Please review the Resale Certificate

[photopress:cancelled.jpg,thumb,alignright]My client and I reviewed the Resale Certificate and cancelled his purchase today.

When you buy a condo, or condo-townhome, you do not know everything there is to know before you make an offer.

After you are in escrow, after the contract is “signed around”, you get a resale certificate within ten days. I’m not talking about new properties here, but resale properties. It’s amazing how many agents just hand that big packet over to the buyer and then hope and pray for five days that the buyer won’t open it.

Sit down with your agent and go through that resale certificate. Don’t rely on verbal representations made prior to receiving the resale certificate. I was told by the listing agent that the Association had money in reserves. She volunteered that information, as I would never expect an agent to know that. The Resale Certificate comes and it says ZERO in reserves.

How could anyone have a balance of Zero anyway? Did you ever have a Zero Balance in your bank account? It’s either $2.00 or it’s overdrawn…but flat out ZERO?! Is that even possible? Oh and the “Good News” is that the monthly HOA dues were being decreased beginning 1/1/07. No reserves, so let’s reduce the monthy dues…that’s ripe!

Maybe the lawyers can answer this one. I haven’t seen the Reserve Study Summary in many of these packets and have to hunt it down. It really is not possible to know if the monthly dues are adequate, or if the amount in reserves are adequate, without having a copy of the Reserve Study Summary page. Is that not required here in Washington? If not, someone needs to fix that. How do I help make it mandatory that this vital info be included with/in the Resale Certificate? Who do I call? Who do I write?

Well luckily, in this case, I didn’t need to look at the Reserve Study to know that ZERO wasn’t good enough. The agent kept telling me how much BETTER things were NOW than they USED TO BE. That may in fact be true. But better than it used to be is not necessarily, good enough.

66 thoughts on “Please review the Resale Certificate

  1. Ardell,

    Great post. I always enjoy reading your stuff. The consumer spin which you offer in many of your posts is a rare treat.

    I often wonder how many of those “condo packages

  2. Norm,

    In CA the requirement for a Reserve Study is at minimum, every three years and anytime there is a substantial change. I agree that I am overly qualified in this area, and clearly do not expect everyone to know what I know. Not because I’m “better” but because I managed Home Owner Associations, both condos and townhomes, for a couple of years.

    But it doesn’t take an Einstein to figure out that if the dues for the past years provided zero toward reserves, lowering the dues is not an option 🙂 when reserves at at zero.

    Thanks for your kind words. I’ve been having a rough week in the “the alter blogworld”. So, thanks…I needed that!

  3. Ardell,

    We had some CCR’s dropped off by a title company a while ago that was about 6 inches thick. Not exaggerating. Probably about 800 pages or more. Not knowing the size of the set,one of the agents in the sale asked us to fax it to them, LOL. Probably cost the title company about $15 in paper/toner to run those copies! I think they only ran one set for us–probably thought we would run copies for everyone in the sale. That set was a jaw-dropper. 🙂

  4. Howie,

    Everything isn’t crashing here, for sure. I think 2007 will be a repeat of 2006, from what I can see from up here in my ivory tower LOL.

    On the macro side of things, it is because when Greenspan predicted a turn in 2005, he was correct for most of the Country. His economic forecasting was based on the “five to seven year upswing, then correction cycle” and spot on for most of the Country.

    Here in the Seattle area, the gains from 98 through 01 were not equal to the rest of the Country, and that is why our upswing wasn’t halted as in most of the Country. There are other factors, of course, but based simply on the same economic principles, we are not finished with our run up here.

    I’ll be watching things very carefully between now and August, but Eastside (vs. Seattle) should be about the same as last year.

  5. Tim,

    Not going to go into the whole CC&R debacle, but you raise a really good point. By putting the financial stuff in with the legal stuff, it gets overwhelming. I’d love to see these separated (and do that for my clients) as when it is sooooo big and combined, it encourages people not to look a the few papers that need to be scoured.

    Sometimes I think there is a “trickster” aspect to giving someone so much paper that they look at none of it, in real estate transactions. Kind of bury the stuff in between a lot of filler, and no one will be the wiser. I carefully pull the important stuff and put it separately into it’s own clip.

  6. Well Norm, that’s a double edged sword at times. When I used to watch Laverne and Shirley, I yearned for a job where I put caps on beer bottles, and a mind that wouldn’t be bored by such a job 🙂

  7. Ardell:

    The content of the resale certificate is dictated by RCW 64.34.425. As you can see, that statute makes no reference to a Reserve Study Summary page. However, since I’m not familiar with that term, it’s possible the statue requires the information that would otherwise be included in such a summary page. If not, then, as they say, you need to write your legislator…

    In addition, a follow up question for you: when you say that “many agents just hand that big [resale certificate] packet over to the buyer and then hope and pray for five days that the buyer won’t open it,” to which agents are you referring, listing or selling? As I understand it, the listing agent would typically provide the packet to the selling agent, who would then provide it to the buyer.

    Thanks for the clarification.

  8. Craig, the packet is for the buyer’s review so the listing agent likely never even sees it. In fact, there are times that it never even touches the hands of the listing agent considering some property management firms are now putting their documents online. As a listing agent, I’ve found that many buyer’s agents don’t review the resale certificates with their clients – likely there are multiple reasons for this depending on the sophistication level of the agent. Some may avoid review because they want to avoid liability by being able to say “I’m not an expert in resale certificates and therefore chose not to interpret data from it”. This is, at the least, a cop out. Others may just be intimidated by it and they also don’t know what they’re doing – no one really covers these things in the licensing classes and/or the Practices class (in WA State) nor do you see many CE credit classes covering this topic.

    I review the resale certificate for my clients before handing it over to them and I do it within a day or on the same day we receive it so they have plenty of time to bore themselves silly reading it (they are boring) and I highlight those items that I think they’ll want to review more closely (this helps keep their interest). HOWEVER, I do also tell them that if they have questions that are beyond my scope of expertise I will refer them to an attorney or accountant to answer their questions. I also stress that just because I highlighted something that doesn’t give them carte blanche to read only those sections.

    My partner and I point out that looking at the financials, reserve study (if there is one), and meeting minutes will provide a lot of information they’ll want to consider. Since Michael has a finance and former accounting background he explains to them how to read the material but he doesn’t interpret it. We are willing to help our clients get answers to their questions by contacting property management contacts as well as HOA board members. We also point out that sometimes a HOA will have more stringent rules than others so it’s worth going through ALL of the CC&R’s to make sure they’ll be comfortable with the neighbors and how they’ll have to interact with each other.

    Regarding reserve studies – many of these are dictated in the association documents but you have to also watch to see if the board and also the building occupants are allowing these requirements to be met. To whit, I had a client sell a condo unit in 2006 and there was a pending small special assessment for her unit of around $500. She was going to vote against the assessment. Know what it was for? To pay for a reserve study. The building was 2-3 years old and the bylaws required a reserve study to be completed. I had to explain to her what it was for and that as a condo owner you would WANT a reserve study done so that for long term planning dues could be set appropriately and it would limit larger special assessments. Most people don’t realize that these studies cost in the tens of thousands (this particular one was around $30k).

    Another item that gets passed over frequently in HOA’s is the annual audit by an outside accountant/CPA. As an association member of a townhome or condo there should be a class or some other kind of document to tell people how to be better educated in what their home ownership in an association entails.

    Meeting minutes will usually provide insight into how association members respond to issues and if there are pending lawsuits outside of construction issues (a frequent problem). We’ve seen cases where disputes between neighbors or between condo unit owners and the board/association result in long term problems and sometimes add additional costs to the dues. How many condo owners don’t pay their dues, how many have been foreclosed on for it? What are some of the recent maintenance items, what are some of the upcoming maintenance items and are they accounted for already? The list can go on and on and can vary from property to property. A good agent will help give some direction to a client to know what to look for.

    One last thing – many agents miss getting the signatures required for these resale certificates. This leaves open a liability to the agent regarding future lawsuits if an issue comes up with a buyer’s purchase down the road much the same as if the Form 17 isn’t signed off. If anyone doesn’t know what I’m talking about with regard to this issue let me know. My post has already gone on too long.

  9. Craig,

    There is not one way to “deliver the resale certificate”. Often it has to do with the length of escrow. On a quick close, often the Buyer’s Agent (or Seller;s Agent) will pick it up at the Management Company the minute it is ready!

    There is great confusion with the whole ReSale Certificate process. I’d love to put our heads together and do seminars on this topic for buyers and owners (yes, even For Sale By Owners 🙂

    Confusion 1) Do the days start when the Buyer’s Agent receives it, some say yes, but some say no and some say the days start the second it is available at the Management Company.

    Huge Confusion 2) Does the seller need to approve release of Earnest Money when buyer cancels. Form says NO but “Escrow Policy” and some “Office Policy” says seller signature required to release Earnest Money

    Buyers and Sellers of condos (and they are legion and growing) need a much better system in place than currently exists in the State of Washington…for sure!! And then there are those condos that do not apply, like a tiny 4 unit thingee 🙂 I think it has to be 50 units or more to meet compliance requirements.

    Sorry, that’s clear as mud. Bottom line is HOA has 10 days to produce it and who gets it from them and where it is delivered to is any which way but loose. I’ve even had a seller hand it to me as the Buyer’s Agent. That’s scary…they could have pulled something out!

  10. Ardell, there isn’t THAT much confusion about it. Most contracts spell this kind of stuff out. I know you wrote this for Craig but the standard NWMLS contract (if that’s what you’re using in each case) provides language that clarifies much of this for you. Granted, I’m not attorney and I’m not trying to act like one but most of it is there and I’m not “interpreting” it. By the way, I don’t know where you get the 10 day timeline for HOAs to produce the resale certificate. Contract terms may dictate a different timeline. I’m speaking only from the standpoint of WA State and NWMLS forms language.

    First, the seller has a certain number of days (dictated by what is filled out in the contract on pg 1, term 19) to provide the resale certificate to the buyer for review after mutual acceptance if it isn’t provided with the contract or before. Receipt can be either through the agent (section k, pg 3 of Form 28), broker’s office, or directly to buyer. Basically, first to get it starts the clock – hence why many brokers stress to their agents to not hold onto these things since.

    Secondly, deadlines have the clock starting the day following any particular action (under computation of time in section L of page 3, form 28) such as this: seller has 3 days from MA to provide resale cert – on day 3 after MA he gives the cert (that would be lightening fast), the days for review, noted as 5 days in NWMLS forms (section w, pg 4 of form 28) unless the parties have agreed to something else in the contract.

    Let’s put a calendar to that timeline noted in the previous paragraph.
    Monday mutual acceptance is completed. There are 3 business days to provide the form, which would mean by Thursday (calculated by computation of time terms). Buyer receives resale cert on Thursday and now has 5 (business) days. Not accounting for a holiday in here this would mean that the buyer has till the following Thursday to review. Make sense? This will vary from contract to contract though so this isn’t a static example, you just have to pay attention to the timelines and terms agreed to by the parties.

    Regarding the issue of earnest money each brokerage office may have different policies for releasing EM funds in a trust account but I’ve found speaking to several escrow professionals that there is a discrepancy between what a contract might say and what an escrow company is required to do. This came up a couple of times for me last year when I had listings where buyers failed on their transactions. In one of them even though the NWMLS contract states what happens to EM in the event of a default we were still required to get the buyer’s signature for the release of EM funds because the laws/rules that escrow companies must follow require it. My concern for my client at the time was if we keep having to bug them for this signature “what if the buyer and their agent try to interplead the funds just as a tactic to get the EM back?” If the buyer’s agent spent any time researching it he might have chosen a different tactic for his clients to save them that money and look like a hero.

    Even though the buyer defaulted in this case, a lot of people are familiar that it’s possible for a seller to be restricted from selling their home if there is a dispute over earnest money in a prior transaction. It’s not always true depending on circumstances and I’m not being definitive here for a reason (as I say, I’m not a judge or an attorney) but I’ve heard enough anecdotal information from others in the industry with more experience that we try to avoid these situations for our clients.

    Bottom line, not all the laws and rules in our industry, and those ancillary to us, keep in step with each other. An escrow company is forced to interplead funds if one party refuses to release. It’s certainly an issue that will need to be addressed soon to prevent a lot of hassles and legal wrangling in the near future.

  11. Reba,

    That’s a lot to absorb. Simple question. Why does the buyer need the seller’s OK to get his money back, if he cancels on the Resale Certificate. I don’t think the Seller’s approval is needed in any way shape or form. The NWMLS form does not have a line for seller signature and says buyer “demands” the Earnest Money be returned. It should be as simple as that, and often is.

  12. Ardell
    I’ve never had any problem having clients get out of a Resale Cert when desired.
    Resale Certs can often not tell the whole truth especially with older complexes. Examples:1. An older complex has drainage problems that sunk the end of one of the buildings and flooded the bottom floor unit. The complex had engineers come, raise that end of the building, and pay for the units damage. This info was never put in the Resale Cert because it was ‘fixed’. I learned from an estimator of complexes that gives total surveys of complex problems that that particular complex sits on a hillside with springs under it. The engineers most likely knew this as well. The springs issue NEVER saw light of print in the Resale Cert of course. It would be disaster for sales. However, it was reported in the RC min. that the upper building had a unit whose front door was becoming crooked as a complaint (water sinking the building?). Ex #2. The buildings of the same complex were torchdown roofs. One of the condo owners remodeled his kitchen and found behind the sheetrock a ton of ants. Even though the complex had a survey for fixing any problems, these surveys can only see the exterior of anything. So now what? I suggest that buyers knock on every door possible and ask questions of owners before buying!

  13. Reba & Ardell,

    Hello. Couple things. Escrow has a LOT of compliance issues we deal with outside of P & S agreements. That being said, the P & S and addenda is generally clear and escrow follows it closely. The caveat: if the authors of writing up P & S agreements thoroughly understand what they are writing is what they intended for their parties and the end result is what they intended—but that is another topic/program maybe for a seminar for Russ or Craig to do on risk management.

    In any event, escrow policies and practices are in place to protect the parties we have a fiduciary (I hate to use that word because it is used so much) obligation to: lender and borrower/seller. While the NWMLS form may not have a line signature available for a seller in your CC&R situation, it is VERY good escrow practice, to have signatures from both the buyer (s) or seller (s). This reduces the problem of EM disputes or at least if there is one, escrow knows about it immediately and if the parties cannot find a resolution then we send money to the court and the parties can fight over it there.

    One other thing: escrow firms are generally NOT MEMBERS of the NWMLS. We close transactions in accordance with state law and LPOs (limited practice officers) are licensed via the Washington State Bar Assocation and have nothing to do with NWMLS membership rules that agents are bound by. I only mention this because it becomes quite tiresome to go round and round with a managing broker or two that love to posture by saying “escrow is not in compliance with the NWMLS rules and you’ll be hearing from our Attorney.”


  14. Tim,

    I have to wholeheartedly disagree. Buyers need that money back to make an offer on another property. Not everyone has a bunch of money sitting around to replace that money. If they have the right to cancel based on the resale certificate, and no seller signature is required on the form, they should get their money back quickly.

    Why should the seller be able to prevent the buyer from going out and getting a suitable home. That is just not fair to buyers who act in good faith and if the seller’s approval of the return of monies is not required by law, I don’t think office policies should supercede the law.

    Where’s that Craig when you need him?!? Russ?!? Someone?!? LOL

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  16. Regarding a return of the earnest money: escrow generally requires the consent of both parties before releasing the funds because escrow is a neutral party with an equal duty to both parties. Moreover, escrow is not (and should not) act as an arbiter of the parties’ rights and obligations. Admittedly, in regards to the resale certificate, the issue appears simple and straightforward. Nonetheless, I can appreciate escrow’s desire to stay out of the conflict entirely.

    If the escrow does decide the dispute and determines that buyer should get the funds, escrow could face liability. What if there was an issue about the timing of receipt or rejection of the resale cert? If escrow releases the funds and it turns out that buyer had no right of resicssion, escrow has now breached its duty to seller and will face a claim of negligence.

    So, to a certain extent, a seller can impair the buyer’s ability to find a suitable home by “freezing” the earnest money. However, in doing so, the seller is subjecting him/herself to significant potential liability. The buyer would argue that if the buyer must resort to litigation and prevails, buyer will get an award of attorney’s fees per the PSA. Admittedly, this argument would not be a slam dunk, as the right of resicssion arises by statute and not the terms of the PSA. Nonetheless, if there is no doubt that the buyer will prevail (assuming all timelines satisfied), an award of fees/costs would seem likely.

  17. Regarding the timelines for receipt and right of rescission: the statute requires (link above in my first post) that the HOA provide the resale certificate within 10 days of request from the owner. The statute further says that the buyer has five days from receipt to rescind the contract based on the contents of the cert (“purchaser’s contract is voidable by the purchaser until the certificate has been provided and for five days thereafter or until conveyance, whichever occurs first.”) As for whether receipt by agent constitutes receipt by buyer, I think there’s a lot of room for argument either way. The form PSA references “any notice required or permitted in, or related to” the PSA. Is the resale cert a “notice” within the meaning of the PSA? It’s debatable. Any prudent seller will get a signature from the buyer showing buyer’s (not buyer’s agent’s) receipt of the cert. The five days unequivocally begins to run from that point in time.

  18. And finally, in follow up to my question as to which agent delivers the resale cert: I asked because Ardell’s comment (“many agents just hand that big packet over to the buyer and then hope and pray for five days that the buyer won’t open it”) was a nice illustration of the problems inherent to a system where the professional assisting the consumer has a personal interest in the outcome of the transaction. If the buyer’s agent “hopes and prays” that the buyer never opens the cert, I assume that is because, in opening the cert, the buyer may find a reason to rescind the contract and thus delay (until another deal) or eliminate the agent’s chance at getting paid at closing. Nonetheless, it is clearly in the buyer’s best interest to open and closely review the cert, and indeed to get input from knowledgable professionals if there are any uncertainties.

    An attorney has no such conflict between personal interest and the client’s interest. Perhaps this is a good illustration of why, unless you are 100% comfortable with your agent (the level of comfort you’re likely to have with Ardell or Reba or another extremeley experienced and dedicated agent), it may be worth a few hundred extra bucks to have an attorney on board as well.

  19. You are correct, Craig…on all counts. I have to say in this case that not one of the professionals involved on the buyer’s side showed any signs of caring that they “worked for nothing” on this one. Not the lender, escrow company or …of course, me LOL. The seller’s agent is freaking out that Earnest Money was released without the seller signature, only becuase of “paperwork for her file”, not because she disputes the timeframe. We reviewed and canceled within well before the time limit.

    I see you found the “ten days” I was talking about. Agents sometimes want to put too short a timeframe in there, and the Management Company does not need to comply with the terms of the PSA if someone puts 3 days in there.

  20. Ardell,

    I normally think you are a vacuous sales agent, but for once you have said something that raises my respect for you. I happen to be a board member for a condo, and our resale certificate should scare the blue color out of grandma’s hair — or anyone else for that matter. Despite that, people buy, buy, and buy as if we were selling oxygen. Would you buy into a 50 unit building that may face a $3M assessment? I know you would not recommend this to your clients, but units are still selling here. Read the resale certificate, and have your lawyer read the Declaration, CR&Rs and House Rules.

  21. LOL Peckahmmer…so why do you think I am a vacuous sales agent? Why do “the Bubble People” start from there and get surprised when I’m damn good at what I do? I could never figure that out. Clearly agents don’t think I’m some “rah-rah” girl…

    I’m glad you are happy with one thing I had to say…don’t get me wrong…but why do I never get the benefit of the doubt on anything else?

  22. Thanks Doug, But I think the Seattle Bubble people have their own dictionary 🙂

    Real Estate Agent = vacuous

    Anyone who buys vs. rents = vacuous idiot

    Anyone who is waiting to win the lottery – Genius

  23. >Hey Peckhammer…where do you live BTW? Give us a heads up.


    I thoroughly enjoyed your response. I never doubted your ability to sell real estate. I do find your general analytical skills to be thin, but I believe you genuinely care about your clients. Hey, it’s my opinion so don’t shoot me. I respect your relentlessness and your whacky formatting.

    I won’t state where I live, but suffice it to say it’s Queen Anne (if you are selling). If you e-mail me, I will divulge more. I do want to point out that our situation is not unusual in Seattle. It appears that one in five condos in Seattle will have some serious building envelope issue that will result in a spanking on the order of $30K average — and remember that your percentage of ownership interest means that it may be $15K for a small unit and $60K for a a large unit. So heed Ardell’s advice regarding the resale certificate. There are a lot of new condos that will be dumped on the market over the next year or two. Buying into a new building will give buyers some warranty protection. That doesn’t mean you are exempt from water intrusion problems, but it may mean you can seek recovery through the builder (or their insurance company). If you are buying any building that is not new, pay extra attention to the disclosures.

  24. Doug Quance Wrote:

    >> I normally think you are a vacuous sales agent
    > For the record – I would never refer to you as “vacuous

  25. Peckhammer,

    I am laughing so don’t take this as a hit. But seriously, I don’t sell houses, unless I own them. Owners sell houses; people buy houses and I represent people who do those things.

    I have a lot to say about Home Owner Associations and water intrusion…but that’s an article for another day. Suffice it to say that annual maintenance, and not the builder, is often the culprit. Properties need to be maintained on a regualar basis, and rarely do you see people taking care of their own balconies, caulking windows or doing any regular maintenance items.

    Caulk lasts a year or two…not forever. Not saying that is everyone’s issue, and builders are sometimes responsible. But they also get a bad rap for anything that goes wrong. No property is maintenance free.

  26. Peckhammer,

    Please do email me off list. I don’t do Queen Anne much and the few times I’ve been in houses there…well let’s just say one reminded me of the La Brea Tar Pits 🙂 But I’d like to know and LOVE to talk about HOA stuff.

    I’ve considered doing HOA presentations to help them keep on top of things. But after doing that week after week for a couple of years, and people not wanting to care about what happens after they leave, I got burned out. Maybe I’ll do an article on that late in the summer…too late now. Most have their new budgets in place by September.

    I very much appreciated your lengthened response. I always tell Dustin, Bubble People are cool…they just come at things from a different angle. I still read you guys often to keep in touch with what “Mr. Everyman” is thinking. Helps me a lot.

    Happy New Year and give my best to (dare I say his name…it’s like saying Beetlejuice…he might appear) 🙂

  27. > Properties need to be maintained on a regular basis,
    > and rarely do you see people taking care of their own balconies,
    > caulking windows or doing any regular maintenance items.

    well, every window, every door, in my building, was reversed lapped and improperly flashed. so it’s not a maintenance issue. And it’s not uncommon. BellTown Court, Seattle Heights?

    Notwithstanding, I’d love to talk condos and condo homeowners associations with you some time. I’ve been doing this board thing for almost a decade, so I’ve got some stories! Just my opinion here, but most people I have seen moving in over the last ten years seem to have no idea what they are getting into, or what their financial exposure is. I think of it this way: walk into a bar and choose 20 people at random; pool your money with them and make a commitment to live under the same roof. Would you trust them to share your financial interests?

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  29. The act will require condominium corporations with more than 10 units to have or complete a reserve fund study. This study will define the reserve fund required for that corporation, and help determine the budget for current and future maintenance or repairs to the buildings. As well, these corporations must submit annual financial statements to the director of condominiums at Service New Brunswick, ensuring that every condominium owner is kept appraised of its corporation’s financial status.

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