More and more of my clients are opting to purchase a home in a “maintenance free” community. The term becomes somewhat of an oxymoron as there is maintenance and it is certainly not “free”. These communities can range from high-rise condominium buildings to stand-alone patio homes. What they share in common is that the owners write a check each month to pay for various maintenance costs. That last comment is important.
Know What Your HOA Dues Cover
Some cover “everything” including heating and cooling. These can be among the more expensive. The most typical HOA covers grounds maintenance, trash collection, exterior maintenance (including roof) and insurance. We can break those down even further so that you know what questions to ask. Grounds – This is usually everything outside but if you happen to be in a patio home, areas inside your fence may not be included. Ask! Exterior – Again, usually everything from painting to deck maintenance. What about windows? Again, read and ask BEFORE YOU PURCHASE! Insurance – This will usually include the structure but find out how much of the finish work is included. Some policies go only “to the paint” and the owner is responsible for cabinets, fixtures and appliances. Ask. If you need a separate policy it will be very affordable. (But very expensive if you don’t have it!)
What is the Association’s financial condition?
This becomes a little more difficult to evaluate and if you are not working with a broker who can provide good support, you may even want the financials reviewed by a trusted financial professional. An important category will be something like “Reserve for Replacement” or “Capital Reserves”. These will be the funds used for other than month-to-month and year-to-year maintenance activities. Items that will typically be budgeted here are replacing paving and concrete, roof replacement, swimming pool equipment replacement and HVAC replacement. Repainting is sometimes in this category and sometimes in the annual budget as an ongoing activity. A good HOA will have a “reserve study” performed every five years or so by an outside company and you should ask to see it. Then compare the recommendation with the budget. You should be able to acquire all of this information from the HOA management company or from the HOA board.
Other Questions to Ask
When was the last dues increase? This is important because the HOA Board can usually approve small increases and it can be in the best interests of the community for them to do so because large increases later may be difficult if approval by the residents is required. Has the BOD recommended and/or approved a dues increase that is not reflected in the current disclosure? You need to know your immediate obligations and if they are changing. When was the last “special assessment” and/or is one approved and/or recommended? Special assessments occur when an association has not paid attention to “replacement reserves”, finds that a major item requires attention and there is no money available. Special assessments can be devastating to many owners. What is the current delinquency? I am writing this in June 2010 and with a significant increase in loan defaults, there can also be non payment of HOA dues. The problem is obvious and while the delinquent dues are almost always collected, the short-term affect is significant. If this gets over about 15%, many lenders will not make loans for purchase within the community. What is the current percent of non-resident owners? You will always find that owner-occupants take more interest in, and better care of, a home. When investor ownership approaches 30% there will be some limitation to financing a purchase.
Okay, I have satisfactory answers and I am purchasing. What now?
Now become involved! Serving on the BOD or committees may not be the most rewarding of activities but it is the best way for you to know what is happening with your HOA and to have more influenc in its management.
I have covered a lot in a short time and you are right to be concerned. If you want excellent representation and help with this evaluation, it is available. I am an Exclusive Buyer Agent (EBA) and always and only represent the interests of my buyer-clients.