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State Legislature addresses changes to reserve studies and resale certificate cap
The WSCAI Legislative Action Committee (LAC) is working with lawmakers in the House and Senate to pass legislation which will strengthen the current requirement for conducting reserve studies and separate legislation which will increase the monetary cap that preparers of resale certificates can charge.
Reserve Study Legislation
Senate Bill 5223 prime sponsored by Senator Don Benton (R-Vancouver) and its companion, House Bill 1309, prime sponsored by Rep. Mary Helen Roberts (D-Lynnwood), have each received hearings and are awaiting action by their respective chambers.
Current law requires condominium associations to conduct an initial reserve study by a reserve study professional, updated annually, with a visual site inspection every three years, unless doing so would impose an unreasonable hardship. A “reasonable hardship” exists if the cost of a study exceeds 10 percent of the annual budget. A reserve study identifies the major maintenance, repair, and replacement expenses that a condominium association will incur over time that are not practical to include in an annual budget. The purpose of a reserve study is to: identify the projected costs and timing of future repair and maintenance of common elements, provide a measurement of the association’s current reserve fund strength and provide suggested plan(s) to meet those expense needs.
SB 5223 and HB 1309 extend the current requirements for reserve studies to homeowner associations with significant assets. In addition, for both condominiums and homeowner associations, the bills would provide for disclosure to current homeowners as well as prospective purchasers, and require the reserve funding plan to be a part of the annual budget adoption process. The bills encourage the establishment and funding of a reserve account, but do not require it.
The bills have until April 24 to pass the legislature. The LAC will publish a more detailed explanation of the legislation in the Journal and online once it is passed by the legislature and signed by the Governor.
Senate Bill 5224, prime sponsored by Sen. Steve Hobbs (D-Lake Stevens) would increase the current $150 that authorized agents are limited to charging for the preparation of a resale certificate (which was adopted in 1990) to $275.
RCW 64.34.425 requires a condominium unit owner to produce a resale certificate to a prospective buyer before any sale is executed. The resale certificate includes the most current statements of: Assessments, special assessments, unpaid assessments, fees, the declaration, rules, bylaws, financial statements, operating budget, pending law suits or legal proceedings, anticipated repairs, reserves, reserve studies, and insurance coverage.
The resale certificates for some associations are less complicated and take less time; but many resale certificates for associations take significant time to properly detail all the required information.
Since 1990, the requirements of producing a resale certificate have materially expanded. Disclosing documents relating to reserve studies is just an example of the expansion of requirements. Additionally, the actual material and labor costs of preparing a resale certificate has increased.
Of the 25 states that require resale certificates for the purchase of condominiums, only four states regulate the fees charged. If the definition of the reasonable fee is not updated to address the current costs of providing this service, agents (management companies) will need to charge the association additional fees to provide this service. The fee charged to the seller requesting the disclosure may only partially cover this association expense leaving all owners having to pay increased assessments (which is like a tax) to cover expenses associated with a real estate transaction in their community. The LAC believes the cost of preparing the resale certificate should be borne by the seller of the unit, not all the owners in the association.
If you would like to view any of these bills please visit www.leg.wa.gov