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Buying a Condo? How to Check the Health of the Association or HOA


Question:

One has to do a lot of research before buying a condominium. A condominium is a self-governing entity, which is recognized legally by the state. The condominium board is supposed to manage the property according to the "master deed" and "bylaws," collectively referred to as the "condo docs." Each condominium association has its own rules and bylaws, although there are often similar elements.

There are "common areas" in a condominium, and "units." The common areas are the public areas such as driveways, lawns, pools, and interior structural system of the building or buildings. The unit areas are the actual apartments or townhouses, which have defined boundaries as outlined in the association master deed. The condo association is responsible for the complete maintenance of all common areas (property taxes, street lighting electricity, landscaper, installing a new roof, etc). The unit owner is responsible for maintenance of their unit (property taxes, utilities, interior painting, appliances, etc).

The problem is that many condo association and HOA boards: (1) ignore the bylaws and change responsibility for common areas to unit owners, (2) manage poorly and deplete the association of funds, or (3) have conflicting condo bylaw rules established at inception, and then govern as best they can.

The following is a list of selected condo association documents and issues to research before buying a condominium. Please note condominiums with well managed stable HOAs and condo associations can often appreciate in value at a higher rate than single family homes (and depreciate faster with an unstable association).

 

Condominium Master Deed/Bylaws

 - Unit boundary definition.
 - Is the unit boundary definition conflicting in different sections?

Condominium Rules

 - Are pets allowed?
 - Can units be rented out?
 - Are rules excessive?
 - Are rules too vague?

Condominium Budget Current Year & Last Year

 - Did the association make budget last year?
 - Did the association make budget by moving money from reserves? 
 - Did any line-item greatly exceed budget and why?
 - Does enough money go to reserves each month?

Condominium Income Statement (possibly combined w/Budget)

 - How much money is in reserves / savings / capital account?

Condominium Reserve Analysis/Capital Plan

 - Does one exist?
 - Does the condo association know what needs to be repaired?
 - Will there be reserve money to replace the roof, water pumps, or roads?
 - Are special assessments (fees) planned to fund repairs?

Condominium Meeting Minutes

 - Are the volunteer condo trustees or board members taking the job seriously?
 - Are normal common area maintenance issues discussed?

Property Manager
 - Call property management and validate budget accuracy.
 - Ask if the condo docs are conflicting or incomplete.
 - Ask if the trustees comply with the bylaw condo boundaries.
 - Are there any big ticket maintenance items on the horizon?
 - Does the association have enough money currently?

Physical Inspection

 - Ask your unit home inspector for their opinion of common areas.
 - Look at the condo grounds, are they well kept?
 - How does the roof look from the ground?
 - How do the driveways look?
 - How do the windows look?
 - Are the buildings painted properly?
 - Are the street or walkway lights working?
 - Ask a unit holder if one is nearby.

Learn about HOA Loans, Condo Association Insurance or How To Collect Delinquent Condo Fees


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