How to review a condo resale certificate
The first step is to make sure all the documentation is provided. Washington state law defines the statements, documents and information a seller is required to provide to a prospective condo purchaser. Learn more about Resale Certificate basics here.
State law requires the seller provide a series of statements and documents to a prospective buyer. If the property is professionally managed, the management company is typically responsible for producing the resale certificate on behalf of the seller. The HOA has 10 days to provide an owner with a resale certificate, subject to a fee, and the prospective buyer’s contract is voidable until it has been provided and for five days after receipt. Buyers can waive the resale certificate provision, however it’s important to understand what information may be critical to the buyer’s decision whether to proceed with a purchase.
Included in the resale certificate is information about the individual unit as well as information about the Homeowner Association. The monthly dues, outstanding balance owed by the unit, and special assessment information are defined along with any other fees the unit is obligated to pay.
The seller must disclose if the unit has been altered or improved in a way that violates the declaration. A good example of this is when an owner installs hardwood flooring which may be required to be removed by the buyer if it violates the declaration. The seller also must disclose any health or building code violations either by the unit itself, or any other part of the condominium.
For newer properties or condo conversion projects, it’s important for the buyer to understand how many units are still owned by the developer and whether the HOA has been transferred fully to the owners or still remains controlled by the developer. This will affect how the HOA handles business and the overall governance of the property.
The HOA must provide the status of any pending suits or legal proceedings, as either plaintiff or defendant along with any unsatisfied judgement against the HOA. Any amount owed to the HOA as well as amount owed by the HOA which are 30 days or more past due must be defined. This information will help the buyer get a better understanding of the financial health of the HOA. If there are multiple owners behind on their dues, there will be a higher risk of the other owners paying more to cover the HOA expenses.
One of the most important pieces of the resale certificate is the disclosure of whether any qualified warranty exists. This typically relates to potential construction defect issues and is very important to understand for newer properties still within the statute of limitations for construction defect lawsuits, as well as condo conversion projects which also have warranties attached to them.
The governing documents (Declaration or CC&Rs, Bylaws, Amendments, Rules & Regulations) define the structure of the Homeowner’s Association and all the details about owner obligations, powers of the Board, rules of the property, etc. These documents also contain details about the common and limited common elements which the Association is responsible for maintaining and repairing.
The Reserve Study is the plan for the future repair and replacement of the common and limited common elements owned by the Association. The study includes a funding plan which determines how much money should be set aside to pay for future expenses when they are required. Washington state law requires HOAs to acquire and update reserve studies, with a few exceptions.
Meeting minutes show a record of the Association’s business and may include details to indicate how the owners participate, what discussions occur along with the formal decisions recorded by the Board.
The financials show the balance of the operating and reserve accounts, the annual budget and the actual income and expenses of the Association. It’s important to understand the relationship the reserve account has to the reserve study, and what the potential risk of a future special assessment may be.
If you need help interpreting or understanding the information provided to you in your resale certificate, go here for more information.