How to spot a dissatisfactory Home Owners Association (HOA). When it comes to purchasing a home with an HOA, “ignorance is not bliss.”
Buyers can avoid homeowner association horror story by keeping an eye out for specific red flags. It is of utmost importance that you know what you are getting into when purchasing a home in an HOA community. You must ask questions and review all the covenants, rules, regulations, meeting minutes, violation policies, collection policies and any other aspects you agree to that could become a financial burden on you.
Most purchasers are not aware of the difference between a good, mediocre, and downright unacceptable run homeowner’s association. There are specifics to look for and questions to ask. Knowing this information is of particular importance when purchasing a condominium or when the HOA is responsible for maintaining the exterior of the building. If buyers are not careful and do not take the time to understand how HOAs operate, they can end up paying a significant special assessment after they close, because of years of neglected capital improvements. The bill for special assessments can be anywhere from $1,000 to $30,000 are typical. They can go over $100,000. So buyer beware.
The information contained in this article is not intended to be legal advice but meant to be useful to help you to review all items you should consider when purchasing a home in an HOA community. It is only intended to guide you through some of the essential points to be aware.
Look at the community as a whole.
Is it run down? Do not solely focus one part of the property. Check out neighboring units and common spaces. Check out the area around the home you are purchasing.
Here are some telltale signs that an HOA isn’t on top of its responsibilities.
- Are the fences rusting?
- Is the asphalt cracking or looks like gravel?
- Are the building signs in disrepair?
- Are the amenities in good repair and working order? (pools, tennis courts, etc.)
- Do the buildings need paint?
- What age and condition is the roof?
- Are the common areas, staircases, and balconies in good shape?
Questions to ask when thinking of purchasing in a community with an HOA.
- Ask what the HOA is responsible for maintaining.
- In single family communities find out if the HOA is responsible for caring for the property.
- Find out when the buildings were last treated for termites. Have they been treated as required or has the association missed scheduled treatments?
- What condition is the siding?
- Are there issues that could cause flooding? Look at the grade of the land.
- Are the gutters, fascia, and all other fixtures in good shape?
- Ask about any HOA requirements that may be difficult or even a deal breaker in your opinion if you had to abide by the HOA rules and regulations because you will.
- Ask if the HOA has had any previous assessments. If yes, get the details. Ask if there are plans or talk of any HOA assessments in the future.
- Check the local court records to see if the HOA has had any legal issues or have been sued.
- Ask the HOA Manager if there have been lawsuits or if there are any expected. How many insurance claims has the HOA had?
- Is the HOA responsible for the roofs? If so, has there been any significant repairs within the last few years? Do they have plans to transfer the burden or responsibility of repairing the roofs to the owner? Ask the HOA how many roof repairs they have paid for in the past few years .
- Ask if there are plans to change any of the covenants, conditions, and restrictions that are currently in place. Do they (HOA) now or will they have plans to make changes to the current rules, regulations, and bylaws?
- Have there been any repairs done within the past few years concerning extensive water damage or termite damage?
- Ask to review the HOA reserve study.
Ask the current Association Manager for information on the HOA Reserves. (A reserve study) Make sure you know what a reserve study is. A reserve study details the financial health of the HOA.
What is the HOA’s long-term funding plan? Are they financially prepared to offset maintenance costs that may arise? Is the HOA being run responsibly?
- Find out what percent of the HOA is funded? Here are some guidelines to help you with your decision. Zero to 30% is a high-risk HOA, 31% to 70% is at medium risk, and any HOA funded at 71% to 100% is a low risk or in other words in good shape to meet its responsibilities.
- You want to ask the HOA how much the Reserve study recommends they have in reserves. In other words, how much should they be saving each year and are they saving the correct or recommended amount?
- Has the HOA been on top of the recommendations of the Reserve Study and are they making capital improvements as recommended?
- Think about how much money you can foresee being needed to keep the community in good condition or ask a professional. Then decide if you believe that the HOA has enough reserves to meet its obligations. Is it saving responsibly? If not, think about it before purchasing in that community.
Note to remember: Approximately 70% of HOA’s are under-funded and poorly maintained. Make sure you do your research and know that your property values are protected before you purchase a property with an HOA.