Are your condo rules for approving buyers on point? Is your strategy and criteria balanced enough to fulfill your responsibilities and reduce exposure to liability? Is it time to revisit your association’s docs and vendor choices in order to be on top of best practices as the market continues to evolve?
Condo Approval Standards: Responsibility & Liability
Being a condo board member comes with a lot of responsibility and liability. A part of that role is overseeing the setting and execution of condo approvals for buyers and renters. This is a very delicate and highly litigious part of the real estate industry. As a board member you must be able to put aside your personal preferences and to intelligently and non-discriminatingly set and adjust rules accordingly.
Condo board members must not only ensure a safe community, but protect the fiscal security of the complex, and preserve and enhance unit and property value, while minimizing exposure to risk. A lot of that weighs on the approval process of buyers. The consequences of failing to get this right, either due to bias or simple neglect can be severe for you both as a unit owner and personally.
Association rules and processes vary widely in this area. There are some super tough co-ops in Manhattan which require all cash purchases, substantial reserves, and interviews to be able to purchase a unit. These billionaire buildings like the Porsche Design Tower in Miami may have the luxury of having enough buyers willing to go through these hoops. Others don’t. Some condos are dealing with questioning whether they should ban rentals, or how to deal with buyers of distressed or foreclosure units. Some condominiums may find that being too tough can have a severe, direct impact on the books, on unit values, and may entice lawsuits. If enough buyers are not being approved or cannot easily lease their units, they may default on their dues. Owners may abandon units, and the entire property can suffer. This may show up in maintenance, in lenders being unwilling to finance other buyers or refinance existing owners, and more. Theoretically this could lead to board members being found to be negligent or improperly managing the association to the tune of millions of dollars in losses, across multiple parties.
In the past there may have been some buildings which haven’t been diligent enough. Today, more may be leaning a little too hard given their markets and the environment. Some are requiring more stringent checks and qualifications than mortgage lenders. When you can get a $500,000 loan and have a good down payment, but a condo won’t let you in, the association may be going over the top. If a lender has vetted a buyer and finds them worthy of borrowing a large sum, and your exposure as an association is only several hundred dollars per month, perhaps there should be some balance there. The same applies to background checks. They must be evaluated evenly and with common sense. If in a state where marijuana has been legalized, how tough should you be on someone with an old conviction for a minor drug charge when they were teenagers? Are you carefully looking at history to be sure you are looking at convictions and not just arrests and accusations? Is the person evaluating credit history really qualified to read beyond the score to what a credit report really says about a buyer, and are they up to date on real current average scores?
This should all be food for thought. Especially when markets like South Florida are poised to see a substantial number of new units coming onto the market. Look at the hot area of Edgewater and Wynwood and you’ve got listings in the Bay House Miami, 1800 Club, Paramount Bay, Quantum, and Icon Bay. Many of the buyers of these properties may be foreign nationals, LLCs or trusts, or young millennials, all of whom are difficult to analyze by traditional screening methods.
Who Makes the Calls?
Who vets and makes the call on buyers and renters is important too. If this is being outsourced to a property management firm; what are their decisions based on? Are the rules being implemented and executed fairly and evenly, with proper documentation? Are their interests aligned with the association? Or are they making more money from raking up application fees and denying people? They have to be diligent, unbiased, ethical, and in tune with the current market.
Maybe it is time to revisit rules and procedures as the market is changing. Why not consult several experts who are active in the market? Get their input on what is really happening out there, and on best practices, and the pros and cons of being on different ends of the scale. When was the last time you reviewed this factor in your association?
Authored by Kaya Wittenburg
Kaya Wittenburg is the founder of Sky Five Properties in Miami. Since 2004 Kaya has supervised over $4B in inventory, has served on the Board of Directors for the Miami Chamber of Commerce, and is a former Versace model.