If you’re buying a condo, you may be asking yourself, what’s an HOA and what do I need to know about it?
Buying a condo involves a great deal of paper work and a Homeowners Association (HOA). Let’s be honest…You hire a professional, experienced real estate agent so you don’t have to worry about the details. However, buying a condo requires not only a skilled agent, but you doing your homework. What’s in the fine print can affect your day-to-day life in your new home.
Why buy a condo?
- Security – most buildings have gated or locked entries, some even have professional security staff on site
- Amenities – fitness center, pool, BBQ area, clubhouse, meeting rooms, tennis courts to name just a few
- Maintenance – there are several people on site to take care of the landscape, roof, pool, or even the furnace
- Affordability – traditionally costs less than a single family home, especially in highly desirable areas
Before you decide to purchase a condo, be sure to understand the rules. First and foremost you will be required to join the community homeowners association, HOA, and pay monthly or annul fees. A homeowners association is generally set up as a non-profit corporation. It is an organization established to manage a private planned community. It is governed by elected board members and a set of rules called bylaws.
Why HOAs are important?
- Manage legal concerns
- Manage the property
- Help maintain order among the residents
- Help protect the property
What are Bylaws?
Bylaws govern how the HOA operates and contains information needed to efficiently run the organization. Among the things covered by the bylaws are:
- How often the HOA holds meetings
- How meetings are conducted
- The duties of the board of directors
- How many people sit on the board
- Membership voting rights
These laws are different from the covenants, conditions, and restrictions, CC&Rs.
What are CC&Rs?
The covenants, conditions, and restrictions are rules you must follow both inside and outside the building. These rules are recorded in the county records and are legally binding. Therefore, when you purchase a condo, you automatically become a member of the HOA. It is not only important to understand these rules, but also what happens when you violate them. Pay close attention to fines, how rules are added and changed, and when the meetings are held. Also, make sure the condo you are purchasing in in compliance with the HOA rules.
Examples of Rules
- The color you can paint your front door
- If you can BBQ on your balcony
- If you can line dry clothes on your balcony
- If satellite dishes are permitted
- Types and sizes of pets
- If you can rent your unit to another person
- Restriction on noise levels
- Your responsibility for maintaining balconies, porches, storage units, and parking spaces.
- Recreation facility rules: hours of operation at the pool, tennis courts, clubhouse
- How many guests you can have at these recreational facilities?
What to look for in your HOA documents
The fees differ depending on the amenities and services provided by the building. Listed below are questions to ask about monthly or annual fees.
- How much are the fees?
- How are the fees determined?
- What do the fees include?
- Will you pay for trash, water, and cable?
- How often do the fees increase?
Ask for a history of fee increases for the past 10 years. Look for patterns. Be sure to include those fees when creating your new home budget.
This fund is used to repair major projects or improvements to the building. Such repairs could include a new roof, elevator, boiler, painting, or garage maintenance. If there is not enough money in the reserve fund, then a “special assessment” will be charged to all the residents. Listed below are valuable factors to consider when reviewing the reserve fund.
- How large is the reserve fund?
- A record of special assessments: this will give you an idea of what repairs have been completed.
- Ask if there has been a study to determine if the reserve is adequate for future projects.
Like purchasing a single family home, you will be required by your lender to purchase homeowners insurance for your condo. However, it is just as important that you inquire about insurance on the building such as catastrophe and fire insurance.
What documents to request?
Along with all the rules, regulations, bylaws, and fees you have the right to ask to see the HOA’s financial statements and meeting minutes.
- Balance sheet: see how the HOA fees are spent
- Yearly revenue from fees
- Reserve fund balance
- Notice of any pending lawsuits
- Information on recent assessments
- Percentage of units behind on fees
- Understand current and past conflicts.
- How conflicts were handled?
- Has the HOA ever sued anyone and the results?
- List of board members
- Discussions of future special assessments for large projects
- Any current or anticipated litigation
- Is there an excessive amount of delinquent HOA dues?
Red flags are not always a deal breaker. However, it will open the door for further conversations. Research all the details so you can make informed decisions.
- Big yearly spikes and dips in spending – these are signs that the building could be in trouble.
- Little or no reserve funds
- Emergency borrowing by HOA
- Frequent “special assessments”
- Bank owned building
- A building with a high percentage of renters because owners might not have the same level of commitment as you to maintain the building. Additionally a high percentage of non-owner occupied units may mean it’s difficult for you to obtain financing for a purchase.
- When HOA are under managed – this might mean the owners do not take an interest in the building.
- Lack of people interested in sitting on the board – again little interest in maintain the building.
Buying a condo is a bit more complex than buying a single family home. It is important you take the time to get to know and understand your HOA. Besides reading and understanding all the documents, it is extremely important that you talk to other residents. They will give you first hand information about living in the building and the homeowners association. You should also talk to the board members and get a feel for their different personalities. Lastly, do not forget to walk around the building and inspect all the public areas. Make sure it meets your standards and quality of life.
If you’re considering buying a condo in Long Beach, Lakewood, Signal Hill, Seal Beach, Cypress, Los Alamitos, Rossmoor, Huntington Beach, or surrounding communities, we’d be happy to help!
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