Dive into your documents - Part 1
When purchasing in a CID you can expect to be required to purchase a Resale Certificate. If you haven’t purchased in an HOA you probably asking what is a Resale Certificate? What the purpose? Where would I get it? How much does it cost? If you have already purchased inside of an HOA, you probably asking why it’s so expensive? Today’s dive into documents is going to answer just that.
What is a resale certificate? What purpose does it serve?
A resale certificate is a series of documents that provide valuable information about the community they are purchasing within, these documents are:
The lender questionnaire- this is a list type of questions and inquiries that are directly related to the association. Such as Is the association involved in any pending litigation? What are the assessment amounts? How many accounts are past due? Does the subject property have any past due amounts? How many homes are rented? Etc.
The budget- the purpose is to determine if the association is allocating enough funds to the Reserve account (savings) for future expenditures or insurance deductibles (10% of the annual income is normally a requirement for lenders). The budget will also provide a good basis to see if the assessment amount is adequate for the association to maintain current expenditures.
Community Documents- These documents along with current federal, state, and local laws govern the association. (You can read more about these documents on our page). The purpose of providing them may already seem clear, however, it is very important to give these puppies a once over prior to purchase. Maybe you want to paint the house white, but the association only allows neon pink. All jokes aside, read them. 😁
Insurance- Ensuring that coverage is adequate is very important, for all types of communities, it might be insurance on the buildings, monuments, play areas, pools, or it might just be fidelity coverage. Every association is a bit different in its requirements.
Ultimately, the resale certificate is designed to provide the purchaser, lender, and/ or the title company enough information to decide if they are willing to lend in that particular community. The process is also in place to protect the purchaser, seller, and association.
How much does a resale certificate cost? The amount isn’t mandated by the state so each companies prices will vary but they normally range from $300.00- $1,000.00 depending on if they have ordered the documents on “rush” which can cost up to $250.00, and/ or a covenant compliance inspection or CCI for short (required by some HOA’s) that can range from $100.00-$300.00 and/ or if the company charges a transfer fee normally priced around $50.00-$250.00
A CCI, is normally only required in Single Family homes where exterior modifications/ violations are the responsibility of the homeowner. If you are unfamiliar with CCI’s, it is basically when your property manager drives to the community, takes a photo, and notes any violations for disclosure.
Resale Certificates can be very costly, however, having accurate, and complete information is extraordinarily important. The person filling out the questionnaire must be very careful to be clear, and accurate, as the documents are overseen by TREC and any possible mishaps could potentially be a huge liability.
For communities that are self-managed, and fill complete these forms it can be a huge liability, however, its not impossible. You just want to make sure you are being as diligent as possible.