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You’ve been reading countless articles in the paper about overwhelming demand for real estate and, after much thought, you have decided to take advantage of the strong seller’s market and sell your condo. While many local media stories suggest that selling anything in today’s market is as easy as snapping your fingers, the purpose of this blog post is to help you with some of the important considerations that, if planned properly, will help to ensure a smooth sale.

First Things First

Why are you selling and where will you go? If you are selling a condo that is your primary home with an intent to rent your next home, the answer is easy. If you are selling an investment property because timing is right, the answer is easier still. If you are selling to buy something else, understand that you will be entering a very competitive market (think bidding wars) and you might have to bridge the gap between selling your current place and buying a new one. I will stop right here as that’s a completely different topic that I only wanted to mention to get you thinking and planning ahead.

Next, Do Your Best to Properly Time the Market

While it goes without saying that fewer buyers shop around the holidays, there is more to timing the market. Understanding current inventory levels and estimating demand will help you list during the time when you are more likely to attract qualified buyers. If an owner currently has a listing in your Association, have a chat with them; ask them to share their experience with you. If someone recently sold, talk to them if you are keeping in touch (if not, talk to the new neighbor to find out exactly what the market conditions were at the time they bought).

Be Ready to Disclose What you Know and Research What You Don’t

The “Sticking your head in the sand” approach is unproductive 100% of the time, due diligence can keep you out of legal trouble should there be issues later. There are several disclosures that are a part of a condo sale. Many are significantly different than those of single-family homes. Some of the simple ones are “lead-based paint” (for condos built prior to 1978), FIRPTA (US residency/citizenship status) and utilities (mostly important for rural/vacation HOAs). Two major disclosures to know about are Form 17 (homeowner disclosure of what you already know about your unit) and the Resale Certificate (Condo Association disclosure).

If you are a Board member or an active committee member, you likely know what’s going on within your Association and potential issues that the buyer (or at least the real estate agent) needs to know about. If you are not very familiar with current standings of the Association, it’s often worth it to order a resale certificate in advance (learn about that process in advance as cost and turnaround time will vary depending on whether your Association is professionally managed or self-managed).

Some of the things that buyers worry about the most are current (and future) special assessments. A special assessment can make a unit unfinanceable and must be disclosed. When properly explained, and dealt with in advance, a special assessment doesn’t have to be a deal killer.

Make Sure Your Condominium Unit is Financeable

A number of things can make your unit unfinanceable for a buyer including: association delinquencies, litigation, the number of rentals, the number of units owned by a single entity, and percentage of commercial ownership, among others. When you know about those in advance, appropriate steps can be taken to resolve the issue, properly explain the issue to a buyer, adjust marketing strategies accordingly or find specialized lenders that can help a potential buyer with a portfolio loan on short notice.

If you live in an Association where demand is above average, consider doing an inspection and sewer scope (if applicable) early and provide those to potential buyers. Not only will you avoid having a dozen pre-inspections dirtying up your place, you will have an opportunity to address some of the things that can possibly kill a sale. Know about your smoke detectors and install a CO2 detector in advance to avoid issues with an appraisal later (appraisal is another important topic but we will leave it out for now as current market conditions helped decrease the number of low appraisals and other issues, though still possible).

Know Your Associations Rules For Selling Your Unit

It’s important to know any House Rules that might affect the sale. Here are a few rules worth mentioning that are important to know in advance. Are “For Sale” signs allowed? Is there a designated spot where key boxes should be installed? Is there a rental cap and has it been met? Are pets allowed and, if so, what are the restrictions? What is the move-in/out process, how much does it cost and does it need to be coordinated up front? Is there an ACC process and, if so, is there a waiting list to have an ACC application reviewed/approved? Are there other rules that restrict or otherwise play a major role in your use of your condo? Your Association might have unique policies that could be important or should be disclosed. Having these answers early can help your sale go smoother.

Here are a few rules worth mentioning that are important to know in advance. Are “For Sale” signs allowed? Is there a designated spot where key boxes should be installed? Is there a rental cap and has it been met? Are pets allowed and, if so, what are the restrictions? What is the move-in/out process, how much does it cost and does it need to be coordinated up front? Is there an ACC process and, if so, is there a waiting list to have an ACC application reviewed/approved? Are there other rules that restrict or otherwise play a major role in your use of your condo? Your Association might have unique policies that could be important or should be disclosed. Having these answers early can help your sale go smoother.

Prepare A Strategy

Finally, figure out the marketing strategy and decide whether you are selling yourself or hiring a real estate agent. If you go with the latter, do your due diligence. Pick out a real estate agent the same way you’d select a major contractor. Interview multiple people and select someone with condo experience and a proven success record in the condo industry. Your agent will assist you with many of the topics covered above as well as other recommendations, such as staging and photography. You should also consider doing what it takes for maximum buyer exposure, such as a very flexible showing schedule or, ideally, having the place vacant.

With a little research and prep work, selling a condo should be a fun process. Good luck with your sale!

[ Blog/News ]

A reserve study is a budget and disclosure document, supplementing operating & maintenance budgets for the large expenses that don’t occur each year. In this busy world, focusing on a handful of key items in your reserve study may keep you out of costly trouble.

A typical condominium Reserve Study in Washington has 30 to 50 components that meet the criteria for reserve funding, with their associated expenses occurring at varying intervals throughout the 30-year study period. Planning for this somewhat complicated array of expenses can much more easily begin by simply focusing on the “The Top Six” as they apply to your community. Put together a solid funding plan for these components and you’re likely to avoid special assessment and the myriad of problems that come with it.

Inflation is a key factor in reserve studies and having enough money to complete your projects on time and within budget. Construction is booming again around the Seattle area – a 1% change in inflation can result in a need to revise your contributions about 13%! Work with your provider to ensure your reserve studies are up to date so you have the information you need to be proactive and bring your project costs in at the best value.

Reserve Study Components, What are “The Top Six”?

While reserve studies address all common elements of an association, at minimum if you create a solid funding plan for the “Top Six”, you’re likely to avoid special assessments and the headaches that come with them:

• Painting
• Roofing
• Asphalt
• Siding
• Windows
• Decks

If your community in Washington is a mid or high-rise, you can substitute elevators and mechanical equipment for asphalt; in some cases, plumbing needs to be on that list as well. If you live in an HOA in Washington, your short list is different; likely to include fencing, playground and other recreation equipment, perhaps landscaping items, lighting, signage, a clubhouse, etc…

I took a random sampling of four recently completed condominium reserve studies in preparation for this article to determine just how significant the percentage of the total association assets these components are:

• 8 units in Tacoma did not have decks
• 35 units in Renton–the owners are responsible for windows
• 12 units in Seattle had all of the top six components
• 58 units in Big Sky Montana–I met a brown bear face to face on the road doing this one…

You can see most assets in these examples fall within the Big Six classification.

Planning for Reserves

It is difficult for many of us to look 20 to 30 years into the future as it relates to planning for our residence. An effective strategy is to begin your focus and discussion with the membership on the next 10 years. Typical ownership periods are often within that 10-year period and one or more of those top six expenses are likely to occur in that time frame. If your community is 11 to 20 years old, more than one is likely to occur. If it is 21 to 30+ years old, you may have to face many of these projects within that 10-year planning window.

Communities focusing on these items will illustrate most of near and mid-term cash flow needs without getting mired in the debate over whether or not the mailboxes should be in the Reserve Study, or why anyone in their right mind would plan for 30 years worth of projects…

Once you determine you community association’s needs,  then you can move on to addressing the other components in the study.

Strategies to Simplify the Process

• Ignore these confusing terms within the Reserve Study (for now): Percent Funded, Fully Funded Balance, Full Funding, Threshold Funding and Baseline Funding.
• Open the study to the 30-year income and expense detail, tear out the pages that show the next 10 years of income and expenses year by year and set the rest of the study aside as light reading for a later date.
• To determine a starting point for a stable reserve contribution rate over that time period, review and sum the expenses projected over the next 10 years, divide by ten, then again by 12 if you are seeking a monthly reserve contribution rate.
• Now ask yourself how much of a minimum balance in any given year you feel comfortable leaving the community with to guard against surprises, cost overruns, projects needing to be done sooner or at a larger scope than estimated.

You can view this minimum balance question as a percentage of expenses. For example, you might have a policy that states; the ending reserve balance in any given year should not be less than 25% of the projected expenses in that year. Or, you may consider a policy of not letting the reserve balance go below $50,000 or similar (I like the first of these two approaches better). Once you have your beginning point, discuss with the rest of the board, then the entire community, what years 11 thru 20 might bring your way and how it might affect your plan. Communicate and disclose should be your mantra for reserves planning.

Final Thoughts from a Reserve Study Professional

I am somewhat surprised by the number of associations who do not clearly understand their maintenance, repair and replacement responsibilities for the common and limited common elements of their community. Many times, they’re different than what the association believes they are. I strongly advise all associations that have not previously done so, engage a knowledgeable law firm to review their governing documents and draft an association Responsibility Matrix. This legal review and resulting responsibility matrix can be a critical component to the planning process.

Legislation was enacted into law in 2011 requiring the study to be disclosed to all owners during the budget process as well as the board’s funding plan in comparison to the reserve study recommendations to be disclosed and ratified by the membership.

The lessons I’ve learned during the last few years, particularly in my own planning, have resulted in a simplification of my thought process. Consider doing the same for your association and I think you will be on the path to a successful community. I wish you all the best for the time period of 2017 thru 2026, and beyond.

[ Blog/News ]

As a child I was fascinated by maps. My mom would buy the Thomas Guide every year and I would actually spend hours thumbing through it just for fun (for you young pups out there, the Thomas Guide is what your parents would use to find a Saturday garage sale before GPS was invented). If I had a class in school that involved marking up a map with landmarks, capitols, rivers and mountain ranges, I was confident I’d be acing that project. Dora the Explorer and her map have nothing on me. So how lucky am I, as an adult, to have a job where I can spend time pouring over maps; plat maps that is!

In my day job, I primarily manage homeowners associations versus condominiums. Instead of being focused on the buildings themselves, I find myself more focused on the land on which they are built. I often tell people I am a “plat manager”. My day is filled with terms like easement, shared side yards, Native Protected Growth Areas, critical areas, ingress and egress, tracts and a whole slew of various LID BMP. What’s that crazy acronym, you may ask? Low Impact Development Best Management Practices- a relatively new set of land use management strategies that not only mandate development that emphasizes conservation, but implements the use of on-site natural features like bioretention, rain gardens, permeable pavement and rainwater harvesting. Natural site features with which the average board member or community manager may not have experience.

Whats a Plat Map?

A plat is a map, usually drawn to scale, showing the divisions of a piece of land. A developer will take a piece of real estate, or assemble several parcels together and have a survey of the land done to identify lot and plat boundaries, easements, flood zones, roadways, rights of way, critical areas and other important property details. It is part of the legal description of a piece of real property and it is required by a jurisdiction if the land is to be divided for the building of homes, creating parks or setting aside rights of way. If your eyes are glazing over, fear not! Plat maps are fun and often contain hidden gems of information, especially for your homeowners association. Plat maps detail where you can find various covenants and “rules” put in place for those mysterious critical areas, detention ponds and weird strips of open space that no one can seem to remember who is responsible to mow.

Deed Restricted Plat Maps

For a very short moment in time, I crossed over to the dark side and worked for a homebuilder who primarily built deed restricted plats – or HOAs. Once our company became the property owner, the platting would begin. Professionals who are much better with numbers and with amazing technical skills like measuring stuff and drawing straight lines would review local city codes, public rights of way, any old easements or covenants recorded on the titles and put together, almost as if it were magic, a plat map. These magicians actually understood where 38 degrees into the northeast quadrant east of north actually was located. With preconstruction meetings with various planning, building and public works officials, input from specialized engineers and just a little bit of fairy dust… shazam! A preliminary plat map was produced.

The Preliminary Plat Map

A preliminary plat is an approximate drawing of a proposed subdivision. It shows the general layout of the streets and alleys, lots, blocks and other elements of the community about to be built. This draft version of the map is the basis for the approval or disapproval of the general layout by the local municipality. This document is reviewed by city staff to ensure that the lots are the right size, that the use is appropriate for the area of town in which it is being built, low impact development requirements are met and assignment of who controls what is detailed and agreed upon. While most declarations will state something akin to, “The common areas include Tract 998 which is a native growth protection area part of which is covered by a Category III wetland area…” the plat map is where the magic happens as it clearly depicts the location of this tract.

The Final Plat Map

Our little preliminary plat map may go through quite a process from here depending on the scope of the project, the city or county in which it’s being built and how many unique features like rivers, lakes or wetlands the area contains. Eventually though, a Final Plat comes forward and is recorded with the county. This binding site plan is drawn to the scale specified by local ordinance. It identifies and shows the areas and locations of all streets, roads, improvements, utilities, open spaces and any other matters specified by local regulations. It’s first page will contain the dedication language that sets forth the limits and conditions for the use of the land and will detail provisions required for development. It’s from these limits and conditions that the Common Area section of your Declaration will be culled. Tracts will be granted and conveyed to the homeowners association upon the recording of the map. Emergency, utility and access easements as well as landscaping buffer zones, critical area setbacks and assignment of responsibility for certain portions of the HOA will also be specified. It’s from all these details that you may happily find that the giant open space that needs to be mowed is actually the responsibility of the city.

Next month’s lesson: The Joy of Color Coding your Plat Map using Sharpies.