Buying into an HOA: Ask Questions First
by Phoebe Chongchua
An HOA is a formal legal entity that has been created to maintain common areas. The HOA has the ability to enforce deed restrictions. "Rules are put in place or were put in place by the developer to protect property values -- that's the ultimate objective," says Frank Rathbun with the Community Associations Institute (CAI), a 30-year old national organization that helps provide education and resources to the volunteer homeowners who govern community associations and the professionals who support them.
Buying a home in an HOA might be helpful when it comes to things such as keeping up the common grounds (landscaping, community pools, etc.) but if you buy before you study the HOA, you may get yourself in a situation that you don't like if you disagree with the rules.
"An [HOA] board's fiduciary responsibility is to protect property values, maintain the character and appearance of the community and meet the established expectations of owners in the community," says Rathbun.
Asking the HOA questions and reviewing its formal documents will help you decide if this is the best-suited place for you to live. Here are a few areas to explore and learn more about before you buy.
1. Review the assessment/fees charged: these can be charged monthly, quarterly, or even yearly. Rathbun says it's important to find out exactly what the assessment is paying for. "In terms of amenities they typically cover playgrounds, community pools; in a bigger community, maybe walking trails, a clubhouse, if that community has one, or a marina, if on a lake. In terms of services, they'll cover landscaping and lawn care -- common grounds maintenance -- probably trash pickup, and, in colder climates, snow removal." Knowing this information helps buyers understand and how much to budget for the areas that will be their responsibility to take care of when they purchase the home.
2. Study the CC&Rs (Covenants, Conditions & Restrictions): this is where most problems occur. "That's where you're going to find out what your community permits in terms of yard and home changes and what it doesn't," says Rathbun. Some buyers have bought a home and then later learned that they can't do things such as add an addition, put in a swimming pool, or even hang laundry on a clothesline (see my column: Don't Get Hung Up on Restrictions, Know Before You Buy).
Rathbun adds, "Find out what are the basic rules with respect to pets, flying flags, outside antennas, satellite dishes, fences, patios, home businesses." With more people running home businesses, it's vital to know what you'll have to abide by in that particular HOA. "If your business' business affects the community [by increasing] noise, traffic, [or taking up] parking—then you need to find out what restrictions there are." "It's important that potential buyers know the rules and regulations under which they're going to live," cautions Rathbun.
3. Review reserve fund: the fund is what is used to pay for long-term improvements for things such as paving roads, work on the pool or the entire condominium complex building. Rathbun says knowing how much money should be in the fund is a complicated matter. But buyers can find out if the HOA has conducted a recent reserve study. "That's where an expert comes in and tells [the HOA] what is going to be needed down the road," says Rathbun. The study also recommends how much money should be put away yearly to ensure that those needs will be paid for.
4. Check if there have been special assessments: "A good reserve study and a viable reserve fund can help communities avoid the need for special assessments," says Rathbun.
5. Remember rules can change: don't buy a home counting on a rule to change but do keep in mind that some rules will change over the years. "We recommend that communities periodically review those rules in a very transparent way involving the residents because a rule that made sense 20 years ago may not make sense today." To learn more about HOAs what you should know before you buy, click here.
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