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HOA Guide for Buyers/Brokers

November 24, 2014 by bzawaski

HOA Guide for Buyers/Brokers

When purchasing a condominium, townhouse, or another type of property in a planned unit development (P.U.D.) such as a gated community, leased land property, or typical subdivision you are obligated to join a Homeowners Association (HOA) & pay monthly or annual dues for the upkeep of common areas & in most cases, building exterior maintenance. If you’re considering purchasing this type of property you should factor in, not only whether the obvious lifestyle choice you’ll be making suits your needs but, some additional factors that may impact your decision long-term…regardless of whether you elect to become an active participant in the process or not.

To arrive at a point where you’re considering purchasing a property managed by an HOA you most likely have already determined that it’s a suitable lifestyle choice for you thus, you’ve progressed to exploring the possibility of having your Broker submit an offer on your behalf. In conducting due diligence there are issues that are ‘black & white, such as what you can & can’t do and what happens when a violation of those rules takes place…those can be found in the C.C.R.’s (covenants, conditions & restrictions). In today’s world, these can typically be found on an organization’s online website, and carefully reading thru it can help you determine in short order whether you can adhere to those rules or not. In addition to C.C.R. you should have access to by-laws, meeting minutes, financials (including reserve studies), special assessment notifications, amendments, insurance policy coverage (including Directors & Officers policy – D & O), notifications of safety or structural integrity issues & of course, contact information for Board members.

Analyzing any of the above mentioned items, including the ‘black & white C.C.R.’s, really requires further examination in order to uncover certain issues that may not have revealed themselves where you might have expected to initially find them thus, assistance from your Broker in determining what effects any of these issues can have on your future financial situation is crucial. Depending upon the size of the Association and how well (or not) it’s run you could easily find that there are no monthly meeting minutes or perhaps just one meeting has been held in the last year. This second category of subjective information or ‘taking it at face value really brings us to the essence of the 3rd category, face-to-face old School due diligence. The fact that there might be missing or incomplete information can be troubling enough however, you shouldn’t leave any stones unturned here. Speaking directly with a Board member or attending a meeting, if you should be so fortunate as to be permitted to attend & there is one scheduled, will give you far greater insight into how things really work. After all, it’s your purchase & how you feel about individuals you will have to cooperate with in the future is a decision that only you can make, not your Broker. As a previous Association President, I found it insightful to see who the ‘players’ were & how they interacted with one another before making commitments to purchase or eventually take on that position. From a buyer’s standpoint, you may say “I’m purchasing this type of property because I want things taken care so, why should I be concerned with what happens behind closed doors ?”…the short answer is you should. With most everything that appears ‘black & white,’ your intuition still plays an important role in protecting your interests. The D & O insurance I referred to earlier not only covers the misappropriation of funds by Board members but, also situations wherein a Director/Officer may slander an individual. Regardless of whether you want to take an active role in the future dealings of the Association you are still being represented in your absence. The obvious parallel that comes to mind is Agency between you & your Broker wherein, speaking as an Oregon Licensed Principal Broker, what your Broker says on your behalf may have unintended negative consequences for you thus, carefully selecting representation that is tempered with practical application of State Law & delivered with some degree of diplomacy is crucial.

In addition to making certain that the above-mentioned due diligence items are available to you there are some considerations worth mentioning that you and your Broker can further examine as everything isn’t always ‘black & white. For example, going beyond whether or not the Associations Master Policy (different from the D & O) has enough dollar coverage there may be a fast-approaching limitation to the number of rentals allowed that is not stated elsewhere & may cause rates to either escalate, cancellation of the policy or your inability to rent out your unit, even though other information you’ve obtained seems to indicate it’s O.K. Perhaps the Association hasn’t addressed an issue in any amendments that were made available to you that pertain to matters of insurance, such as requiring certain types of dryer duct material being used & licensed contractors being required to clean it on an annual basis. Obviously, monthly dues, as well as reserve funds for capital expenditures, are considerations that go well beyond whether it fits your budget or not. With your Broker’s guidance, you’ll want to determine whether dues are appropriate for the area, size, age & condition of the property. As you are already aware, your lender looks at monthly dues as additional debt while you may have already calculated the monthly expenses that are now included as a help to your overall monthly budget…two different ways to look at it but, the lender is what matters. Ultimately, a future buyer’s qualification for a loan could be hindered by excessive dues, not to mention that dues above the norm could be an indicator of less-than-stellar management. Of course, the pendulum swings both ways thus, below-market dues could mean deferred maintenance & a future special assessment when you least expect or can afford it. The Association I was involved with in the past as President would fall into the latter category, very low dues however, because it was ‘Grandfathered’ in and wasn’t required to at the time it was founded, we had no reserve fund for future capital expenditures. This would be yet another example of a situation wherein a buyer would want to add any personal interaction into their due diligence in order to make a well-informed decision about the people running things on their behalf.

Finally, in gathering information to help you make a well-informed decision you’ll use various websites, your trusted Broker, perhaps an Attorney, and a Title & Escrow Company. The resources that have been gathered by Title Companies, along with the knowledge of the Escrow officers, assistants, Title researchers & Attorney has made the chore of gathering critical information so much easier that I’m not sure what Broker would do without them. Like most anything else, the information we get out is only as good as the information that goes in thus, an Association that doesn’t keep up to date on things could easily forget to note or record a lien. Again, this is where that ‘old School’ in-person due diligence comes back into play as again, at least here in Oregon, a standard General Exception to a Preliminary Title report will make exceptions for items not shown or recorded that could have been ascertained by making an inquiry. Bringing some additional knowledge to the table is beneficial to your knowledge as much about a property with an HOA (or any other for that matter) & as for the Broker, simply being able to point out as many potential pitfalls along the way will certainly make for an appreciative client.

Bob Zawaski G.R.I.

Oregon Licensed Principal Broker

Investors Trust Realty

Real Estate Investors Pitfalls

November 12, 2014 by bzawaski

Avoid the journey down Investment Properties Pitfall Street

As my Seller and I near the long-awaited closing of his 11-unit apartment complex in the NE section of Portland, OR it was not without a few major obstacles along the way. Despite 20 + years of assisting buyers & sellers with similar commercial transactions no two have been exactly the same thus, this was no different in that respect. Many of the commonplace issues were still there i.e., inspections & appraisals, etc. however, changes to our market, while exciting for the future, are not without a few pitfalls that Real Estate Investors should take into account.

Find the strategy first then the property, not the other way around. Sounds simple enough but a sizable percentage of potential buyers who inquired about this property were working backward in that they liked the potential that existed but, wasn’t certain about a strategy that would help them reach whatever their goals might be. Unlike purchasing a home in which to live with your family where your emotions may set the stage for a transaction, an investment property requires an investment strategy…all together different from viewing it simply as a transaction.

Understand the process first, don’t let the process control you. Education is the key as it’s human nature for many who have been successful in their professional lives to believe that what worked in the past will translate into successfully purchasing & owning an investment property. Although there are exceptions to every rule, allowing yourself to ‘skip’ a few steps up front and play catch up, later on, can result in an irreversible setback. One of our potential buyers, although well qualified from an asset & income standpoint, didn’t grasp the concept that their being ‘ first-time investors’ would not be looked upon favorably as it would in the residential world. Again, simply carrying over what they knew of residential transactions didn’t bode well where an investment strategy was required.

Exercising due diligence, not ducking it. The most obvious are issues that are easiest to see such as deferred maintenance. Needless to say, the lender is concerned about a buyer potentially draining their personal savings due to extensive repairs thus, funds in reserve are a critical component to obtaining financing & can vary widely based on the buyer and the condition of the property. What things to consider knowing about as a part of the due diligence before & during a purchase may come from a checklist your trusted Broker uses however, nobody knows your financial situation as well as you do. A visit to your C.P.A., lender & perhaps someone who is an experienced investment property owner will serve you well in creating a list of issues important to you. Again, this falls back on educating yourself in advance. It’s always a good idea to ‘bring something to the table before meeting with any professional assisting you as it’s unlikely they will be able to lay out every scenario that may present itself in the process.

Even the Lone Ranger had Tonto. Amazingly enough, many potential buyers I spoke with over the term of this listing were not simply unrepresented in regards to having a buyer’s Broker working on their behalf but, had little or no ancillary support to fall back on in the way of contractors, inspectors or other legal specialists. Just as in the case of conducting thorough due diligence, it’s always wise to have all the pieces in place before you actually need them.

Get rich quick, misjudging cash flow. Although the multiple listing sheet available to the public & Broker allows for a considerable amount of information to be shared, it’s never meant to cover all the pertinent information that will be essential to a buyer of investment property. Amazingly enough, the lack of due diligence in asking for information upfront was not limited to just buyers calling on their own but, seasoned Brokers as well. There were several instances of offers written without any information gathering prior to simply sending an offer along, only to find out that a simple upfront question would have avoided the extra effort. If simply left to whatever financial information can be squeezed onto a multiple listing sheet or any place you choose to look on the web, chances are you would still be a far cry from being able to make an informed decision. Taking only some financial information without the remaining pieces to the puzzle is short-sighted, to say the least, and a recipe for those looking to get rich quickly to become cash-flow-poor in a hurry.

Bob Zawaski G.R.I.

Oregon Licensed Principal Broker / Owner

Investors Trust Realty

The Voices Behind You

October 16, 2014 by bzawaski

Be it the Seller who lingers just long enough for a ‘meet & greet’ with your clients or the disgruntled tenant who needs to air a laundry list of perceived code violations you’re going to run into someone willing to voice an opinion just when you thought you were alone i.e., the voices behind you. Being aware of your surroundings should always be a priority for safety’s sake thus, being prepared to respond to a friendly “excuse me” or an empty beer can coming your way should come naturally…I’ve dealt with both. How you deal with an impromptu situation may be your client’s first opportunity to see firsthand how you treat a total stranger or whether your ability to ‘think on your feet might translate well into negotiating a good deal. It’s an opportunity to practice both good citizenships & let your clients know who you are.

Today’s encounter was not unexpected thus, I knew the well-meaning property manager on my multifamily listing was going to open more than just a few doors for the commercial appraisers and me. Again, unlike the disgruntled tenant, she had no real intention of sabotaging a listing that now spans over 15 months and is just a few weeks from closing…if only these two seasoned appraisers don’t take issue with something said today. Of course, once the interior inspections were completed and a Q & A was about to commence they suggested that the property manager stick around as well, just in case she had some ‘additional insight’. Of course, in order to get me in the right frame of mind the voice in my head said “That’s a great idea”.

It didn’t take long for a few questions regarding some deferred maintenance issues to go off the rails a bit with that ‘additional insight’ they were originally looking for when they asked the manager to stay. I’m pretty certain that both appraisers knew exactly what they were getting themselves in for by inviting the property manager in for the Q & answer session. What better opportunity to quickly decipher what conditions might exist than to have the property manager serve up an outlandish tale to explain a hole in the wall and gauge my response to it? I will admit that the prolonged laughter the property manager exhibited when she described squirrels running circles inside one of the units almost reached an ‘uncomfortable moment’ however, it also allowed me the opportunity to answer a few questions that were waiting for answers, as well as posing one to the manager about landlord/squirrel law.

Having worked for years in the Health Care industry prior to my 28 + years in Real Estate I found that recognizing & allowing someone an opportunity to take center stage, however brief that moment may be, may be more important to them than you’ll ever know. As I answered the appraiser’s questions about financials & condition issues, I made a point to address everyone in the room equally. I could sense by her silence that some of this ‘financial stuff’ was either getting by her a bit or perhaps she was just taking it all in, either way, it seemed to have slowed the additional voices in the room.

As the appraisers and I parted ways one of them couldn’t help mentioning that “It appeared you had some help today ?”. I knew from their eye contact with one another that they not only planned for such a scenario but, were entertained as well so, hopefully, we’ll come in at value with no conditions being required. I got a follow-up e-mail from the appraisers later that day simply stating they enjoyed their visit, not something that happens very often. I may not know ‘Jack’ but, those voices do come up with some great ideas from time to time.

Multi-Generational Housing

August 30, 2014 by bzawaski

Home ownership is at it’s lowest level since 1995 thus, the rental market has experienced record low vacancy levels, in fact Portland, OR is 5th in the Nation with a vacancy rate of just 2.2%. In some cases, would be renters have started doing what is very common place in most other parts of the world, move in with family i.e., Multi-Generational living.

From a Broker’s prospective it’s always been a dual edged sword, either you couldn’t find a home that had separate living arrangements on those rare occasions when new buyers inquired or you spent countless hours pondering the challenges in listing & selling such a home as you realized it was a limited audience. Perhaps potential buyers would have been more open to the idea of purchasing a property that had dual living arrangement possibilities if they felt they weren’t paying for something they might never use, such as a 2nd kitchen or laundry area…after all, getting the most bang for your buck is a universal goal.

I started thinking back to all the houses I’ve been inside that could have had a wide variety of uses but, decided to go in one direction or another with no turning back. For those who may be considering creating such a living arrangement in their own home or possibly purchasing one already done, I thought I would share some thoughtful design tips from an upcoming listing of mine at 476 SE 26th Ave Hillsboro, OR. Credit for any helpful tips should really go to the Seller/Owner for keeping things in perspective in regards to just how far to go in weighing needs to make life easier versus future resale. It certainly didn’t hurt matters that the builder ( a life long friend of the Seller & client of mine) had a few thoughts of his own, in addition to being a master craftsman….that all happened in 1996, long before I came into the picture.

There are certain considerations that hold true whether building/remodeling for a special purpose or to create the most value for future resale. Typically, a one-level property sells for anywhere from 5-15% more than a comparable 2-story house with the same square footage. This particular house is a day ranch thus it does have 2 levels, although it was designed & built to conform with the naturally sloped lot it sits on. The lower level is above grade and the rear patio is accessible from any of the (3) 8′ sliding glass doors, certainly not a basement feel. The exterior excavation utilized at the time allowed not only for proper drainage, hard scape & deck walkways around but, also took into account the possibility of someday eliminating steps in order to create gradual grade paths that would be ADA compliant. The front entrance has a ‘no step’ entry with sure footed hard scape leading up to the house, suitable for all weather conditions. Wide hallways & doors not only allow for easier movement within the house but, the open feel does not go unrecognized by those who don’t have any mobility issues thus, another future resale plus. Flooring materials that are attractive but, also serve in being durable & slip resistant are also considerations that can’t be overlooked…the use of high quality tile & tight pile carpet throughout lend itself well to both beauty & practicality. Bathroom shower design in recent years has seen a trend towards walk-in’s, in many cases with no threshold defining the showers edge…the design of the showers herein was most likely done with practicality in mind but, there certainly was thoughtful attention to detail for future resale. The kitchen, or in this case kitchens, is the central point to any house and moving about them as been made easier with an open layout with wider than usual entry/exit points. With the potential for 7 bedrooms, although listed as 5, the ease for adding/subtracting rooms or changing their purpose has been made far easier by a well thought out design. The foot print of the house incorporates strategic placement of utilities, including electrical outlets, heating & cooling vents & plumbing. Planning for future improvements should always be a consideration for your remodel or new construction project, as it was in this case.

Broker Referrals

August 17, 2014 by bzawaski

What Buyer’s should know about Broker referrals…

Ask any Broker about referring Lenders, Home Inspectors or Contractors to their buyer clients and you’ll get a wide range of answers from referring several for each trade, referring just their most trusted individual to not referring anyone at all. The one common thread among those three points of view is the Broker’s concern for his/her liability. Of course, the buyer simply wants to hire someone with expertise to help them obtain a loan, inspect a house or make repairs so, should the Broker’s issues with liability be a concern for the buyer ? Unfortunately, the answer is yes but, how your Broker deals with walking the fine line between being a resource for all your needs and protecting his/her liability will determine whether you’ll have a good working relationship and be able to accomplish your goals. This is certainly a question you can pose to any Broker you may be considering to work as your Buyer’s Agent before hiring them.

Why should a Buyer be concerned with the Broker’s potential liability…the short answer is because in an Agency relationship your Broker’s liability could become your liability. You’ve hired someone to represent you thus, what they say and do in that capacity may have unintended consequences for you. Regardless of which point of view a Broker takes in regards to providing referrals or not, if they’ve made that decision with the intent to protect all involved from the harm of potential liability then they have served their clients well. Of course, there still is that fine line between potential liability and providing a buyer with high quality service.

In 20 + years I’ve observed Broker’s not only practice one of the three above referenced points of view in regards to referrals but, some pretty unique defenses of those positions as well. It’s common place to hear Broker’s say they always refer “3” of every trade but, all too often it’s followed with some sort of disclaimer that they’ve now cleansed themselves of any liability by doing so. There is also a saying that goes “your only as good as the last name on that list” thus, the client still got the names from the Broker so, if one goes bad then who is to blame, the buyer for making a bad selection or the Broker for providing the names ? In many cases the buyer’s are glad to have three names from which to choose and things go just fine however, there are buyer’s who require more pinpoint direction and that means being guided to the sole individual expert who’ll solve their issue. To this type of buyer, 3 names may be looked upon like handing them the yellow pages and wishing them good luck & that leads us to Broker’s who proudly state their “no referrals” policy. I try to put myself in my clients shoes whenever possible and I can’t imagine how stressful it would be to be left on your own to trust a total stranger to take you thru a crucial point in a transaction. Needless to say, I’m not in the camp with either of those Broker’s who would provide multiple names or leave you on your own. I just closed a transaction wherein my buyer’s & I encountered a seller who had just went thru a sale fail that included making repairs to his roof which were improperly done…it factored in that deal terminating, as well as being an issue when our inspector called out the improper repairs a second time. This was a situation wherein the seller simply searched on his own to locate a roofer & unfortunately, it didn’t fare well. Having had the rare opportunity to meet the seller in person, I was taken back by his obvious embarrassment for what had happened previously. It’s a situation such as this that confirms my belief that I will continue to provide only the most trusted individual lenders, inspectors & contractors to my clients. Brokers are only permitted to share referral fees with other Brokers, not lenders, Home inspectors or contractors thus there are no financial incentives, other than providing a valuable resource to the client. I constantly review records & information on all trade referrals to ensure that anyone I refer to a client would be the same individual I would trust in my own home.

Although most Real Estate Broker’s are not experts on home inspections or construction we do have an obligation to our clients to have sufficient knowledge to address issues related to buying & selling property, including providing information that may require more advanced expertise from Attorneys, CPA’s or Contractors etc. It would be very difficult, if not impossible, to understand when those ‘next steps’ are required if a Broker essentially removes him/herself from a transaction by not taking part in all the issues that effect a client, such as when & who to hire in addition to the Broker.

What you should know about the Rental market…

Whether you own rental property or not it’s current State of the Union may effect your personal financial situation and if not now, perhaps down the road so, keeping abreast of the rental market is as important as watching your 401-K. If you own rental property your probably glad you do as rents have increased 6.5% so far in 2014. 78% of leases in 2013-14 were renewed and 75% of those saw increases. If your one of the 25% of renters who renewed without an increase, good for you ! There certainly isn’t anything wrong with renting or more importantly living within your means…after all, living above ones means started this mess in the first place. Home ownership is currently at it’s lowest level (64.8%) since 1995, the same year that the Community Reinvestment Act made regulatory changes that required lending institutions to make loans that might otherwise not have been made thus, by 2004 home ownership was at it’s peak.

With home ownership declining the rental market has seen record increases, in fact Portland is #5 Nationwide with a 2.2% vacancy rate thus, it’s no wonder that 60% of the Foreclosed homes State wide became rentals in 2013. Unlike just a few short years ago, it may be possible for those who are having difficulties meeting their note payments to rent out their homes and stay above water. For those of you who may be considering rental property as a part of your overall portfolio I would be glad to answer any questions you may have. The market for multifamily properties, particularly commercial (5 units +) is fierce so, it does take some patience. Regardless of whether the Real Estate market is on an upward spiral or decline there is typically something that can help you either increase your position or maintain what you have if you have the right information & guidance along the way.

HOA Guide for Buyers/Brokers

Real Estate Investors Pitfalls

The Voices Behind You

Multi-Generational Housing

Broker Referrals

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Client Reviews

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