Q: What Size Is Your Condo Unit?
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© Anna Novikoff 2016
So you’ve decided that it’s time to sell your condominium home because you’ve heard that there might be a Special Assessment in the works. Now, if you can just get it sold before the assessment is due!
Sounds simple enough but there’s more to the process than you might think. Did you know that when you do find a buyer, you are required to provide a Resale Certificate (prepared by the management company) and in most cases, other Homeowner Association documents, like HOA meeting minutes for up to 2 years as well as the current budget, a Reserve Study and other information that will explain what the Special Assessment is for, when it will be implemented and how much your unit will be assessed?
Now imagine that you are the buyer. Would you want to buy a unit at fair market value with a Special Assessment of several thousand dollars or (possibly much more) due after you close? Most buyers would say “no” unless they are getting either a lower price to make up for the future assessment amount or having the seller pay the entire assessment at or before the closing.
As to the Special Assessment amount, there are several stages to the process that may cause a buyer to have a problem being approved for a mortgage – even if the seller agrees to pay it at escrow or before. If the cost of the repairs haven’t been estimated but are just in the planning stage, lenders have no way of knowing if the eventual assessed amount for the buyer will be more than they can qualify to pay for in addition to their monthly mortgage cost or not. The same holds true once the repairs have started since in many cases, other items in need of repair may be found once the work starts, that weren’t originally apparent, which may ultimately add to the assessment amount.
Any way you look at it, unplanned costs aren’t fun but they are a part of home ownership. For a single family home, the furnace may break and need replacing or the roof may start to leak. In that case, the homeowner has to foot the bill alone while in a condominium, the costs are split between all owners based on their percentage of common ownership.
“Condominium Living is a Special Way of Life – Condominium Marketing is My Specialty!”
© Anna Novikoff 2016
Q: What Are Move-In fees or Deposits Equal to Several Months of HOA Dues All About?
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© Anna Novikoff 2016
Whether or
not your complex currently has a rental cap, this recent ruling regarding rental restrictions in condominiums is something that all owners (potential sellers) and buyers should know about. Unless restrictions on how many units can be rented out were part of the original Declaration by the developer, any subsequent HOA votes to amend these rules may be invalid.
A recent court decision in Filmore LLLP vs. the Unit Owners Assoc. of Centre Pointe, the ruling stated that leasing constituted usage (under the WA Condominium Act) and therefore required a 90% or more approval rate from the HOA instead of the 67% approval level (super majority) that had been used prior to the ruling.
It now appears that many area condominium rental caps may no longer be enforceable if these amendments weren’t passed with at least a 90% approval of the HOA. If your complex has a rental cap, it would be not only prudent but pro-active to consult legal counsel for more clarification and to be prepared in case a potential buyer brings this up as a condition for purchasing.
Depending upon what happens in future court decisions, some attorneys believe that the term “usage” may eventually be interpreted to include pet rules, AirB&B rentals, etc.
“Condominium Living is a Special Way of Life – Condominium Marketing is My Specialty!”
© Anna Novikoff 2016
For many condominium owners who bought prior to 2008, the term “Reserve Study” may not be familiar terminology. Since then, however, it has become mandatory for all condominiums with more than 10 units to have a Reserve Study prepared, update it periodically (every 3 years for an onsite visit and updated annually without an onsite visit), and provide owners and prospective buyers with a Reserve Fund Disclosure. A condo complex of less than 10 units can be exempt from having a reserve study if 2/3 vote to opt out of doing one.
Since major maintenance expenses are inevitable in order to keep a condominium complex in good repair, and to avoid surprise “special assessments”, the Reserve Study is an ideal way of budgeting for significant repair or replacement costs over a 10-15+/- year timespan. Then the funds are there when needed.
The study recommends the ideal amount for the HOA to allot to the reserves from the monthly dues in order to be sure that anticipated costs are appropriately funded for each component on the list based on when those components will need to be repaired or replaced. These are usually items such as roof replacement, deck repairs, exterior painting, asphalt resurfacing or resealing, etc. The list is usually quite comprehensive.
The study will show what percent of all the anticipated costs are being funded at any given time. If your association is 0-30% funded, your chances of an unplanned Special Assessment can range from about 20-50%. At 40-60% funded, the chances of a Special Assessment drop to about 2-10% while if you are funded at 70-100%, the chances of a Special Assessment are negligible.
By planning for these expenses in a logical and reasonable manner, your HOA will be proactive in making your home financially stable as well as acceptable to FHA requirements for buyers to obtain a mortgage to purchase in your condominium complex.
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