What’s the difference between a good, mediocre, and downright bad homeowner association? It’s not entirely a matter of opinion. There are specific items to look at and questions to ask that can tell your buyers whether they’re buying into an HOA that will only give them headaches. This information is particularly important in condominiums, where the HOA usually is responsible for maintaining the exterior of the buildings. If they aren’t careful, your buyers could face paying a big special assessment for years of neglected capital improvements after they close. The bill they’re typically stuck with could be anywhere from $1,000 to $30,000. (In some cases, they've gone over $100,000!) Help your buyers perform due diligence before closing by assisting them in 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.
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 your buyer is purchasing. Here are some telltale signs of an HOA that isn’t on top of its responsibilities:
First of all, make sure you and your buyers 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.
Encourage your buyer to 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 answer you or your buyer. Keep these questions in mind:
Your buyer must review the HOA’s covenants, rules, meeting minutes, violation policy, collection policy, and other aspects. Make your buyers a checklist to help them do their due diligence. Help them become an educated buyer on HOA living.
Ignorance isn’t bliss for your clients — or you — when it comes to HOAs. Agents and sellers could potentially avoid lawsuits by making buyers aware of all issues before they close on a property in an HOA. Remember, approximately 70 percent of HOAs are underfunded and in poor condition due to lack of maintenance. These are not HOAs “protecting our property values.”
This problem is not going away by keeping our eyes closed. The first step in improving HOAs is having real estate professionals who will educate buyers on how an HOA should operate. Buyers need to be involved and concerned with the HOA business that they are becoming a part of before closing — and they need to stay involved after closing.
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