Understanding HOAs
The number of Americans living in common-interest communities — those governed by either a homeowners association, condo board, or cooperative — has grown from 1 percent in 1970 to 24 percent in 2013. Community associations are a growing share of the residential real estate market, however, many home owners have little understanding of the rights and responsibilities they are buying into when they purchase in these communities and most fail to recognize that the benefits of shared ownership involve relinquishing some of the independence of sole ownership.
Owners often fail to realize that their submission to the will of their new community is accomplished by the automatic application of covenants running with the residence. As such HOA living is not suited for those unwilling to cooperate with the community.
HOAs operate under governing documents such as recorded covenants, bylaws, and operating rules. Although they can greatly affect one’s experience with their property, many owners in HOA communities consider the documents unimportant, treating them as if they were an appliance owner’s manual — to review only after buying and beginning to use the product. Governing documents may limit leasing, pets, parking, type of flooring, garage usage, or a myriad of other aspects of the residence.
The financial health of an HOA community also impacts owners. To keep monthly assessments low, some HOA boards will not accumulate sufficient funds in a reserve account to offset ongoing deterioration of common elements in the property, such as roofs, paint, and paving. Poorly funded HOAs will need major special assessments or bank loans when big building components need replacement. Competent appraisals may not reveal the true value of the HOA property because appraisers are not required to examine the HOA reserve fund. Logic dictates that residences in a poorly funded HOA will be worth less than the well-funded association across the street, but normal market valuations will not reflect that important economic reality.
None of this is to say that buying in an HOA community is a bad deal. Some home owners will enjoy having a body that instills harmony in a neighborhood by regulating its appearance and use for everyone’s comfort. But in order to ensure that every owner gets the most out of their HOA, they must be educated about them. That, of course, starts with a knowledgeable real estate professional.
How to Spot a Bad HOA
What’s the difference between a good, mediocre, and bad homeowner association? It’s not entirely a matter of opinion. There are specific items to look at and questions to ask that can aid you in determining whether you’re buying into a good HOA or one that will only give you headaches. This information is particularly important in condominiums, where the HOA is responsible for maintaining the exterior of the buildings. If you aren’t careful, you could face paying a large special assessment for years of neglected capital improvements after you close, a bill that could total anywhere from $1,000 to $30,000+. It critical that you perform your due diligence before purchasing a property governed by an HOA by identifying issues to minimize the element of surprise. While this isn’t intended to be legal advice and there may be other items to look at other than those mentioned in this article, this should give you ideas for how to advocate for your buyers when dealing with HOAs.
Look at the Community as a Whole
Is it run-down? Don’t solely focus on the one property your buyer is purchasing. When the HOA is responsible for maintaining the buildings, check out neighboring units and common spaces along with the home you are considering purchasing. Here are some telltale signs of an HOA that isn’t on top of its responsibilities:
- Are the fences rusting?
- Are the building signs in disrepair?
- Does the asphalt look like gravel and/or are there potholes that need patching?
- Are the pool and other amenities clean and in good working order?
- What is the age and condition of the roofs?
- Do the buildings need to be painted?
- Are there staircases and balconies in poor shape that the HOA is responsible for maintaining?
- When were the buildings last treated for termites? Have they been neglected, with a higher risk of unknown termite damage throughout the community?
- Are there problems with siding?
- Are there grading issues causing flooding?
- What is the condition of the gutters, fascia, and other fixtures?
Look at the Reserve Study
First of all, make sure you know what this is. A reserve study details an HOA’s long-term funding plan, showing, most important, how much it currently has to offset maintenance costs. It’s the most important tool to determine the financial health of the HOA.
- What is the percent funded? Zero percent to 30 percent means it’s at high risk of a special assessment; 31 percent to 70 percent is a medium risk; 71 percent to 100 percent is low risk.
- How much does the reserve study recommend the HOA save each year, and how much is the HOA actually saving?
- Has the HOA been following the reserve study and making capital improvements?
- How much money can you foresee being needed compared to what the HOA has saved?
Proactively Ask Questions
C call and ask the HOA or HOA management company questions. You may need to make it a condition of the purchase contract that the seller will provide the answers if the HOA management company won’t provide answers to you as a non-owner. Keep these questions in mind:
- Have there been any special assessments before? Get the details and ask if there is discussion about having another one.
- Have there been any lawsuits or are any expected? Check court records.
- How many insurance claims has the HOA had?
- If roofs are an HOA responsibility, are there plans to transfer the burden to the owner? How many roof repairs have there been in the last couple years?
- Are there plans to change the HOA’s covenants, conditions, and restrictions?
- Have there been any repairs from extensive water or termite damage in the last couple years?
You must review the HOA’s covenants, rules, meeting minutes, violation policy, collection policy, and other aspects. As your agent we can assist you in assessing the HOA of any properties you are considering and can help you become an educated buyer on HOA living.
Ignorance isn’t bliss when it comes to HOAs. Approximately 70 percent of HOAs are underfunded and in poor condition due to lack of maintenance. These are not HOAs “protecting owner’s property values.”
If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals!
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Hilliard 43026 Lewis Center 43035 New Albany 43054 Pickerington Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235
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