but not eye-popping.
Overall, the average and median price of a home sold in Arlington in 2019 was $705k and $610k, a 6.3% and 8.9% increase over 2018, respectively. Average days on market dropped by one week and an incredible 61.4% of buyers paid at or above the seller’s original asking price. The number of homes listed for sale in 2019 dropped about 17% compared to 2018 and demand surged, with buyers absorbing about 67% more inventory in 2019 than in 2018.
This week I will dig into how Arlington’s condo market performed in 2019 and next week I’ll do the same for the detached single-family home and townhouse market. I did separate write-ups on the 22202 (Amazon zip code) condo and detached home markets last month.
Arlington Condo Market Performance
First we’ll take a look at some of the key measures for market performance across Arlington and within North and South Arlington. This data excludes age-restricted housing (The Jefferson), Cooperatives (River Place), and townhouse-style condos (Fairlington).
The condo market seems to have appreciated 7-8% in 2019, after experiencing barely any growth from 2013-2017 and modest growth in 2018
South Arlington beat out North Arlington in every key category, which makes sense because it’s an easier price point for homeowners and investors who wanted some sort of real estate position in Arlington before Amazon’s hiring picks up
The average condo buyer in South Arlington paid .8% over the seller’s asking price
Condos in North Arlington sold twice as fast as they did from 2015-2017. In South Arlington they sold more than three times faster than 2015-2016.
Performance of Different Sub-Markets
I took a look at some of the sub-markets that make up large cross-sections of Arlington’s condo market to see how they performed compared to the overall market.
For “standard” 1BR and 2BR condos in the Rosslyn-Ballston (R-B) Corridor I specifically looked at condos in buildings constructed during the 2000s condo boom with 650-800sqft (1BR) and 950-1,200sqft (2BR).
“Standard” R-B 1BRs appreciated 4% in 2019
“Standard” R-B 2BRs appreciated 5% in 2019
For “older” 1BR and 2BR condos, I looked at those constructed in the 1940s-1960s. This category of condos had been slow to appreciate and as of 2018, a lot of owners were still trying to dig out from 2005-2007 prices.
Older 1BRs appreciated 7.4% in 2019
Older 2BRs appreciated 10.5% in 2019
Performance Within Different Price Ranges
Appreciation in Arlington’s condo market was pretty evenly distributed between the upper, middle, and lower price ranges as evidenced by the change in the average price of the lower 25%, middle 50%, and upper 25% of sales from 2018 to 2019.
The average price of the middle 50% of Arlington is now well north of $400k
Over the last two years, Arlington’s least expensive housing has appreciated the fastest, with the average price of the lower 25% increasing by more than 12% since 2017. You can likely attribute this to investor activity.
If you’re curious about the max sold price in 2019 of $4,750,000, it was a top floor 4,400+sqft condo at Turnberry Tower (link). It was first offered for sale three years ago for $7M. If you remove this sale from the data, the upper 25% appreciated 7.4% in 2019.
A lot of real estate conversation in 2019 revolved around inventory shortages. The number of condos offered for sale dropped nearly 21% in 2019 and the increased demand (higher absorption rate) pushed available inventory down by more than 57%. The chart below shows the YoY quarterly decrease in new condo listings and available condo inventory in Arlington.
I will be keeping a close eye on inventory levels as this year starts off. Last year a lot of homeowners decided to withhold homes from the market in anticipation of higher Amazon-related appreciation. Now that much of the market has experienced significant appreciation, it will be interesting to see if more homeowners decide that now is the right time to sell. I expect demand will be able to keep pace with an increase in new inventory, but more inventory should keep prices a bit more level this year.
With rates remaining low through last year and projected to do so again this year, couples with a strong employment and stock market, buyer confidence is high. On the flip side, markets usually stagnate heading into an Presidential election so it’ll be interesting to see if/how the election effects counter the current momentum.
I predict that condo values will grow steadily in the 2-5% range over the next 5-10 years, but that no year in the 2020s will outpace 2019. Some possible exceptions to this are major zoning changes by Arlington to allow for more condo development (increased supply), the conversion of some large apartment buildings into condos (increased supply), or a national economic crisis (decreased demand).
Thanks for reading along! If you have any questions or I can be of any help with your real estate needs, don’t hesitate to reach out to me at Eli@EliResidential.com. Next week we will dig into the detached single-family and townhouse markets!
If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local Real Estate, please send an email to Eli@EliResidential.com.
Question: Are there any smoke-free condo buildings in Arlington?
Answer: There is overwhelming support amongst condo owners in Arlington and the DC Metro to ban smoking in condo buildings, including within individual units and balconies. The problem is that it requires a two-thirds (or more) vote in all existing condo buildings to change the by-laws to ban smoking completely and only a handful of buildings have successfully done so.
2000 Clarendon To Be Smoke-Free, LEED Certified
I’d like to recognize The Bush Companies for making 2000 Clarendon, an 87-unit condo building currently under construction in the Courthouse neighborhood, for being the first developer in Arlington to ban smoking outright in the original by-laws. Per the by-laws:
“Smoking is prohibited inside the Condominium building. Smoking is prohibited outside the Condominium building except in designated smoking areas located at least 25 feet from all entries, outdoor air intakes, and operable windows. The no-smoking policy applies to spaces outside the property line used for business purposes.”
In addition to being smoke-free, 2000 Clarendon will also be a LEED Certified “green” building.
There is real demand in the Arlington condo market for smoke-free buildings and there will likely be multiple owners who choose 2000 Clarendon as their home because of the smoking ban. I believe that the decision by The Bush Companies to ban smoking will result in stronger sales and I expect more developers in Arlington and the surrounding DC Metro to follow suit.
On October 15th I’m hosting a panel and info session on smoking bans in existing condo buildings. If you are interested in attending or getting a recording of the meeting, please email me at Eli@EliResidential.com.
2000 Clarendon Sales Update
If you’re in the market for a condo in the Rosslyn-Ballston Corridor and aren’t aware of 2000 Clarendon, it’s because marketing has been very limited and nothing has been entered into the MLS yet (hopefully you saw my column introducing 2000 Clarendon in April). However, demand has been high enough without a full marketing push that over 50% of the units are already under contract.
The shift in demand within the Arlington condo market to larger units with 2+ bedrooms is evident at 2000 Clarendon, with impressive demand for their 2BR and 2BR+Den units and double-digit waiting lists. The 1BR+Den floor plans have been nearly as popular, but 1BR sales have lagged. I expect the 1BRs to move rather quickly once they’re entered into the MLS for broader distribution.
The developer is releasing units for sale by floor and to-date ten of the fourteen floors have been released with floors 9, 11, 13, and 14 yet to be offered. Some units on the upper floors are expected to have direct DC views.
If you’re interested in learning more about available units at 2000 Clarendon or other new condo development in Arlington or the DC Metro, feel free to reach out to me at Eli@EliResidential.com.
often should a condo building conduct a Reserve Study?
Answer: In my
opinion, the Reserve Study is the most important planning tool for Condo
Associations because it provides a roadmap for how much money needs to be saved
and what projects the Board should prioritize.
What is a Reserve
A Reserve Study should be done by an engineer who
specializes in condo or apartment buildings. The engineer inspects all of the
common elements like the roof, garage, hallway carpeting, pool, etc to
determine the remaining useful life and major repair schedules for all common systems/elements.
For buildings around here, the cost usually starts around a couple thousand
dollars and goes up from there.
After the inspection is complete, the engineer provides a
report that generally includes:
Summary of the common systems
Maintenance or repair recommendations
Replacement schedule over the next 30 years
Estimated annual cost of repairs and replacement
needs over the next 30 years
Analysis of the Association’s current reserve
balance, annual reserve contribution amounts, and projected annual costs to
determine if the current balance and contributions are enough to support costs
over the next 30 years
How Often Should a
Study Be Done?
Code states that a new Reserve Study should be done at least once every
five years. This will still be the case when the new code becomes effective on
October 1 2019.
The Reserve Study is important for many people including
owners, Board members, management, and buyers.
The financial analysis is critical for the
Treasurer to determine monthly fees and reserve contribution levels
The repair schedule allows the Board to set
priorities for themselves and management to solicit bids for major repair or replacement
Homeowners must provide a copy of the Reserve
Study and current reserve account balance to buyers once they go under
contract. Buyers have the right to cancel a contract within three days of
receiving this information so having an updated Study and sufficient reserve
funds is important.
Buyers should carefully review the Reserve Study
and compare the recommended reserve balance and contribution levels with the
current balance and current-year contributions in the budget.
After completing a new Reserve Study, you may find out there
are insufficient reserve funds and contribution levels. Boards generally have
two options – increase condo fees or issue a special assessment.
If the reserve deficiency is 5+ years out or relatively
small, there’s likely enough time to slowly increase fees until you’re caught
up. However, increasing fees by too much can have a negative
impact on sale prices, so sometimes a one-time special assessment is in the
best interest of the owners. A special assessment may also be your best option
if the money is needed quickly to cover reserve costs in the next few years.
Not only does Virginia Code request Associations to complete
a Reserve Study at least once every five years, it’s good practice for all
stakeholders to have an update Study available for better financial planning
and facility management.