[ Blog/News ]

When I was driving around the other evening listening to the latest jazz version of Celebrate Me Home, an ad came on the radio for sales of a condominium complex in the Seattle area. The first incentive mentioned to potential buyers was not the magnificent view or the upgraded appliances, but the fact that it is FHA approved and IT HAS A HEALTHY ASSOCIATION! The presence of a reserve study that was funded and a low delinquency rate were at the top of the list. Wow, people are starting to get it! With the present state of the economy it is more important than ever for associations to consider several fundamental items that will attract potential buyers.

While amazing amenities are definitely a draw, there are certainly more important things that help entice prospective owners. These items include:

• Ease of Financing
• Funded Reserve Study
• Minimal Assessment Delinquencies
• Rental Percentages
• Adequate Insurance Coverage
• Professional Management
• Legal Issues
• And, of course, Amenities

Here are some revealing questions that buyers might ask before making their important purchasing decision:

1.       “How painless will getting a loan be?”

Not only is the ease of financing a consideration for buyers but it must also be considered for the simplicity of selling the unit down the road. It is much easier to do both if the condominium is FHA approved. FHA Condominium Loans are designed to encourage lenders to extend affordable mortgage credit to those who may have a difficult time qualifying for conventional loans. Even though the FHA guidelines have been recently revised posing some challenges to associations for qualifying for the program, it is valuable to pursue this option. This makes purchasing easier and opens the doors for the potential buyers.

2.       “What’s the status of the reserve fund?”

With the enactment of the new state law in 2008, Condominium Associations are now legally required to obtain professional reserve studies every 3 years with updates done on an annual basis. This is definitely a step in the right direction to ensure common elements are kept in good condition and to minimize the risk of the dreaded special assessment. The next step is to assure the reserves are funded adequately. With direction from their professional manager, the Board of Directors is responsible for the economic health of the association. If reserves are not funded sufficiently, when it comes time to put on that new roof, a special assessment could devastate many owners and put them at potential risk of defaulting on their mortgage. Mortgage companies pay close attention to this aspect of an association’s financial health.

3.       “Will I have to pay someone else’s bill?”

Potential owners might do some research to find out the delinquency rate of present owners. If owners are not paying their assessments on time, it is either a sign they are unhappy or an indication that the association might be underfunded. This is something mortgage companies investigate on a regular basis. A high delinquency rate is a sign of a poorly managed association and can kill a sale in no time at all. New owners will not want to get stuck paying someone else’s bill.

4.       “Are there restrictions on renting units?”

Does the Association legally restrict rentals in the complex? If they do, it may limit the pool of potential buyers when trying to resell the unit, but on the other hand it has been documented that unit owners have been turned down for refinance loans (or potential purchasers denied favorable mortgage loans) because of the high number of rentals within a condominium association. All owners, including investors, should realize that if there are too many renters, the condominium may take on the appearance of an apartment complex, which may cause all units to depreciate in value.

5.       “What if there’s a fire? Am I covered?”

One of the most important items buyers may look for is adequate association insurance coverage. All too often there is confusion as to whether the association’s property insurance policy covers the fixtures, equipment, betterments, and improvements within the unit. This is known as “all-in” coverage and is typical for condominium associations; not least of all because Fannie Mae backed mortgages are looking for insurance on this basis. If not covered by the association’s policy they have mandates for certain limits of HO-6 (unit owner) coverage. Understanding the association’s declarations is the best place to go for guidance or ask to see the association’s policy and review it with an experienced insurance agent. Then inquire how the property replacement cost value was determined since the board is required to insure to 100% of value. Other considerations might be earthquake insurance, building code coverage, appropriate coverage for the association’s funds, and higher limits of liability known as an Umbrella policy.

6.       “Who’s in charge?”

Although some condo associations successfully self-manage, it is a rare thing. Managing a condominium association is an intricate and challenging ordeal. What do the governing documents say? What are the laws they need to abide by? Who has the expertise to manage the money? Who’s going to deal with owner disputes? The volunteer Board of Directors has enough on their plate without the obligation to be trained in the various and complex facets of personally managing the affairs of the association. Most governing documents give the board the authority to delegate this responsibility to a professional management company. Well worth the investment!

7.       “Are there any legal issues?”

Buyers may want to have the governing documents reviewed by a local real estate lawyer prior to purchasing. Do they make sense? Are they consistent with state laws? Are there currently any amendments under review? Are there any current disputes among owners that the Association is trying to resolve? Meeting minutes are a good source of information for future owners to determine if there is a pattern of discontent within the association. Rules and regulations should be succinct. If they are too restrictive they may defer some people but on the other hand, if they don’t exist, this could affect the property value down the road.

8.       “What do I get for the money?”

Even though amenities may not be the most essential item potential buyers may consider when making this important decision, they can be a huge incentive and they definitely add value. A fabulous view or well-maintained clubhouse and pool will draw attention but potential owners may view the cost of maintenance associated with these amenities and choose to invest their money elsewhere.

In summary, the health of the association, including funded reserves, a low delinquency rate, FHA approval, and proper insurance coverage, will aide tremendously in enticing those potential buyers to your complex and make financing so much easier. So, although that pool looks tempting, if you want to attract a crowd, make sure your association passes its physical.