Chicago Startup Insures Against Surprise Condo Fees

A Chicago startup aims to take the sting out of condo buying by offering insurance against dreaded special assessments.

HOA Warranty, launched in April by former real estate agent and finance professional Rhett Graves, provides buyers with coverage for up to $10,000 in unexpected condo association fees during their first three years of ownership, Crain’s reported. The product is meant to hedge against sudden budget shortfalls in buildings with aging roofs, elevators or other shared systems that could saddle residents with repair costs well beyond their monthly dues.

The product is, at present, only available to Illinois residents and only for condo buildings with five or more units. Graves said the idea is to give buyers peace of mind, and in some cases, to help deals close that might otherwise fall apart over financial concerns flagged in an HOA’s disclosures.

In one such case, a buyer of a Loop condo got cold feet ahead of closing and asked the sellers for a large credit, fearing a future special assessment. The sellers instead paid for a three-year HOA Warranty policy to salvage the deal.

“The deal probably would have died without it,” the listing agent, Mark Dollard of Jameson Sotheby’s International Realty, said.

The warranty costs about $800 and only covers assessments announced after closing. It does not apply to projects mentioned in board minutes or disclosures reviewed during the sale process.

Agents say the product has the potential to become a useful tool in a city where older condo buildings abound and HOA finances often fall short. One agent, Joe Green of Keller Williams One Chicago, was concerned about low reserves and roof issues in a West Ridge condo and recommended the policy to buyers who feared a $5,000 to $7,000 hit after moving in.

Graves is funding the company himself and has placed a deposit above the $25,000 minimum required by the Illinois Department of Insurance. The key will be scale. “Like any insurance offering, it’s all about volume,” he said.

— Judah Duke