Posted on September 23, 2015 - 01:52 PM
by Chris Carter
The Condo Questionnaire gives a current snapshot of the property's physical, legal, and financial health -
We've discussed condo issues and the CQ a few times in previous newsletters. With South Florida having such a wide variety of condominium property choices, I think it's important for buyers to be aware of the right questions to ask when considering a condo purchase.
In addition to the CQ that lenders use, I also put together a Condo Red Flags quick reference for Realtors® and their buyers. Our discussion today focuses on resalecondos, not new or newly-converted condo properties.
The original Condo Docs outline how a property wasintended to operate - a Condo Questionnaire shows how that's working out today.
When a buyer applies for financing on a residential condominium unit in Florida, lenders ask the management company or HOA representative to fill out a Condo Questionnaire which asks about the property's financial, legal, and organizational health.
As with most everything in finance and investment, it comes down to risk management.
Lenders want to know that money they lend will be buying a
unit in a financially and legally stable building or development.
Property Managers and HOAs realize that Condo Question-naires help resales in their buildings or developments, confirm good management and association function, and support individual unit property values.
A CQ is filled out for each sale where the buyer wants to use financing to purchase an individual condo unit. The Mortgage Originator or loan file processor is responsible for submitting it to management, who often charges a fee to process it for lenders.
Some of the questions ask for information about:
- General occupancy and use of the units - Current HOA dues, reserve account, and annual budget
- Maintenance / repair issues or assessments - Rental limitations - Insurance coverage - Pending litigation - Liens attached to the building or development - Management of amenities - pool, golf, tennis, clubhouse
So if the CQ is used to help lenders evaluate and manage risk, how does that information also benefit the buyer?
When you handle a condominium deal as a Realtor®, you provide buyers with the condo docs and bylaws that describe in detail :
- the way the association is organized
- how it was intended to function
- what are designated as common areas
- what rules must be followed, and more.
Although you provide your buyers with these required condo docs,multi-page property financial reports, and other disclosures....do buyers actually read and understand everything in all those pages?
Plus, those documents don't always show current conditions and financial / legal circumstances. If a copy of the annual budget is provided, do buyers know what to look for in it?
As a tool for Realtors® and buyers to use, I put together a Condo Red Flags quick reference for evaluating general HOA operation and health.
It "cuts to the chase" and addresses the important questions without having to study pages of reports.
Use the Condo Questionnaire and Red Flags to boil down the important points in the hundred or so pages condo buyers receive when a contract is submitted.
Consider the answers as a report card to see how the docs that organized the property at inception are being applied to its current operation.
Buyers aren't just purchasing their individual condo unit or home in a planned community, they're becoming shareholders in the HOA as well.
Along with the individual benefits of owning their separate residence, there are shared responsibilities and liabilitiesin being a member of the Owners Association.
Even on cash deals, I think it's a good idea for buyers in condo buildings and gated communities - anywhere there is an HOA - to have a CQ completed and to ask the Red Flags questions before purchase.
For example - they can show whether the HOA maintains a sufficient reserve account to cover upcoming expenses, or if they have to charge owners a separate assessment each time.
They can also show whether or not the HOA carries the properinsurance coverage for the building. Insufficient building coverage can result in an individual unit purchase loan being denied.
Financing on Florida condos and homes in communities with an HOA is a bit more involved than financing for single-family non-HOA properties.
A Mortgage Originator who is both knowledgeable and experienced with condo financing can make things so much easier for both you and your buyer.
Have your buyers call me when they first start looking so I can help guide them through the financing details that are unique to South Florida condos. Well-informed buyers make our trip to the closing table much smoother.
Contact Natasha Hunter, You're SWFL Realtor for more information.
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