One important safety net you, as the buyer, have in your corner when purchasing a home in either a condominium association or home owners association (HOA) is the governing documents review period. When a seller lists a home that is part of an association, by law they are required to deliver these documents to the buyer. The other good news for yourself, as the buyer – there is no opportunity to waive the review period so it is a highly protected safety net within a transaction when applicable.
So how exactly does the review period work? The documents can be delivered anytime between contract ratification and settlement. Once delivered, you have 72 hours to review the documents. During this time should you find any of the information unsatisfactory, you can back out of the offer without any repercussion to your deposit. If you do decide to void the contract, it’s not necessary to identify which piece of information included within the document caused you to back out, and all that is required is proper notice to the seller to void.
I will warn, these documents are usually hundreds of pages and pretty dense. You’ll want to set out at least a couple of hours to review. A good agent should also take a quick look to see if they identify any red flags, but keep in mind here the onus is on the buyer to review. So what should you be looking for while reading through? Below I’ve identified the top five sections I would recommend taking a thorough look at:
- The resale disclosure package: The resale disclosure package is going to be really important. It is only a few pages long, but here you will be able to verify the condo or HOA fee, if there is currently a special assessment, if there are any lawsuits filed against the association, and finally if the home you are purchasing has any covenant violations. A couple of additional notes. A special assessment occurs when an unexpected project comes up that the association has not budgeted for within their reserves. In these situations, the board will hire to have the work done and will divide the cost monthly between all of the home owners. This is in addition to the regular monthly fee, and as such should be something you pay attention to. Per the Northern Virginia sales contract, the seller is required to pay the remaining balance of the special assessment at settlement. In DC and Maryland, it is outlined in the property disclosures how the special assessment remainder will be addressed. In addition, the resale disclosure package will include an inspection report noting if the home has any current covenant violations. Covenants are rules established by the association outlining what work can be done to a home, and usually identify certain styles to make the homes more uniform. If something is not in compliance, this is called a covenant violation. Buyers should ensure that covenant violations, if any, are addressed by the seller before settlement.
- Uses of the property: The association bylaws document will almost always include a section on Restrictions of Use. Buried within this paragraph are important pieces to take note of. The first topic that I’d recommend finding is the association’s animal or pet restrictions, especially if you, as the buyer, have pets or plan to add a furry friend to the family. The second section I’d recommend reading through is on leasing rules. If you have thought about making your home an investment property down the road, check this to ensure there aren’t any rules that would prevent this from happening. Almost every association will include a rule stating that any lease has to be longer than 60 days to prevent transient type rentals like Airbnb.
- Reserve study: The reserve study is a longer document but is crucial to read through. Associations are required to hire a third party to visit the community every five years and identify upcoming projects that will need to be done over time. They will also review the planned monthly fee and reserve fund increases to project whether or not the association will have enough money saved to cover anticipated projects. This document will give you a good sense of if the association has been responsible in planning and saving for the future. If not, you may want to consider voiding the contract to avoid the possibility of paying a large special assessment.
- Chart of maintenance responsibilities: The chart of maintenance responsibilities is also usually found in the bylaws and clarifies what you, as the buyer/owner, are responsible to maintain. In a condo, this will usually be from the walls in (the association will maintain the common areas and exterior of the building), and in the case of a townhome that is part of an HOA, the owner is usually responsible for the entirety of the property including the land and improvements (structures). So what are some things to pay attention to? For a condo in particular, maintenance responsibility for windows and balconies vary depending on the association, so check the chart!
- Meeting minutes: The final piece I recommend taking a look at are the meeting minutes, specifically the forum portion where owners have the opportunity to voice their complaints. Pay attention to if there are any reoccurring themes – if there are this could give you insight about what community owners are unhappy about.
One final note, an addendum was added recently in Northern Virginia that does allow you, as the buyer, to extend the review period should something come up. For example, if a seller delivers to you an outdated package then your agent could request an extension until the proper documents comes in. The seller doesn’t necessarily have to agree to this, but keep in mind if they won’t extend the only way to protect yourself is unfortunately to void the contract, or else you are taking on risk by not having the most current information.
Have a wonderful weekend!