Condo buildings may hide serious secrets
Originally appeared in Bay Area News Group publications on March 7, 2014
“Three may keep a secret, if two of them are dead”
– Benjamin Franklin
Condo buyers purchase not only a particular unit, but a share in a building and its common areas. As such, the condition of the entire edifice is critically important, but is often not sufficiently considered or researched by buyers or their agents.
Sometimes, significant information about the history of a building’s past or present problems does not get to the buyer until after escrow has closed. This can lead to years of aggravation, legal costs and lost equity.
Bad surprises
Home Owner Associations (HOAs) charge monthly dues for regular maintenance, some utilities, garbage removal and anticipated replacement of various systems such as roof, elevator, carpeting, hot water heater(s), etc. Buyers factor this fee into their purchase price.
Not planned are expensive building repairs that entail large special assessments on each unit. No one likes to get hit with an unexpected $15,000 or $20,000 bill for “emergency repairs.” This harms not only the owners who plan to stay, but also those who need to sell their unit.
Worse is the scenario where the building needs more work than owners can or are willing to pay. If/when this situation becomes known to prospective buyers, not to mention their lenders, it can make all units unsaleable.
Clues ignored
Some years after extensive interior and exterior renovation, problems on the outside began to surface in one East Bay condo building. The HOA brought in a contractor to evaluate and written recommendations were made.
The contractor was hired to repair the section of the building that had experienced difficulties. Eventually, this work was completed.
What few owners, and, possibly, fewer prospective buyers, knew was that the contractor had made a written recommendation to inspect the outside of the entire building because he saw hints of other possible issues. The inspection was never done because the HOA did not want to know and have to deal with a conceivably more expensive project. This came to light only because of probing questions to the HOA president by an agent involved in a sale.
In this instance, the buyer was given a copy of the contractor’s letter and decided to purchase anyway. Others who bought before and after this particular buyer may not have received this information.
Another case involved red flags to owners and the HOA of drainage problems in a building. When asked about the musty smell in the lobby during a rainless period, the HOA president replied he had heard this complaint from others. Regarding what the HOA was doing about it, he said they would be getting a new lobby carpet in the future.
Asked further about hiring a drainage expert to inspect the building, the HOA president said they did not have the money to get involved with drainage problems. Fortunately, a buyer in contract for a unit in this building spoke to an owner and was warned about serious issues with water.
The buyer cancelled his contract. It would not be surprising that subsequent buyers did not know they had made a questionable investment.
A third situation involved a four condo building. The buyer’s inspector for one of the units discovered abandoned piping in the basement and recommended a further inspection for a buried oil tank.
In fact, there was one under the front sidewalk and the cost of removing it, which was mandatory, was calculated into the buyer’s final price. This is yet another example of condo owners not paying attention to clues of work needing to be done.
The HOA’s responsibility
The HOA has a duty to represent the best interests of those who own units in the building or complex. Part of that function is to help each owner fulfill his legal responsibility to disclose to buyers all known material facts about the building and the unit.
A material fact is any information that could influence a buyer’s decision to buy or not and/or how much to pay. In my experience, many HOA presidents do not understand the potential consequences of failing to make these disclosures.
Only the most professional, competent agents explain to their condo buyers that the HOA president and board of directors are unpaid, voluntary positions. It follows that this governing body commonly does not have the experience or expertise to understand and evaluate actual or probable building problems and their implications.
Unfortunately, despite the fact that there are some excellent ones, I have had negative experiences with a number of HOA management companies. Too many of these firms “go along to get along.” They focus on receiving regular checks for their services from HOAs more than advising and assisting them with best practices.
The agent’s responsibility
Real estate licensees have an affirmative duty as an agent to advise buyers and sellers in order to help them prevent problems that could cost them time and/or money. Regarding condos, part of this function is to ask questions and dig for information about the past and present condition of the building.
Too many agents close their eyes, ears and noses because whatever material facts they learn must be disclosed. Since this could slow down or prevent a sale, some agents choose to avoid “knowing too much.”
Final thoughts
A condo transaction with two top agents and a first-class HOA and management company can be a pleasant and positive experience. Conversely, when one or both licensees function below an acceptable standard and the HOA and/or management company are deficient, distress and legal action may be the result.
Do not assume your agent will go the extra mile to ferret out problems. Keep this in mind if you are or will be a condo buyer or seller.