11 Oct What To Look For In Your Association Resale Disclosure Documents
In Minnesota, we have a Statute allowing a 10 day right to cancel a purchase agreement for any property in an Association.
What is an Association Resale Disclosure? When you are buying a townhome you will have a document in your purchase agreement stipulating a 10 day right of rescission after reviewing the association documents and resale disclosure. It’s an important escape clause for buyers. The documents should be carefully reviewed by you and your Realtor. If you don’t like the information in the documents, you may cancel your purchase agreement and retain the earnest money. I’d like to share my checklist on how to review the association resale disclosure documents for a townhome.
1. Read the Rules and Regulations
This section can be 5-25 pages long and is very important for the quality of living. Look for specifics that are important to you! These can include pet restrictions, parking restrictions, use of the land, noise control and landscaping restrictions. Many townhome buyers read this section first and pay little attention to the rest of the documents.
2. Read the Articles of Incorporation and Bylaws
Look in this section for information about how major decisions are made. Pay attention to how much the monthly association dues can be increased per year. Most associations will have some language saying ‘the monthly association dues cannot increase by more than 5% unless there is a two-thirds majority vote’. Other topics to search for in this section include how the association determines rental policy or if the association approves FHA loans. These can determine if the association will be a good fit for an investment property.
3. Clarify What the Association Maintains Versus What the Homeowner Maintains
Identify the details of exterior maintenance such as who is responsible for the deck boards, deck railings, overhead garage doors, front storm doors, windows and window casings, shrubbery, sidewalks, driveways, and other items. It’s common for an association to maintain the exterior of the building but for homeowners to be responsible for ‘moving parts’ like windows, doors and garage doors.
4. Reserves and Financial Information
You should receive recent (less than 1 year old) financial information for the association. If you have not received this information, contact your agent! First, look to make sure the unit you are purchasing does not have any delinquent dues which might cause a problem at closing. Secondly, study the amount of money an association has in reserves. This should be proportional to the amount of money needed for operating expenses per year. If the association spends $60,000 per year on operating expenses the reserves should be about $120,000 to $180,000. *To my knowledge, there is not a steadfast rule of how much money associations must have in reserves. This is just an observation from selling townhomes in the south metro.
If you are preparing to sell your townhouse, take a look through your Association Resale Disclosure documents to be sure you have all the information to give the buyer. You will not be able to provide the recent financial information. That information will need to come from your association.
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