29-Jul-16 – Consumers should never buy blind when it comes to shopping for a condominium or a residence in a homeowners association, experts advise.

“Novice buyers often fall in love with the decorative staging or the lakefront view of a for-sale unit,” said Sara Benson (left), a Chicago real estate broker and appraiser with more than 30 years of experience. “However, you need more high-tech inside information than typically available on a Multiple Listing Service printout.”

Working as an exclusive buyer’s broker for decades, Benson – now CEO of Association Evaluation LLC, a Chicago-based real estate data analysis firm – always did the behind-the-scenes condo investigation homework for clients. On every deal, she dug into the condo documents – budgets, board minutes, history of special assessments, status of reserve funds, and common-area conditions before she let a buyer sign a sales contract.

Why? Because more than half of the 337,000 community associations in the U.S. are facing “serious financial problems,” reported the Community Associations Institute. And 72 percent of association-governed communities were underfunded in 2013, according to Association Reserves, a California-based company that helps associations with budget and operational issues.

In 2012, Benson utilized her real estate appraisal background to develop a unique algorithm that analyzes more than 140 data points regarding the internal workings of community associations. Using the data, she commissioned a team of computer scientists and programmers to create a patent-pending scoring system, the Private Association Rating – or PARScore – a revolutionary high-tech, data-driven analytics process.

Make deal contingent on info

So, how does a condo shopper obtain the often hard to get financial information? The simplest way is to just ask for it, and make the deal contingent on getting the information.

You should insist that your Realtor or real estate attorney attach a special Condominium Association Inspection Contingency Rider to the contract to make completion of the deal contingent on receiving important documents and often hidden financial information. The rider requests the following information: Declaration or Covenants, Conditions and Restrictions, association rules and fine schedules, current and prior year’s operating budgets, most recent 12 months of board minutes and audits.

The Contingency Rider requests the most recent reserve study and reserve study review, current reserve and operating account balances statement, lawsuit disclosure statement, owner-occupancy disclosure statement, life safety completion statement, and most recent 24 months of special assessment history disclosure.

The rider also requires the seller to pay any expenses related to gathering the documents and providing them to the buyer. It includes a new benefit – a Buyer’s Inspection Notice – which calls for visual examination of the property’s commonly owned elements, such as recreation facilities, swimming pool, fitness center, parking, elevators, and common roof deck. The prospective buyer pays for the visual inspection as part of the PARScore fee.

“Today, potential buyers of condos or homes in HOAs have access to digital tools that de-clutter murky data in favor of transparent information that actually empowers the consumer in advance of their purchase,” said Benson.

50,000 HOAs in database

The Association Evaluation team already has captured more than 50,000 Chicago-area and Illinois condo associations and HOAs in their database, and has completed hundreds of PARScore reports from Bethesda, Maryland, to Palm Springs, California.

Through the proprietary algorithm, PARScore provides a standardized rating between 400 and 900. Every association is assigned a unique Permanent Identification Code. More than 140 data sets are analyzed and scored against the coded individual associations by using the PARScore point system. Depending on the number of units in the condo building, the cost of a PARScore typically ranges from $300 to $850.

Collected data includes direct investigations with association directors and property managers, as well as on-site inspections of the communities. Additional data sources include monitoring corporate filings such as lawsuits, judgments, and bankruptcies.

Financial reporting includes verification of operating and reserve account monies. Board minutes are examined for adherence to standard accepted business protocol procedures and to ensure against unexpected and costly special assessments that have been discussed by the association’s directors but not yet levied at the time of sale. A check for date of last reserve study and date of last financial audit also serves to greatly reduce risk. News, internet, and media sources are consistently monitored for each association.  Website: Association Evaluation