Get EducatedWhat Can A Resale Certificate Reveal About A Building?
June 28, 2016
If you’re buying a condo, that opens up an entire separate set of concerns that we need to address.
Don’t worry—I’m here to do it with you!
With condos, it’s important to make sure that the association is managed well and proactive. We also want to make sure that the building has enough money to operate long term.
The following is a preview of what’s in the HOA/Resale Certificate:
Any unpaid dues
Amount in reviews
Pending work assessments
Owner to rent ratio
Lawsuits and litigation
What Can A Resale Certificate Reveal About A Building?
The resale certificate indicates the health of a building, and if you know how to read it (which of course I’ll help you with!) you can learn a lot about a building’s past, present and future:
Has it had a successful past?
What is the current situation?
What does the future look like?
How to decode the resale certificate:
The building’s past:
Declaration: The declaration shows the governing rules when the association was set up. When you read the declaration you’re reading the past, and the way the governing of the association was set up.
The current state of the building:
Resale Certificate: The resale certificate is provided by the HOA management company. This certificate will tell you how many owners owe back HOA dues, how many owners vs. renters there are in the building, and it will also reveal whether or not there are any pending lawsuits, which can devastate the value of the building. A lawsuit also makes lending unavailable until the lawsuit is resolved. There is also the document that you have to sign to verify that you’ve received the certificate in its entirety.
Reserve Study: The reserve study is a relatively recent development as of the last decade, and when you know how to read it, it can be incredibly illuminating! When a reserve study is created, they begin by sending out a building inspector who assesses all of the various components of the building and assigns an expected remaining life for each of those components. Then, they take a look at the collection rate and reserve account for the building to determine how much in assets the building will have, and what their ability to pay for issues that will need to be addressed in the next 30 years. Then, they develop a ratio that tells you what percent funded the association is (based on repairs needed over the next 30 years, and the collection rate over the same 30-year period. Sadly, most buildings are not fully funded, but there is an acceptable range of “underfunded” that’s okay; in fact, the average building floats somewhere around 50% funded, which is considered a fair level of funding. A good level of funding is 70%, and an excellent level is over 90%.
Caution note: When it comes to inspecting buildings, the inspector has to be quite literal in protecting himself from litigation. Take elevators, for example: An inspector might say that if an elevator is over 30 years old, the building needs to completely replace it. But will a building really replace a 30-year-old elevator? Probably not, and that’s probably ok. Not ALL recommendations are pressing or evident of a red flag. However, things like roof and window repairs and updates are more pressing and worth paying more attention to.
The future of the building:
I love reading meeting minutes; they reveal to you the tenor of the building’s occupants. Are they proactive? Are they lazy or full of complaints? Or are they ambitious and ready to volunteer? Understanding what happens during meetings can show what is in store for the building’s future.