Where we live, most first-time homebuyers purchase condominiums or townhouses. (I haven’t seen any co-ops?) Besides simply finding a unit that you like, I’ve been worried about having to deal with homeowners associations, or HOAs. There are plenty of horror stories about evil HOAs out there, as outlined by this Yahoo Finance article 10 Things a Homeowners Association Won’t Tell You. They are often cast as petty and heavy with politics:
When one Virginia homeowner asked for permission to hang Christmas tree lights in 1992, the board didn’t like the idea but didn’t know how to prevent it. “We struggled with this one,” says lawyer Benny Kass, who represented the association. “But we finally concluded that the restriction against hanging lights was valid because you were pounding nails into the wood, and that was a fire hazard.” Ho-ho-ho.
…and they’re not afraid to sue you over it:
Experts estimate that in California, 75% of the homeowners associations are embroiled in a legal tangle of some kind. Chicago attorney Mark Pearlstein, who represents associations, figures that 60% of all condo boards and homeowners associations in Illinois are involved in some kind of legal suit.
…or they could simply be ineptly run:
Ron Williams, an engineer with R.J. Moore, a consulting company that specializes in reserve accounting, once worked with a Northern Virginia condominium that had a paltry $100,000 set aside. “Closer to $1.25 million would have been considered healthy,” says Williams. When power-plant equipment gave out in early 1994, the association didn’t have the $400,000 needed to replace it. The solution: A $2,400 special assessment to each of the 170 unit owners and a 22% increase in monthly dues.
It’s almost enough to make me stop looking at them at all! Instead, I’ve tried to make a list of things to try and at least screen out HOAs with obvious signs of problems:
Try to get a copy of the homeowners association agreement and recent meeting minutes. I figure if I am serious about buying a place, I would want to read about all the things I can’t do like replace the flooring, how many units are allowed to be rented out… or if I can put up Christmas lights! Also, I’d like to see in writing exactly what my fees are covering – usually water, sewer, common areas, and basic cable TV. If possible, have an attorney read through it. (It helps if you have friends that are lawyers!)
By reading about recent meetings, I can hopefully get an idea of what issues are currently being debated, and how petty they are. I’m not sure how easy this will be though – whenever I ask the listing agent about HOA-specifics, they always seem off-balance and say something about “Oh, the last owners loved living here, I’m sure they are wonderful”.
Learn about the reserve fund to avoid big assessments. One common nightmare would be to move in, only to be hit with a big assessment for fixing the pool that you’ve never even used yet. I’d want to make sure the reserve is large enough to handle expected and unexpected future maintenance costs. A friend told me you can get a list of all previous assessments if you ask, as well as any planned future assessments. Part of this is also noting the overall age of the building, as well as the existing condition of all the common areas. From the Yahoo article:
When it comes to checking up on a reserve fund, there are two good rules of thumb. First, about 20% to 25% of your dues should go toward the reserve fund, says Robert Nordlund, president of Association Reserves, a California company that specializes in reserve accounting. Second, there should be a long-term schedule for the reserve fund in the annual budget, including a projection of upcoming expenses for each common-area item: elevator repairs, painting, pool maintenance and so on. Reserve accountants suggest that the account should contain no less than 70% of the projected reserve budget. If the account is 30% funded or less, you can expect to be hit with some big assessments down the road.
Try to talk to an existing owner that’s not the seller. Usually there is someone outside playing with their kids or walking the dog. I don’t mind striking up a conversation with a potential neighbor to try and get an insider’s view. On top of HOA questions, I’d ask things like how long they’ve lived here, if it’s been getting better or worse, how good the soundproofing between units is, and if it’s a family-oriented complex.
Ask your buyer’s agent to do some research as well. You have a buyer’s agent, right? Ask if he/she has clients that either live there now or have sold a unit there in the past. If not, have them do some digging and ask their co-agents.
Are you a condo owner? I’d love to hear your experiences and tips on dealing with HOAs specifically.