Are Chicago condo buyers and sellers being gouged by greedy management firms who jack up the price of mandatory documents and disclosures needed to close a sales transaction?
“Many condo management companies now charge prospective buyers and sellers excessive fees of hundreds or thousands of dollars for providing condo documents that should be free for the selling unit owners to provide through their broker,” noted Sara Benson, president of Association Evaluation, LLC.
Launched in 2012, the Chicago-based real estate data analysis and technology firm developed the Private Association Rating, or PARScore, which provides a standardized high-tech condominium association rating between 400 and 900 via a data-driven proprietary algorithm. Every PARScore report includes a site evaluation of the common areas by a certified association evaluation professional plus a review of the association documents.
Documents necessary for a real estate buyer to review before committing to a purchase include the declaration – or covenants, conditions and restrictions – bylaws, house rules, regulations, board meeting minutes, state mandated disclosures, prior and current year budgets, and the reserve study.
“Doc fees can range from $50 to $250 per document, so the price can really add up depending on the number of documents requested,” said Benson (right). “On average, fees run approximately $500 for electronic delivery for a complete set needed for a condominium sales transaction.”
Reviewing condo documents is critical, consumer advocates say, because buyers need to know well in advance if the association being bought into is on the brink of bankruptcy or fiscally fit and a sound investment.
“You wouldn’t want to get hit with that $50,000 special assessment six months after the closing, would you?” Benson asked.
Most governing instruments and state statutes were created long before online delivery was a possibility, consumer advocates note. They allow for a “reasonable cost” of copying association-related documents.
However, in the age of the Internet, association documents are often stored electronically and can be shared with a simple click of a mouse. There are no paper, ink, or shipping costs. There is no manpower time associated with copying documents and sending them to the buyer by USPS or FedEx.
“Despite this, many management companies – and some boards – are using the documents as a literal profit center,” Benson said. “These are new expenses conjured up by property managers, charging fees for materials that are owned by the sellers or documents that are a public record.”
“Realtors and condo buyers and sellers are beginning to wonder if this is a ‘reasonable cost’ when delivery is paperless.”
Benson recently formed a Broker Advisory Board that is dedicated to improving the lives of current and future residents in association-governed communities by fostering transparency, accountability, credibility, and best practice governance in community associations nationwide.
Several members of the advisory board strongly questioned the ethics of the relatively new practice of some management companies to market condominium documents to buyers and sellers, creating a lucrative income stream for the management firm while representing a not-for-profit condo association.
Housing advocates find it surprising and of great consumer concern that the media is not scrutinizing the practice of management companies charging upfront fees for providing the documents and disclosures, and then charging a second fee for the property transfer at the back end of the transaction.
This practice likely is a violation of the Fair Housing Act because the fees amount to hundreds, perhaps thousands, of dollars. This affects affordability and that can be discriminatory.
If these hefty condo and homeowner association fees are tacked onto the closing statement required by the Real Estate Settlement Procedures Act, shouldn’t management companies be subject to all of its provisions?