Critical Questions For Prospective Condo Buyers

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1 Critical Questions For Prospective Condo Buyers How many homes have closed in the condominium project? This is important because it reveals the momentum of a condo project. Don t buy into the explanation of units under contract; ask them for the recorded/closed sales! The primary reason you should be concerned about this number is that some lenders cannot finance condos when the owner percentage is below 50%. Your condo is typically more marketable with a higher percentage of closed/recorded homes. Similarly, the risk of downward pressure on pricing is more acute when many of the project s condos remain unsold. Washington Square has closed/recorded over 230 of its 377 condominium residences. Please ask your sales executive for the most up to date number. Have prices precipitously declined over the past 12 to 18 months in the project? No one wants to buy a stock on the way down; much less a valuable condominium. Typically, condominium projects with excessive inventory have no choice, but to continually drop prices to attract new buyers. Condo buyers should be wary of such projects. If lower and lower pricing is the only way a condo project can attract new buyers, it is likely the value of your new condo will be eroded by further price decreases. While no one can predict the future, history can provide a valuable forecast. If prices have continually dropped over the past months at a project, it is safe to say they will continue to drop over time until you see a leveling off or even a slight increase. A steady average pricing over a 12-month period is typically indicative of stable pricing within a condominium project. While undergoing a substantial price decrease immediately following the credit crisis, Washington Square has maintained average pricing over the past months. Ask your Washington Square sales executive for the most recent statistics. Has the condominium received project approval from Fannie Mae and is the entire project approved (i.e., not just certain floors of the condo project)? In today s market, Fannie Mae, Freddie Mac and FHA have new stricter rules when it comes to condo financing. At the moment, Fannie Mae, Freddie Mac and FHA account for around 90 percent of all loans being approved. So if you re looking for a home loan, you ll need to play by their rules. Buyers may now find themselves trapped in contracts if they are buying in a condominium project that has not been approved or can t be approved. These days, if financing is not available through Fannie Mae for your condo, the number of lenders available is reduced dramatically, which will significantly affect your ability to resell the condo in the future. Some projects have a partial approval, meaning only certain blocks or floors of condos in a project are approved by Fannie Mae. Buyers should beware of purchasing a condo under such circumstances. While the condominium project may have special financing set up for your purchase of a condo, such special financing options are rarely available once you resell your condo to a third party. Make sure Fannie Mae has approved all condos, not just certain floors of the condominium project. Washington Square has Fannie Mae approval for the entire project through various lenders. Is the condo project FHA approved and can an FHA loan be closed presently? With the recent problems suffered by subprime mortgage lenders, FHA loans are making a strong comeback as a useful alternative for first-time home buyers and home buyers with less than perfect credit. FHA does not provide or guarantee loans, it insures loans. The insurance either eliminates or minimizes the default risk lenders face when buyers make down payments of less than 20 percent. Prior to assuming this type of risk, the FHA [ Page 1 ]

2 comprehensively reviews a condo project to assess the project s overall stability and longevity. It is important to know whether any FHA loans have closed in a project as some condo projects will obtain a preliminary approval, but must sell a certain number of units before they are officially permitted to close FHA loans. If the FHA is unwilling to take on the risk of loans closed in a condo project, buyers should likewise be cautious of purchasing in such a condo project. Washington Square is an FHA approved project and has closed various units with FHA loans. Who is the developer behind the condominium project? It is to your benefit to be familiar with the face behind the name of any condominium project. The strength of a developer is critical to the success of a condominium project. Since the credit crisis, many developers have walked away from their condominium projects leaving their projects in the hands of their lenders. It is common for these projects to deteriorate as a result of these lenders having little to no experience managing condominium projects. Simply having an HOA manager is not the equivalent of having an experienced developer committed to the success of the condominium project. Wasatch Development is the original developer of Washington Square and the Superblock and in its 30 years of business, Wasatch Development has never handed a project back to a lender. Has the project received a Final Certificate of Occupancy? A Temporary Certificate of Occupancy (TCO) has an expiration date. This means that while the condominium meets the minimum guidelines for occupancy, this is a temporary approval that is subject to expiration. If you purchase a condo that has a TCO, you should consult an attorney and a professional architect or engineer to determine the requirements for obtaining a Final Certificate of Occupancy (CO) before purchasing. Washington Square received a Final Certificate of Occupancy in December of When is the construction loan due for the condominium project? This is an important question to ask the sales representative of any new condominium project. Construction loans are taken out by the developer to construct the condominium project and typically are due shortly after construction is completed. If the developer is unable to pay off the construction loan when due, the lender can foreclose on the condo project. This will not affect your individual condo as it is released from the construction loan when you close escrow, but the lender will assume ownership of any unsold condos in the building, often resulting in a fire sale of all unsold condos. This can significantly affect the value of your condo. Washington Square s construction loan was paid off in July of Have Homeowners Association dues commenced? With newly constructed condominium projects, the developer often sets monthly association dues very low and/or subsidizes the dues in order to attract buyers. If kept artificially low by the developer for too long, you will likely see a dramatic increase (30-50%) in monthly dues once the assessments actually commence and/or the developer s role is diminished. Exercise caution when considering purchasing a property with reduced or delayed HOA dues because this really means that the developer hasn t commenced the actual dues for the project. This is a ticking time bomb which can explode into higher dues or special assessments down the road. Washington Square commenced association dues in August of [ Page 2 ]

3 Has the Homeowners Association (HOA) been formed and is it homeowner-controlled? There is a certain time when the HOA is formed and the developer turns over the HOA to the homeowners of a condominium project. Dues are instated and the homeowners are given the authority to manage their own community. Potential buyers have the right to know when the HOA will be formed and how many closings must occur before it is turned over. The success of the condominium community is directly related to the caliber of the association. If the association board of directors is functioning properly and has resident board members to represent the interests of the homeowners, then the entire community will have better chances of functioning correctly in the long term. On the other hand, if the association has not been formed or there are no resident board members, you have no assurance that your interests will be represented and decisions could be made by the developer that affects your condo s market value. Washington Square s HOA was formed in August of 2008 and dues commenced as of that date. The HOA currently has three resident board members and the HOA was transitioned to resident control in May of How do the monthly dues compare with comparable nearby condominium projects? The answer is important not only to your wallet, but to your condo s future market value. When the association dues are very high compared to the competition, this holds down the market value of condos in that community. It is not uncommon for developers to artificially supplement the HOA budget to give the appearance of low HOA dues. It is important for you to see the actual HOA budget so you can assess whether the budget reasonably addresses the needs of the Association. Typically, if a homeowners association is homeowner-controlled you can reasonably assume that the budget is true and accurate and is not being subsidized or artificially inflated by the developer. Washington Square has the lowest actual homeowner-controlled association dues in downtown Bellevue for comparable highrise luxury condominium projects. Does the condominium project have a replacement reserve study? A replacement reserve study is a study made of all the major capital systems in the association. Professional engineers evaluate how much life the systems have left and how much they re likely to cost when they wear out. From that, the association can calculate how much money it should set aside each year to have enough to replace those items when they do wear out. If your condo project does not have a reserve study, your association may not have enough money to replace critical systems when they wear out, which can result in expensive special assessments to you as a homeowner. Washington Square completed a reserve study in August of Is the Association s Replacement Reserve Account adequately funded pursuant to a Reserve Study and held in a separate bank account? The replacement reserve account is for capital improvements and emergency repairs to your condo building and grounds that may occur over time. Typically developers and some associations do not maintain reserves or inadequately fund the reserve account. Some condo projects will claim to have sufficient reserves, but if no reserve study has been completed and the reserve funds are not held in a separate bank account, the project may not have an adequate reserve fund. Washington Square s Replacement Reserve Account is funded in conformance with the standards suggested by the Federal Housing Administration. Since the Replacement Reserve Account is increased monthly, please ask your sales executive for a current balance. [ Page 3 ]

4 Has the HOA performed an Envelope Investigation Study for the Project? An Envelope Investigation Study is an examination, via a third party consultant, of the building envelope, mechanical and structural systems, and other common elements of a condominium project. So, why is this important to a potential condo buyer? If the building envelope was not installed property and/or there are other problems found with the mechanical systems of a project, homeowners have only 4 years from the date of first sale in the project to bring a claim against the developer. If the HOA is not homeowner-controlled, many developers or lenders in control will avoid initiating an Envelope Inspection before the 4-year period, leaving homeowners with no warranty rights. The last thing you want is to purchase a condo only to be hit with a large assessment for an item that could have been corrected and/or covered by the developer. By finding out whether an Envelope Investigation Study has been completed for your new condo you can potentially avoid any large assessment fees down the road. Washington Square s HOA performed an Envelope Investigation Study in the summer of Are there any liens against the project? A mechanic s lien is a mechanism that allows contractors to have a lien against your condo building when they ve performed construction-type services on the property. It s a powerful tool because many lenders refuse to lend on projects with liens attached to them. They ll require the lien be paid before any new loan may close. Thus, a lien can affect your ability to close on your condo or sell it in the future. On new construction, you can even be joined in a lawsuit to foreclose the lien, regardless of whether you personally did anything wrong. Always make sure all liens have been removed from your condo building before buying your condo. Washington Square has no liens against the property. Does the HOA have functioning chartered committees? Chartered committees are the internal volunteers who enforce the rules and regulations and other community enhancement programs. Having committees formed with able bodies is a strong indication of a well run association. Washington Square has four chartered committees: Architectural, Financial, Rules Violation, and Community Enrichment. These committees help support the Board of Directors in ensuring a smoothly operated association to protect property values at Washington Square. Is the condominium complex professionally managed? Except for very small condo associations (6 condos or less), every condo association needs a professional property manager. You should be wary of buying a condo in a complex that is selfmanaged, often by the homeowners living in the property. Running a condo association is too large of a job for volunteer residents. Washington Square is professionally managed by Associa EMB Management, one of the largest association managers in the country. Learn more about Associa EMB Management at www. embmanagement.com. Do any investors control large blocks of units? When sales are slow at a condominium project or developers find themselves in financial trouble, large blocks of condos are sometimes sold to one single investor. Selling condos in bulk brings cash in quickly for developers, but investors interested in bulk purchases insist on steep discounts (30-50%) from the prices buyers of single units would be expected to pay. Further once the investor owns the block of condos, he/she will typically either rent them for the time being or sell them. Either way, an investor bulk purchase of condos can significantly reduce the value of your condo unit. Also, lenders will be more reluctant to lend in a condo complex with bulk blocks of condos owned by one single investor. [ Page 4 ]

5 No bulk sales of condos to a single investor have occurred at Washington Square. Is there guest parking, and if so what are the conditions of use? Developers typically overlook providing enough parking for condo complex residents, let alone their guests. This may not seem like a big issue, but as a condo buyer you will have family and guests visit you and having accessible guest parking onsite will make life easier for you and your guests. Washington Square has a spacious underground parking garage located onsite with complimentary validation for your guests. There is also surface level guest parking available on our access drive and near the entry to the residential garage. Needless to say Washington Square has plenty of available parking for you and your guests. Are there any homeowners that would be willing to share their experience thus far? People love to talk about things they are proud of. Even more so when they have continued to enjoy their experience, love their home, or received great service. You should ask if you can speak or correspond with someone who purchased in the condo project you are considering so you can understand their experience living there thus far. We are more than happy to refer you to current homeowners who you can speak with about their experience living at Washington Square. Please feel free to ask one of our sales executives for homeowner references. Is there a warranty for my condo and how are warranty requests resolved? Is there an onsite warranty resolve team? Typically there are a number of different warranties that come with the purchase of your condo unit. State mandated, developer, appliance warranties and others. It is important for you to find out what warranties come with your condo purchase. You will also want to know how the warranty requests are handled specifically within the condo project. Some condo complexes boast a warranty, but do little to expeditiously resolve warranty requests once they actually occur. Washington Square offers a comprehensive Home Warranty Program and retains an on onsite warranty team to resolve your warranty requests expeditiously th Pl SE, Bellevue, WA [ Page 5 ]