What is a Special Assessment and Why Does it Matter?

By
Real Estate Agent with Coldwell Banker Residential Real Estate CA BRE#01363932

What is a Special Assessment and Why Does it Matter? is a question I am commonly asked by first time home buyers. A special assessment occurs when the home owner's association's obligations / needs exceed cash on hand / cash reserves.

A homeowner's association has established guidelines outlining responsibilities which the HOA is responsible for. HOA dues often cover exterior maintenance, common area maintenance (walkways, pool, tennis, greenbelts), building insurance and other fees.

Some special assessments can be caused by an unforseen event, such an earthquake. It could be the extent of the deductible on a very large claim, such as when a whole building or entire complex is destroyed by fire.

More commonly, however, special assessments are the direct result of insufficient cash reserves to pay for needed upgrades and replacements.  A well-run HOA will set aside cash reserves for replacment components. A roof, for example, has a limited life expectancy. The roof is an important building component and must be replaced at intervals. If the HOA does not have the funds for the repairs, a special assessment will most likely be the outcome.

Many special assessments cost each owner thousands of dollars. There's one coming soon at a San Ramon complex, rumored to be in the $10,000 to $13,000 range. There has been no announcement as yet whether there will be an option to add to the HOA dues, or if it will be lump sum.

When shopping for a home, look around. Does the exterior of the condos look well kept, or does the wood siding need paint? When a building obviously needs paint, the wood is unprotected and this can cause the wood to rot, shortening the life span of the wood siding.

Pay close attention to the financial section of the HOA documents. There are firms who will review HOA financials for a fee if you need help.

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Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. Michelle Carr-Crowe Just Call 408-252-8900 Top 1%! 01/24/2011 08:09 PM
  2. Victor Zuniga 01/25/2011 08:18 AM
  3. Dawn Crawley 01/25/2011 10:00 AM
  4. Gabe Sanders 01/30/2011 11:47 PM
Topic:
Home Buying
Location:
California Contra Costa County San Ramon
Groups:
31 Days of January - New Years Resolution
Tags:
what is a specail assessment and why does it matter
san ramon condos for sale

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Rainmaker
137,595
Denny and Denise Rockwell
Berkshire Hathaway HomeServices California Properties - Brea, CA
Real Estate Professionals, Staging & Design

Very important Vickie, thanks for the reminder post!

Jan 25, 2011 03:28 AM #17
Rainmaker
339,098
Chris and Berna Sloan
Group 1 Real Estate - Tooele, UT
Tooele UT

HOA financials and MEETING MINUTES! They often will mention potential upcoming issues that haven't been announced. We have to protectour clients. Great post!

Jan 25, 2011 04:43 AM #18
Rainmaker
179,067
Laura Forman
National Realty of Brevard www.LauraSellsBrevard.com - Melbourne, FL
Your Brevard Premier Property Specialist

Very informative post.  I'm sure it will helpful to those that are unaware of what could be coming if they decide to buy.

Jan 25, 2011 09:14 AM #20
Rainmaker
262,332
Dawn Crawley
Dawn Crawley Realty - Pinehurst, NC
Find Pinehurst Homes

Very important for buyers to know if there is a special assessment on a property. Nice post! And they are not always HOA assessments, towns do assessments as well.

Jan 25, 2011 09:59 AM #21
Rainer
387,459
Doug Anderson
Tucker Associates Real Estate Services - Danville, CA
Bay Area Real Estate Views

Very well done post Vickie. With what has occurred in the market over the past few years it is important now more than ever to do thorough and diligent research on the HOA.

Jan 25, 2011 11:10 AM #22
Rainmaker
1,402,493
Vickie Nagy
Coldwell Banker Residential Real Estate - Palm Springs, CA
Vickie Jean the Palm Springs Condo Queen

Michael, word on the street here is that the HOA of one of our local condo conversions is hitting the developer with a $10,700,000 lawsuit. Listing agent says "cash only please' in the confidential remarks.

Barbara, we had one local complex to get hit with over $30,000 in special assessments over a few years. But it looks great now with new doors, windows, roofs and siding!

Norm, we generally don't have that much in road maintenance. One of the strange but true issues here is tree upkeep and removal.

Jan 25, 2011 05:22 PM #23
Ambassador
1,549,697
Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

Good post to refer people to for questions. It doesn't always mean the complex is financially in trouble, but could be for a special purpose. In our area it's common to increase the HOA instead of assigning a lump sum and a due date. And it helps to educate the buyers on this and when it will be paid off....or if it's to be paid off in escrow.

Jan 26, 2011 02:45 AM #24
Rainer
115,294
Debbie Rumsey
HomeSmart Realty West, Carlsbad, CA - Encinitas, CA
Realtor, Green, SFR

Vickie, great post.  Simple and to the point.  I like to educate my new buyers on HOA dues and special assessments before beginning to look at condos.  There is nothing worse than to get a buyer into a condo that raises its dues right away or tacks on a special assessment shortly after move in.  UGH.

Jan 26, 2011 02:58 AM #25
Rainer
46,716
Phil Porter
Charter One Realty - Hilton Head Island, SC

In my experience special assessments are usually considered leans by buyers' closing attorneys, and thus they are considered payable by the seller. Once the HOA votes on the assessment it is considered payable by the seller immediately unless the HOA agrees to allow owners to make monthly or annual payments. Of course a buyer and seller can negotiate who will be responsible for the special assessment.

A similar area that we have been dealing with is Capital Improvement Funds (CIF) where the HOAs are charging a one time fee to buyers (usually 1/4% - 1/2% of the purchase price) for the purpose of making community improvements. Even though the HOAs write them in as payable by the purchaser the CIF fee becomes a negotiable item in any transaction. As a result our REALTOR Association inserted a clause in the local standard Contract of Sale - Offer and Acceptance which states whether the buyer or seller will pay any CIF fee.

Jan 26, 2011 04:41 AM #26
Rainer
37,641
Brad Hornshaw
Brad Hornshaw Realtor Lynnwood, Bothell, Everett - Lynnwood, WA
Realtor, Listing Agent, Buyers Agent, Investments
Hi Vickie Good Info. Several years back before I Was a Realtor, I bought a Condo to put my daughter in for college years. I was blind sided by a $2000 special assessment when another unit in another building caught fire. Bummer.........Brad
Jan 26, 2011 05:38 AM #27
Rainmaker
1,431,110
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

They call it a special assesment because everyone is afraid of the word Tax!

Jan 26, 2011 07:40 AM #28
Rainer
22,269
Nicole Fleming
FC Tucker Emge - Henderson, KY

We don't have many condos in my market, so I learned something new today.  Thanks for the post.

Jan 26, 2011 09:56 AM #29
Rainmaker
67,119
Brenda, Ron, Lee Cunningham & Tara Keator
West USA Realty - Phoenix, AZ
Realtors, Homes for Sale - Phoenix Metro

Good information all buyers need to know.  Checkin HOA financials and seeing if there are any pending assessments is important to know.

Jan 26, 2011 10:25 AM #30
Rainer
26,741
R Grodin
Worland, WY

Review of HOA/Condo Docs is crucial for the buyer. In the DC Metro Region upon contract ratification the buyer has one week to review the HOA/Condo Docs and Finances. If within that period the buyer reads anything of concern, the buyer has the right to void the contract without identifying the specific concern and expect subsequent return of escrow.

Jan 26, 2011 11:08 AM #31
Rainer
10,073
John Toay
LPM Home Inspections, Inc. - Myrtle Beach, SC

Special assessments are one reason that I, as a home inspector, ALWAYS  try to look at the entire environment around a home in a gated community, a condominium or other similar regime when I'm doing an inspection.  Fact is that the structure being inspected may be deficiency free but an association property or an entire condo building may have problems that will trigger a special assessment that comes back to bite an unaware buyer.  One of my responsibilities is to advise them of the possibility of an unexpected "surprise" and suggest they consult with the association to determine the status of the deficiency.  On the other hand, it's also incumbent on me to advise a panicky buyer when a routine common area maintenance item is usually the responsibility of the POA or HOA so they don't worry that  they'll face a special assessment for repairs.  

Jan 26, 2011 12:13 PM #32
Rainer
3,161
Wendy H Jackson
Watson Realty Corp - Jacksonville, FL

Great article and many buyers purchasing homes with HOA's should be aware.

Wendy H Jackson

Watson Realty Corp

Jacksonville, Fl 

Jan 26, 2011 01:36 PM #33
Rainmaker
643,374
DeeDee Riley
Lyon Real Estate - El Dorado Hills CA - El Dorado Hills, CA
Realtor - El Dorado Hills & the Surrounding Areas

Great post Vickie!   It is important to look closely at those HOA docs!

Jan 26, 2011 04:18 PM #34
Rainmaker
240,060
MaryBeth Mills Muldowney
TradeWinds Realty Group LLC - Braintree, MA
Massachusetts Broker Owner

So very important to look at the association meeting minutes...lots of times you can tell so much more about what is coming up in the future!

Jan 27, 2011 01:41 PM #35
Rainmaker
1,402,493
Vickie Nagy
Coldwell Banker Residential Real Estate - Palm Springs, CA
Vickie Jean the Palm Springs Condo Queen

Valerie: We've seen some special assessments in our area upwards of $30,000. I'm looking for one (yet unannounced) that I think will surely top $20k.

Jan 31, 2011 07:13 AM #37
Rainer
432,184
Margaret C. Taylor
Century 21 New Millennium MD - Mechanicsville, MD
St Marys/Calvert/Charles MD Real Estate Agent

Valerie thank you for a very good explanation, great for our clients and us.  Margaret c.

Feb 06, 2011 02:20 PM #38
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Rainmaker
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Vickie Nagy

Vickie Jean the Palm Springs Condo Queen
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