What to consider before selling your condo

(Published Aug. 1, 2019)

By Sheetal Balani

Last year, as I was preparing to list a River North condo, I discovered a problem. 

The condo was facing major litigation and the homeowners association (HOA) was bleeding cash fighting the lawsuit. Its reserves were dwindling, so to bring in some revenue, the HOA levied a $1 million special assessment—essentially a one-time fee to condo owners and potentially any new buyers to bring in revenue—and overnight, every lender I contacted backed out of financing the purchase.

Since the HOA was in poor shape, only cash buyers could purchase in the building, drastically limiting the pool of buyers. 

This was bad news for the sellers and unfortunately, this situation is not uncommon. The fact is, selling a condo isn’t as simple as selling a house. Condominiums have their own advantages and challenges and sellers should know a few things before they explore the market. 

First, your condo is only as good as your HOA. HOAs charge each unit owner a monthly assessment as part of the association. This  fee covers maintenance of the building’s exterior and any common areas, as well as a master insurance policy for the building, door staff, building engineers, maintenance and a property manager. The fee also possibly pays for some utilities such as water, gas, internet and cable. Each HOA is also responsible for maintaining a cash account, called reserves, to cover future operating expenses, as well as special projects such as tuckpointing or a new roof.

Why does this matter? If your condo association does not have sufficient money in reserve and a major capital expenditure arises, this could mean residents must pay a special assessment—extra fees to cover the cost of repairs that exceed the current budget. 

If there is a special assessment due when you are selling your condo, the buyer may expect you to pay for it, or they may decide to simply move onto a different building. It’s important to be aware of the financial health of your HOA before you decide to list your home.  

More than likely the buyer will need to get financing. The buyer’s lender will do their due diligence and examine your HOA documents and the association’s financial records, any pending or current litigation and the percentage of owner-occupants versus renter-occupants. All of these factors are critical for a successful loan. If the lender determines the reserves are insufficient, uncovers pending litigation or discovers the ratio of renters versus owners is unfavorable, that could mean the buyer’s loan is declined.

These are just a handful of issues the seller has to consider before getting the property on the market. However, if the seller works with an experienced real estate advisor, all of those challenges can be overcome with experience and skill.

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