What to Know About Homeowner Associations (HOA)
Questions to Ask About HOAs Before Buying
Buying a condo or townhome is about more than four walls and interior air space, it also means buying the homeowner association. Smart buyers examine all the homeowner association documents, including its latest financial statements, to determine if one is buying into a money pit or a gold mine. Here are the top questions a buyer should ask:
How Financially Sound Is the Homeowner Association?
To determine this, ask for and read—yes, they are long, at least 50 pages or more—copies of the following documents:
- Covenants, Conditions, and Restrictions (CC&Rs)
- By-Laws and Regulations
- Meeting Minutes for the last year
- HOA Financial Statement
These documents will tell you about:
- Special assessments being planned to address deferred maintenance
- Capital improvements planned
- Amount of cash reserves
- Whether the association is being or has been sued
- History and likelihood of dues increases
What do your monthly dues buy you? Does it include payment for:
- Cable TV
- Ground maintenance and gardeners
- Trash pick-up
- Sewer services
- Professional management fees
- Pool, spa or fitness centers
- Roads and sidewalks
- Assigned or underground parking (and the number of spaces)
- Gate access
How do the fees compare to other similar HOA fees in the area? I sold a condo in an older complex where the dues were $120. Remodeled condos around the corner were selling with dues of $190. The main difference between the two complexes was the remodeled units had stainless steel appliances and granite kitchen counters. So I ask buyers, "Is it worth $70 a month to you to own stainless steel appliances?" For some buyers, that answer is "yes."
Who Manages the Complex?
Larger complexes require professional management. It might cost more to hire a professional company, but in the long run, it tends to save money. Professional managers wield more bargaining power when negotiating for services such as bids for gardeners or general maintenance because they represent such a larger number of complexes.
How Many Units Are Rented?
Nobody likes tenants. It's not that tenants are bad people but there is some truth that renters don't take care of the property the same way an owner-occupant would care for it. In addition, some lenders will not loan money to a buyer if more than 25% of the units in the complex are rented out. Some homeowner associations refuse to let owners rent their unit for more than 30 to 60 days, if at all.
How Quiet Are the Units?
Asking the neighbors will give prospective buyers an idea of the noise factor, but so will driving the area late on a Saturday night. It's best to buy a corner unit because fewer common (adjoining) walls mean less noise. However, soundproofing doesn't help much if your next-door neighbor enjoys blasting Pink Floyd every Sunday at 2 AM.
A client who bought a downstairs condo near stairs leading to the second floor was concerned about hearing the sound of footsteps on the stairs, so I suggested she talk with the upstairs occupant. Turns out the resident was the president of the HOA and a stickler for keeping things quiet.
What Are the Amenities, Parking and Pet Restrictions?
- Find out the hours of use for pools, spas and recreation areas such as tennis courts or game rooms and check to see that those times work with your schedule.
- How is guest parking handled, and how many parking spots are deeded with each unit? Is it possible to rent an extra parking space if you need it?
- How much will you be charged to replace a lost key for the security gate or clubhouse?
- How many pets can you have? Are there size restrictions? Are you allowed to bring pets through the lobby on a leash?
Finally, talk to the people who live there. Pull into the parking lot or garage in the late afternoon when homeowners are coming home from work. If they hate the homeowner association, they will tell you in no uncertain terms what is wrong with it. Better to find out the sentiment and reasons behind it before you buy than afterward. HOAs have the power to regulate and monetarily penalize owners for violations like never before, so make sure you completely understand what you are buying into before you sign on the bottom line.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.