Due Diligence Pays Off Big Time When Buying a Condo

What You Need to Know Before You Buy 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.

 

Resources

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.

 


 

Find a Home with Windermere Real Estate

 

Find a Home | Sell Your Home | Property Research

Neighborhoods | Market Reports | Our Team

We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.

2737 77th Ave SE, Mercer Island, WA 98040 | (206) 232-0446

mercerisland@windermere.com

© Copyright 2020, Windermere Real Estate / Mercer Island

Posted on March 20, 2020 at 11:02 am
Julie Barrows | Category: Buyer Tips | Tagged , , , , , , , , , ,

Flip or Flop? Is That Gorgeous Makeover All It’s Cracked Up to Be?

Is That Flip a Flop? How To Find Out Before You Buy

 

It seems like the perfect combo of fantastic location and newly renovated home. But is it really? The concept of renovating a tired home for profit (flipping) is a business model that is often naturally averse to the future buyer’s interests. The lower the costs, the higher the profit. And, the lower the costs, the lower the sale price—which means more buyer demand.

This isn’t always the case. Some flips are done very well with a higher aesthetic and higher matching sale price. Unfortunately, this is often the exception to the norm. A very good local inspector shared that he’s done thousands of inspections of flipped homes and maybe a few dozen of them were well done.

The allure of a flip is clear—a move-in ready home in an established neighborhood where you can literally unpack and live without needing to address the typical laundry list of to-dos that often comes part and parcel with an older home. It’s when those gleaming new veneer surfaces give way to subpar work beneath that the problems arise.

So, how do you protect yourself if you happen to fall in love with a flipped home? This list below is a great place to start.

 

Must Do’s When Considering the Purchase of a Flip…

  • Verify the seller (flipper) is a licensed contractor as required by state law (RCW 18.27) (you can research them using the state’s L&I Contractor Database and Corporation Search tools)
  • Verify all necessary permits with filed and finalized with the city (you can look up who to contact using this handy link to Building & Permit Resources)
  • Google the contractor to see if anyone has shared reviews, good or bad
  • Ask for references and a list of other flips completed by this contractor and then drive by and call to find out how the product has stood up over time
  • Visit the city or county who has jurisdiction over building permits and ask questions about your potential home and about the contractor who did the work (you’ll often find out more info directly than you can otherwise)
  • Hire the best inspector you can find and alert them that the home is a flip before they begin their inspection so they can look more closely for indications of shortcuts and subpar work that might be covered with gorgeous veneer
  • Talk to neighbors about the project to find out what they know about issues with the original home or work that was completed (bonus: you get to meet the neighbors!)

It’s most time and cost-effective to go through this list in order when possible. The bottom line is that a little more research now can save you countless hours, headaches and expenses down the road. Quality, professional flippers will welcome your questions and the opportunity to differentiate themselves from less reputable contractors.

In addition to this specific research, don’t forget to evaluate all the typical aspects of your potential new home and neighborhood. We’ve compiled links to research tools from schools and geological hazards to market reports and census data.

While you’re there, you can also look up neighborhood info, including crime reporting, local government resources, parks and recreation, and school boundaries.

Of course, nothing tops having an experienced broker to guide you through the process. They’ve seen hundreds upon hundreds of homes and can help you identify the solid finds from the duds with gorgeous looking veneer.

Choosing the right broker can save you thousands on your home purchase. Whether through local market knowledge and pricing analysis allowing you to make a smarter offer, recommendations and resources to thoroughly conduct your due diligence and avoid costly mistakes, or savvy contract negotiation to help you get the terms you need, having a Windermere broker on your side is one advantage you can’t afford to sacrifice.

 


 

Find a Home | Sell Your Home | Property Research

Neighborhoods | Market Reports | Our Team

We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.

2737 77th Ave SE, Mercer Island, WA 98040 | (206) 232-0446 mercerisland@windermere.com

© Copyright 2019. 

Posted on November 9, 2019 at 10:50 am
Windermere MI | Category: Buyer Tips | Tagged , , , , , ,

How to Spot Big Issues Before You Pay for a Home Inspection

How to Spot Big Issues Before You Pay for a Home Inspection

 

Before you plop down $500-$800 for a home inspection, it really helps to identify obvious issues up front and determine if A) you are willing to buy the home despite them or B) the seller appears reasonable about addressing them. If neither of the above are yes, but you might want to keep looking rather than investing hard-earned dollars in an inspection that, at minimum, will bring up items that you can clearly see, and more likely, will unveil even more issues.

Taking a bit of time to do a quick personal inspection of the property you are ogling can help you make smarter decisions about when or whether to write that offer. This list includes bigger ticket items we often see come up in an inspection.

 

Indicators of bigger ticket items to be on the lookout for:

    • Evidence of moisture or water damage in and around showers or tubs and under sinks
    • Missing or cracked grout/caulk around the tub or shower (a major cause of rot in walls and the sub-floor)
    • Cracked, peeling or weathered exterior paint and caulking
    • Evidence of moisture or water damage around the exterior, especially at windows and doors
    • Heavy moss, sagging or a roof that looks near the end of its life span
    • Signs of improper drainage around the perimeter of home, driveway and yard
    • Unexplained mildew smell in the basement
    • Uneven floors or the appearance of leaning or sagging
    • Obvious remodeling completed with no permits on file (this is easy to lookup online), especially when involving opening or movement of walls, plumbing or electrical
    • Rotted or damaged deck/porch boards, stairs, railings, or supporting joists/structure
    • An aging heating/AC system (more than 15-18 years old and/or no recent maintenance stickers)
    • An aging hot water tank (more than 9-10 years old)
    • Aging appliances (more than 10-15 years old)
    • An electrical panel that appears modified by someone other than an electrician (obvious changes that don’t look proper, open breaker sections or loose wires)
    • Railings (inside or out) that are missing or not up to code (ie. your smaller toddler could fit through them)
    • Cracked or damaged foundations or retaining walls
    • Evidence of unstable soil/earth movement (slides, cracks or gaps, leaning supports/structure or trees)
    • Evidence of rodents (odor, droppings, chew marks or damage around exterior/vents)
    • Properties with a high likelihood for costly sewer line issues include those with very large trees near the most likely sewer line path and those more than forty years with no prior evidence of sewer line re-lining/replacement
    • Signs of home maintenance neglect such as broken or missing hardware or components, improperly functioning doors/locks

 

Not all these issues will turn out to be major expenditures, but they often can be. Better to note them early and decide if it makes sense to proceed with a more thorough professional inspection or walk away and save those dollars for a more likely candidate.

 

Here are a few great online resources to add to your knowledge base:

https://www.homeinspector.org/HomeInspectionNews/the-quick-home-inspection-checklist-what-to-look-for-when-buying-a-home.5-1-2017.1724/Details/Story

https://www.hgtv.com/design/decorating/clean-and-organize/common-problems-found-during-home-inspections

https://www.familyhandyman.com/smart-homeowner/tips-for-getting-the-most-out-of-a-home-inspection/

https://www.zillow.com/sellers-guide/bad-home-inspection-for-sellers/

https://wini.com/articles/home-inspection-checklist-a-complete-guide-to-the-home-inspection-process/

https://www.familyhandyman.com/smart-homeowner/home-facts-this-is-how-long-these-parts-of-your-home-should-last/

 

Of course, nothing tops having an experienced broker to guide you through the process. They’ve seen hundreds upon hundreds of homes and can help you identify the solid finds from the duds with gorgeous looking veneer.

Choosing the right broker can save you thousands on your home purchase. Whether through local market knowledge and pricing analysis allowing you to make a smarter offer, recommendations and resources to thoroughly conduct your due diligence and avoid costly mistakes, or savvy contract negotiation to help you get the terms you need, having a Windermere broker on your side is one advantage you can’t afford to sacrifice.

 


 

Find a Home | Sell Your Home | Property Research

Neighborhoods | Market Reports | Our Team

We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.

2737 77th Ave SE, Mercer Island, WA 98040 | (206) 232-0446 mercerisland@windermere.com

© Copyright 2019. Information and statistics derived from Northwest Multiple Listing Service.

Posted on August 13, 2019 at 9:08 am
Windermere MI | Category: Buyer Tips | Tagged , , , , , , , , , , ,