This Palo Alto Condo Has No Reserve Fund, Can I Still Get A Loan?

Real Estate Agent with eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales B.R.E. 01191194

I have a client who made an offer on a condo in Palo Alto at Tall Tree Estates downtown. I love this building. When I first came to Palo Alto in 1981 my dance teacher lived here. I thought it was the most elegant apartment I had ever seen. It was about 7 years old at the time, the building not me.

Since my clients are planned on writing an offer we got the disclosures, along with the home owner association docs to review before the offer. One thing stood out to me which is this Palo Alto condo has no reserve fund.

Palo Alto condo for sale

A reserve fund is generally part of a Palo Alto condo complex budget. The complex will collect money every month as part of the HOA dues. A portion of this money will not be used for day to day expenses, but rather be put aside in a reserve fund. This fund is used to pay for major expenses like a new roof, exterior painting, or replacing the elevator.

Occasionally a complex will decide that instead of collecting money for major repairs and replacement costs in advance the complex will keep the dues lower and collect for these expenditures as they come up. This plan can have advantages as well as disadvantages.

When a Palo Alto condo does not collect dues in reserve the monthly HOA dues will be much lower than in a building that does collect. Most complexes collect $150-$300 a month for their reserve funds. The owners of this Palo Alto condo building decided that instead of paying this amount monthly, they would be responsible themselves for saving the money for the capital expenditures. In the case of Tall Tree Estates they have had 3 assessments in the last 18 years. If you take $250 a month for 18 years that comes out to $54,000, a figure far above what the assessments during that time period added up to.

The downside here is that if someone sells, and then the next year there is a large assessment, the new owner will have to pay for a lack of past collections. If they hold their Palo Alto condo for a long period of time they will make money in the long run.

The biggest question a buyer of a Palo Alto condo without reserve funds has to answer is, "will my lender lend on this complex?" Different lenders have different requirements with respect to reserve funds and whether or not they will loan money. If you are planning on buying a Palo Alto condo without a reserve fund be sure and ask your lender what the regulations are before you make your offer.

Fortunately my clients had a lender who would make the loan and their offer was the winning bid. They are looking forward to many happy years in this downtown Palo Alto condo.

If you have any questions about buying or selling a condo in downtown Palo Alto please feel free to contact me.

If you want to search for condos for sale in Palo Alto click here.

Marcy Moyer

Keller Williams Realty Palo Alto

Cal BRE 01191194


Posted by

Marcy Moyer eXp Realty of California  Specializing in Probate and Trust Sales, and Rental Investment Properties


Comments (1)

Eileen Begley
Coldwell Banker, DelMonte - Carmel, CA
Monterey Real Estate

Think they could be opening themselves up to some liability in the future! I had one that was only 15% funded, not sure why. The loan went thru ok. I did disclose in writing to my buyers the possiblility of special assessments in the future!

Nov 14, 2014 12:56 PM