“Re-Sale Certificate”

“Re-Sale Certificate”
By Steve Meyers
May 29th, 2014

When a condominium is sold in the State of Washington, the Seller must provide the Buyer with a Re-Sale Certificate and supporting documents. It’s important for a Buyer to review these documents for information that may influence his purchase of the condominium. You are advised by the State of Washington and your Real Estate Agent to seek the advice of a real estate attorney. You real estate agent is not allowed to answer the Buyers questions about information within these documents.

So, what should a Buyer focus on when reviewing the Re-Sale Certificate and supporting documents?

Re-Sale Certificate
Items 2 (b), (c), & (d) – If there are any unpaid assessments against this unit, the Buyer should add language on a separate Form to the P & S Agreement that these items will be paid off by the Seller at, or before, Closing.

Item 3 – If there is a large amount of past due assessments within the complex this indicates that there are owners who are not paying their dues. The process for the collection of past due amounts will be outlined in the supporting documents but may include placing a lien against the individual condominium unit. This process is done by the Professional Management Company or the Board of Directors and not the individual owners. Also, lenders may not finance a purchase within the complex by your Buyer if there are to many units that are delinquent, ie. more than XX % of the units are delinquent.

Item 6 – This section identifies how much money is in capital reserves for repairs and improvements. The more the better, unless there are capital improvements that have not been done. The available money in the capital reserves should be compared to the items identified in the most recent Reserve Study to determine whether this is a financially healthy association. What may look like a financially healthy association today may not be healthy following some major capital improvements, ie. The cost of re-roofing the buildings in the complex in the next 3 months may deplete the entire capital reserves.

Item 10 – You can identify how many units in the complex are owner-occupied and how many are rental units. Historically, the greater the percentage of owner-occupied units the more pride of ownership and care is taken within the complex. There are also some loan programs that require a minimum percentage of units to be owner-occupied, like 80%.

Reserve Study
The HOA or Professional Management Company typically orders a “Reserve Study” every three years from an independent third party to look at the capital reserves and the projected capital improvements and repairs. It’s important for a Buyer to review this document and get a sense of whether the current reserves and monthly/yearly contributions into the capital reserve will adequately pay for those repairs and improvements. Without the proper reserves to pay for the expenses, it’s likely that there will be a “Special Assessment” for each of the owners to pay in a lump sum or over a period of months, typically 24 to 36 months.

Financial Statements
The Balance Sheet and Income and Expense Statements will help the Buyer evaluate the financial stability and health of the association. You’re strongly urged to seek the advice of a professional.
As you read through the Financial Statements take notes and write down your questions. The Professional Management Company who prepared the documents should be able to answer your questions.

Meeting Minutes
The condominium association will be required by Declarations, Bylaws, and Rules and Regulations to have a Board of Directors (B of D) meeting of the current condominium owners. These documents will dictate the minimum number of (B of D) meetings to be held each year. Most associations are required to have one annual meeting but the Board usually hold meetings quarterly. It’s imperative for the Buyer to review the Meeting Minutes in detail. You’ll learn about issues raised by the owners as well as what is being discussed regarding future improvements and repairs. You will get a sense of whether there may be a “Special Assessment” if future repairs will cost more that the capital reserves. Besides the 4-5 page Re-Sale Certificate, the Buyer should always read through the Meeting Minutes.

If you have any comments or questions about this article, please email me at smeyers@kw.com.

Steve Meyers is a Managing Broker at Keller Williams Realty in Seattle, Washington. He can be reached at (206) 972-3328 or smeyers@kw.com.

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