Home Buyer Tips March 20, 2020

Due Diligence Pays Off Big Time When Buying a Condo

When you buy a condo, you are also buying into its community. You get the benefit of its many amenities, along with the restrictions of its rules, and financial responsibility for its upkeep. Most condominiums offer community features such as pools, exercise rooms, media centers, and entertaining spaces that many people could not comfortably afford to install or maintain individually.

While many single-family residential neighborhoods have homeowner’s associations and rules, few are as far reaching as those in a condominium. For example, some condos don’t allow pets of any kind, rental of units beyond a cap, or home businesses. Because each condominium sets its own covenants, rules, and regulations, it’s critical to know what they are, and if they fit your lifestyle, before you decide to purchase.

Here are a few guidelines to determine if a condominium is the right home for you.


What You Own

A condominium owner generally owns their individual unit (from the walls in), the right to use of limited common elements (often things like patios, balconies and storage units) and a joint (undivided) common interest in the building shell, amenities and grounds shared with the other owners in the condominium. Be careful though. Every condominium makes their own determination of what is individually, limited and commonly owned in a document called a condominium declaration. You won’t know what’s what without reading it.

In addition to condominiums, there is such a thing as a co-op or cooperative ownership. These buildings look and feel like condominiums but operate more like joint ownership. Instead of individual, limited and commonly owned amenities, a co-op owner owns a share of interest in the entire building with a long term right to use of a specific unit. There exists only a small fraction of co-ops in Washington State compared to condominiums, so we’ll focus our attention here on condos.

The condominium declaration is recorded with the county and documents the details of ownership, rights and responsibilities throughout its (often hundreds) of pages. Because it is recorded as part of the historical ownership documentation on title and defines the ownership of rights of each unit, it is extremely difficult to alter (requiring the consent of every unit owner). Declarations address the most significant and unchanging ownership aspects while leaving those items subject to change to be addressed in the condominium’s Rules and Regulations (which are much more easily changed).

The declaration is one of the many components of a Public Offering Statement (the initial new construction/conversion disclosure) or the Resale Certificate (disclosure made in every sale of the unit thereafter). This handy reference from NOLO offers a great summary on how to determine what’s what in a condominium declaration. Also see Public Offering Statements and Resale Certificates below.


Rules and Regulations

While the declaration sets the unchanging covenants, conditions and restrictions, the rules and regulations address a condominium’s policies and oversight that do change from time to time. Rules and regulations are set and maintained by the elected officers of the condominium’s homeowner’s association. This group of fellow owners make decisions based upon what they feel is best to maintain the spirit of the declaration, the wishes of the condo community, and the financial aspects of the budget.

Typical rules and regulations address things like pet policies, leases and short-term (Airbnb type) rentals, late fees, parking, noise, move-in/move-out expectations, business uses, guests, use of common areas (pools, clubhouses, etc.), and safety guidelines (storage of flammable materials, maintenance of smoke detectors, replacement of water heaters, etc.).

Rules and regulations are amendable by board vote and are often updated annually or every other year. Often the board can grant an exception or acknowledge an approval on a case-by-case basis. For example, a condo’s rules may state that no units beyond a specified percentage may be leased. Or they may say birds or exotic animals are allowed only if approved by the board. A savvy landlord or bird owner would seek approval prior to committing to the purchase of a condo in those scenarios.

While rules and regulations can at times be frustrating, they are also critical in maintaining the value of a condominium. Take rental caps as an example. Most lenders will not lend mortgage funds in a condominium with a low owner occupancy ratio, caused by excessive rentals or vacancies, due to the increased risk in their investment. If a condo does not have a rental cap and a high percentage of unit owners decide to lease their units, all condo owners in that condominium may lose the ability for their future prospective buyers to obtain financing until the owner occupancy ratio increases. Historically, condominiums that must sell for all cash or be seller-financed have a much more limited pool of available buyers and therefor can lose a significant amount of their value. See more on Mortgage Financing below.

Rules also ensure the quiet enjoyment (or entrepreneurial opportunities) of and for its residents. Perhaps you want the comfort and privacy of a condo that does not allow home businesses or short term (Airbnb type) rentals. Or maybe instead you want a work-live studio with a street-facing entry that encourages them. Either way, you’ll have many choices out there if you know what to look for.


Dues and Assessments

A condominium has two options for securing funds for maintenance and association expenses. The primary source of funding is through the monthly assessment (often called HOA dues). Monthly assessments should cover all annual operating expenses (utilities, janitorial, groundskeeping, management, etc..) and fund the reserve account (a savings account future repairs and improvements). More on that below.

Because each condominium is different, it’s important to clearly understand what the monthly dues pay to get the full picture of its amenities and expenses. Do they include water, sewer, and garbage or are those billed separately? Some include use of amenities and others require a separate fee for access to the exercise room and pool. Make sure you are comparing apples to apples when looking at one building vs. another. Not having to separately pay certain included utilities can make one condominium with higher dues comparable to another with lower dues that do not include utilities.

How monthly assessments are calculated for each unit is spelled out in the declaration as a percentage of the whole. It is often based on the square footage of the unit but can be based on other weighted elements instead. The percentage assigned to each unit is unchanging, although the overall budget changes at least annually, thereby changing the cost of each unit’s monthly assessment accordingly.

The reserve account requirements are often dictated by something called a reserve study. A reserve study incorporates an inspection of current elements and structures coupled with an evaluation of the anticipated cost to maintain them. For example, it might show the roof is ten years old and is estimated to require replacement in 15 years at a cost of $280,000. This, along with the cost of each other element, is added to a timeline to show the expected financial outlay in each upcoming year. This allows the condo’s board to plan future monthly assessments to meet the upcoming needs outlined in the reserve study. Just like in a home, failure to plan ahead can lead to a future shortfall.

Not every condominium can afford to pay for a reserve study, but most have at some point. In the absence of a current reserve study, a smart buyer should ensure their inspection includes an evaluation of a representative sample of the common elements and structures (this costs more but is well worth the expense) to ascertain whether they feel the reserve account will fund the needed upcoming repairs and improvements. See Don’t skimp on the inspection below.

When a condominium fails to meet its reserve requirement for needed repairs, it often utilizes its second funding option called a special assessment. A special assessment is applied using the same percentages of ownership as the monthly assessment. It can be a single or recurring lump sum, a surcharge in addition to the monthly assessment, or a combination of both. Lenders tend to favor surcharges over lump sum special assessments because they are more easily financially managed by the average condominium owner.

While a special assessment can occur at any time due to an unanticipated need for repairs (just like in a home), most often the need for one can be predicted based upon a noticeable funding shortfall between upcoming capital expenses and the reserve funds available to cover them.


Mortgage Financing

Because of the nature of their ownership, condominiums require special approval to secure mortgage financing. This approval involves underwriter evaluation of the Public Offering Statement or Resale Certificate, owner occupancy and commercial use ratios, monthly and special assessments, building insurance, and HOA governance (among many other things).

You can search HUD (FHA) approved condominiums online. Generally, conventional lenders follow similar requirements, so this is a good place to start. In addition to approval of an entire condominium project, it is possible to obtain approval for a single unit. This is especially helpful with smaller condominium projects that do not want to incur the time and cost of obtaining approval for the entire building(s). Your individual lender can verify the ability to obtain mortgage financing for a particular condominium.

The National Association of Realtors offers many condominium resources online. Recently, the U.S. Department of Housing and Urban Development (HUD) released new rules on project approval for single-family condominiums insured by the Federal Housing Administration (FHA). These changes ease restrictions on FHA financing for condominiums, thus enabling more first-time buyers, older adults, and low to moderate-income families to achieve the dream of homeownership.


Washington State Condominium Law

Washington State has three separate condominium laws that govern condos based upon the year the condominium declaration was recorded.

Condominiums built after July 1, 2018 are subject to the Washington Uniform Common Interest Ownership Act.

Condos built January 1, 1990 through July 1, 2018 are subject to the Washington Condominium Act.

Condos built prior to 1990 are subject to the Horizontal Property Regimes Act.

While each has its own nuances, all include provisions to protect buyers by requiring full disclosure of all information related to the individual ownership of each condominium.

One of the biggest changes brought about with the Washington Uniform Common Interest Ownership Act is condo liability reform, which reduces some of the unreasonable liability builders once faced and allows for more new condo construction while still protecting condominium buyers.


Public Offering Statements and Resale Certificates

Based on what we’ve shared about condominium ownership so far, it’s easy to see that there’s much more to owning a condo than appears at first glance. To ensure each new condominium owner knows as much as possible about their future purchase, the Washington State Condominium Law sets forth disclosure guidelines for new construction and resale of condominiums.

The Public Offering Statement is delivered to prospective purchasers in all new construction or condominium conversion sales. Condominiums developed after July 1, 2018 are subject to the Washington Uniform Common Interest Ownership Act regulations (RCW 64.90.610). Condominiums developed before that time were subject to the Washington Condominium Act (RCW 64.34.410). The statement includes important information for buyers such as the survey map and plans, the articles of incorporation of the association, bylaws of the association, rules and regulations (if any), current or proposed budget for the association, the balance sheet of the association (current within ninety days if assessments have been collected for ninety days or more), the association’s current reserve study (if any), and the inspection and repair report or reports prepared in accordance with the requirements of RCW 64.55.090.

Under this law, the buyer has a right to cancel their purchase contract for seven days after the completed Public Offering Statement document is delivered.

Resale Certificates are required each time a condominium unit is sold thereafter.

Condominiums declarations recorded after July 1, 2018 are subject to the Washington Uniform Common Interest Ownership Act (RCW 64.90.640) while those recorded prior to that date are subject to the Washington Condominium Act (RCW 64.34.425).

Though worded slightly differently, both forms of Resale Certificate address similar items the law deems important for prospective buyers to know. The Washington Uniform Common Interest Ownership Act Resale Certificate adds three specific disclosures related to the presence of a reserve study; age restrictions; and use, occupancy or lease restrictions. Those items would also be documented in the condominium declaration of condos subject to the Washington Condominium Act but would require a specific search.

The Resale Certificate is prepared by the condominium’s authorized officer or agent. This is typically the management company or a member of the board if the association is self-managed. They are permitted to charge a preparation fee to the seller under the law. The Resale Certificate is signed by the authorized association member as true and accurate, under penalty of perjury, at the time it was prepared. For condos subject to the Washington Condominium Act the Resale Certificate must also be signed by the unit owner to be considered delivered to the buyer.

Under both condominium acts, the buyer has a right to cancel their purchase contract for five days after the completed Resale Certificate is delivered.

Copies of the NWMLS Common Interest Community (RCW 64.90) Resale Certificate and the Condominium Resale Certificate are linked here for reference, although each condominium management company typically uses their own format to deliver the required documentation.


Don’t Skimp on the Inspection

Not every inspector is an expert on condos. It’s a good idea to ask any prospective inspector about their experience and training specific to condominiums. Ideally, you’ll want an inspector who will evaluate the common elements of the building and grounds in addition to the unit. This is important since you will be jointly responsible for their cost and upkeep.

Think of it this way: you probably wouldn’t pay for a house inspection of only the interior of a home and ignore the exterior, roof and basement. It does cost more to have a full condo and building inspection, and the pool of inspectors who conduct them is more limited, but it’s your best insurance policy when buying into a condominium.

Consider asking the management company about the age of the sewer line and how it is maintained. Scoping the sewer line may or may not be an option, depending on the HOA’s policies, but asking the questions will give you a better understanding of the situation. Older buildings or those with significant mature tree roots around them pose the greatest risk of a compromised sewer line.

Lastly, don’t forget to take the time to personally walk the grounds and common areas for yourself. Are things maintained or do they look tired and run down? Do ask the management company about anything that concerns you.


Final Thoughts

By thoroughly completing your due diligence, including actually reading the Public Offering Statement or Resale Certificate in its entirety, you can mitigate much of the uncertainty associated with buying a condo. This includes scanning meeting minutes for current issues, carefully reviewing the operating budget and reserve account financials to see if they appear to account for inflation and future repairs, and verifying the declaration, rules and regulations are a good fit for you.

While you can hire an accountant to review the financials or a condo attorney to review the Public Offering Statement or Resale Certificate, you shouldn’t rely solely on their interpretation. It is worth the hours it might take to review the documents yourself. Every condominium is unique and only you know what details are important to you.

Condominiums offer tremendous opportunities for many homeowners looking for anything from low-maintenance lifestyles and affordable housing options, to interim or second homes. Investing a little more time up front will go a long way toward ensuring you find the right condominium for you.

As you begin this process, know that choosing the right broker will help you navigate your condo purchase and save you headaches down the road. Their local market knowledge and pricing analysis will allow you to make a smarter offer. They’ll provide recommendations and resources to thoroughly conduct your due diligence and avoid costly mistakes. And, they’ll negotiate any issues that arise to your satisfaction. Having a Windermere broker on your side is one advantage you can’t afford to sacrifice.



Washington State Community Associations Institute (CAI): This group of condominium, cooperative and homeowners’ associations and other organizations provides educational forums about association-related issues.


About the author: Julie Barrows has advised clients and brokers on condominiums over her three-decade real estate career. She has owned three condominiums personally in which she served as President. She has also served as Treasurer and attended many CAI training courses on condominium association management.


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