Serious Pitfalls in Public Offering Statements

New condos are popping up all over Seattle, Bellevue and the rest of Washington and new buyers are finding that the Public Offering Statements are full of information written in a very technical manner. In this blog we are going to look at one specific area of the public offering statement and how it may leave the consumer in trouble if not the buyer doesn't understand what is in the report.

The term "Buyer Beware" never held so true since these new reports have made their way into purchase and sale agreement. Buyers are able to read the report but don't understand what they are saying. Does the typical buyer understand what 90 minute building paper backlapped behind the prefinished backsloped head flashing without end dams mean? Probably not and if this is the case you need an expert to explain what this means in regards to the long term use of the condo, and the protection of this important asset.

We are talking about the building envelope survey or report in the back that shows pictures of the building with the siding removed and the detailing around the windows and base of wall conditions. These pictures are often unclear and in black and white and so illegible that even a trained expert cannot understand what it is supposed to show. It identifies the type and manufacturer of the different waterproofing materials and makes not judgment or warnings about the quality or longevity of the products mentioned. These reports are now in the public offering statements of new and conversion condominiums because of a Washington state law requiring them.

The following link takes you to the PDF of the HB 1848 bill.
http://www.leg.wa.gov/pub/billinfo/2005-06/Pdf/Bill%20Reports/House/1848.HBA.pdf

In short developers compromised with condominium purchasers by including condition assessment reports in the public offering statements and the condo owners have to go through arbitration before direct litigation.

Arbitration is a way of settling disputes between two parties using a trained arbitrator in the field that the claim is made. In other words the developer and the condo association are going to be bring a case to the arbitrator who is someone in the architecture, construction, and building envelope arena. The home owner is going to present the case that he bought a building and it has fundamental design flaws that the developer knew about and he sold the project at market rate prices and should have fixed those flaws before selling the building as a condo. The association's lawyers will have a building envelope expert show photos and give testimony that the building is damaged and the flaws were caused by the faulty design and construction. The developer is going to bring the Public Offering Statement, which has a report by a building envelope consultant that shows flaws in the design and construction that if not fixed will cause leakage and damage of the building. The developer will also show signed evidence that the homebuyer had at least 7 days from acceptance of the offer to review the public offering statement and decide whether the risk is worth it. The arbitrator, being very familiar with these types of reports and the type of writing and will find them to be quite clear and that they are adequate notice of the potential for damage of the project. The arbitrator will find for the developer and award the condo association nothing to fix their building. The real cost for poor quality construction is not integrated in the sale price and people are getting fooled.

The fools are these purchasers who glaze over the reports in the back of the public offering statement, they will be stuck with mandatory one time assessments of the entire cost of re-siding a building including installing new windows, roofs, patio waterproofing and below grade waterproofing. These costs are considerable and should be reflected into the price of the original unit. Eventually it will be, but by that time the developer will be off creating the next building and the condo owners will see the value of their condo drop 40%.

The best way for condominium purchasers to protect themselves is to have a building envelope consultant that writes these reports explain the risks evident to them in the report in the back of the Public Offering Statement. Find out if you have a quality building and if not renegotiate the price to reflect the future reduction in value if the project has problems. Create a strategy to protect yourself from the eventual depreciation if you have purchased. When to sell is a big question that can be answered if the report were reviewed.

Contact me to find out who you can talk to regarding these public offering statements and how to reduce your risk.

(206) 442-1192
Nathan