6 Things To Watch Out For With An HOA

So you have decided to buy a home in a community that is controlled by a Home Owners Association. Time to be sure you know what that means and what to look for. Don’t get caught buying a great home that is in a lousy HOA.

The common belief is that the HOA ensures that the community stays uniform, no one paints their garage door hot pink, and many things are paid for and handled on your behalf.  The reality can be much different. In an expensive and litigious world HOA boards have dropped coverages and services in an attempt to balance budgets. You need to ask questions.

1. What is the HOA fee?  Sounds simple but be sure you understand how much it is and what it covers. Some require semi annual or quarterly payments while a majority tend to bill monthly.  Are there any special assessments currently going on or anticipated? Examples of this could be an association billing an extra amount of money each month for one year to cover a budget shortfall or one to fund a special expense, like repairing fencing or tree removal  in the complex. Be certain you understand how fees are assessed and how much they are. At what rate can they increase and how recent was the last increase?
    
2. Is The HOA compliant with Insurance requirements?  When was the last time the policy was reviewed?  What does the insurance cover? Coverage can  be nothing but common area insurance (a resident or visitor is injured in any of the common areas) to earthquake, flood or other specific liability.  An example of not having proper coverage would be a shortfall on flood insurance which would make the homes in the community ineligible for financing.
    
3. How are the HOA finances? Don’t assume that they are in good shape just because the neighborhood looks nice.  Who is in charge of the HOA finances?  Are there audits?  How many home owners are behind? What are the reserves?  A general tip about reserves: they should be enough to cover the HOA’s biggest liability. So for example if all the streets in the community are private that means the HOA should have enough funds on hand to repave them. In a high rise, that depends on an elevator system, the HOA should have enough funding to totally replace the elevators if needed. If you buy into a community that does not have enough reserves and the worst case happens – you will be hit with a special assessment.  This will be a monthly or onetime charge for an amount in excess of your regular HOA fee.
    
4. How Can the HOA limit Your Use of your Property: This might sound odd, it is after all your home, but if you buy in a community with an HOA the answer might surprise you.  One of the biggest issues is rentals.  An HOA can dictate the length of any rental. Some disallow vacation type rentals totally.  Some prohibit all rentals.  Age restricted communities can limit guests, under the age of the community, from staying longer that two consecutive weeks.  Others still, limit the number of pets or vehicles you may have.  Be sure what you want to do is allowed in the community.
    
5. Who is on the HOA?: Is the HOA board representative of the community? Is it overseen by an independent manager? Is there change over in the leadership? Are residents mostly satisfied with the job they are doing?  Serving on the board of an HOA can be a thankless job. Make sure that one or two people have not tied it up for years and limited changes. While the previous four things are all discoverable in documentation, that you should receive as part of the sale process, this one will require you to meet the neighbors.  Go for a walk in the area.  Talk to residents in the park or the parking lot. See what the overall feedback is.  You can discount one grumpy resident but if everyone you talk to is grumbling there might be a larger issue.
    
6. FEES: Not the monthly fee which we already covered in section one, but the fees for moving in and out of the community.  Yes, some HOAs have established fees, commonly called transfer fees, they assess against sellers when they move out of the community.  These fees can be very high. I personally have seen them as high a s $6,500.  Additionally, there is a charge for the HOA documentation that you would have to provide a buyer.  Occasionally there are fees for buyers to be established in the HOA but in my experience they are infrequent and low cost.

So while buying in a community controlled by a Home Owners Association can come with Perks be careful of common pitfalls. Not all HOA’s are equal and not all are managed properly.  Know what you are buying into.  It is an extra step that is well worth the effort to protect your major investment.