A family exploring condos in Philadelphia once asked this question: they had never heard of the term "reserve fund" and were curious why it was considered so important. This is a common question for first-time homebuyers, and from this question, we will explore the overall management fees.

A reserve fund is money that the HOA sets aside in advance for major repairs that require significant expenditures, such as roofing, plumbing, or elevators. If there is a large repair needed and the reserve fund is insufficient, a special assessment will be charged to the residents to cover the shortfall. Even if the monthly management fees seem reasonable, if they do not adequately include contributions to the reserve fund, unexpected expenses may arise later.

In the Philadelphia condo market, this aspect is particularly important. The median HOA fee in Philadelphia County is around $507 per month (according to CommunityPay), and there is a wide variation depending on the size of the building and amenities. Smaller buildings with fewer amenities may have monthly fees ranging from $200 to $300, mid-range buildings with gyms or community rooms may charge between $400 and $700, and luxury buildings with pools can exceed $1,000 per month, sometimes even surpassing $2,000 (according to seanelstone.com). There can be significant differences in management fees even within the same city.

It can be helpful to compare two options side by side: an older building with low management fees and a new or remodeled building with high management fees. In cities like Philadelphia, where many historic buildings have been converted into condos, a building may appear to have low management fees, but due to old plumbing and roofing, the reserve fund may be depleted quickly. New buildings may have higher management fees but generally have less burden of large repairs for the time being.

The state of Pennsylvania does not legally require reserve studies or contribution rates. However, under the Uniform Condominium Act, the board has a fiduciary duty to establish a long-term maintenance plan. Since there is no legal obligation, it becomes even more important to request and verify financial statements and recent reserve study results before signing a contract. It is also essential to check the delinquency rate and any ongoing lawsuits, as failing to meet these criteria may lead mortgage lenders to classify the condo as non-warrantable and deny loans.

Checking the school district is also important. In Philadelphia, the assigned school ratings can vary significantly by neighborhood, so even the same condo listing can have different assigned schools based on just one address difference. While it is useful to refer to ratings from GreatSchools or Niche, many families also consider the application processes for magnet schools or charter schools. Ultimately, verifying the assigned school based on the property address is the most accurate approach.

Reviewing the history of management fee increases can also be beneficial. Buildings that have seen gradual increases over the past few years often have well-managed reserve funds, while those with sudden large increases may be signals of catching up on deficiencies. This trend can be easily confirmed by contacting the management company.

During the condo purchasing process, it is also necessary to obtain a resale certificate. This document contains information about the reserve fund balance, ongoing lawsuits, and any planned special assessments, making it as important as the financial statements. For investors aiming for rental income, the rental restriction ratio can also be checked in this document.

It is advisable to check any pet limits or rental restrictions in advance based on family composition and plans. For those who have just immigrated from Korea and are preparing to settle down, these procedures may feel unfamiliar, but requesting financial statements and meeting minutes is a buyer's right, so do not hesitate to ask. This article is not investment or legal advice, and it is recommended to consult with a professional before finalizing any contracts.