7 Condo Association or HOA Items to Review Before Purchasing

When buying a condo, you are joining a group of people that own the condo association together, sharing responsibility for condo repairs and upkeep of the condo association common areas and systems in the condo building. One of the things that you need to evaluate is the health of the Home Owners Association (HOA).

You will already know the HOA dues for the condo association you are purchasing into, but what do those condo fees include? Is the condo association proactive about maintenance? Is the condo association well-funded so that it can take care of potentially large condo repairs in the future? As a condo owner, you will become a voting member of the condo association and will have the opportunity to be a potential HOA board member, so it is important to take a closer look at how the condo association is run.

As part of the purchase, you will receive a packet of information called a "Condo Resale Certificate" or a "Public Offering Statement". This is usually a packet of hundreds of pages of legal condo documents that can be intimidating to sift through. Here are some handy tips to help you evaluate those condo documents and the health of an HOA.

1. Visual Inspection- Before you ever delve into the HOA documents, a simple visual inspection of the condo association property can say a lot about how the condo building is run. Make sure that the condo association common areas are clean and that there are no obvious signs of deferred maintenance. If carpets are dirty, walls battered, or water leaks evident, it is probably a sign that the HOA is not proactively caring for the condo building. Also, if the HOA building is older, have the common areas been updated over time or are they horribly outdated? This will affect your ability to sell the condo later on.
2. Condo Association Meeting Minutes- Condo associations keep written copies of HOA meeting minutes when the condo association board meets. Sometimes this is once a year, but sometimes more frequently. Frequency of HOA meetings largely depends on the size of the condo building and the number of issues that need attention. A well-run condo association will meet regularly and the association minutes will show that they are proactively making maintenance decisions for the condo building (and spending money to do so). A poorly run condo association will have condo meeting minutes that likely show discussions about deferred maintenance and updates, with no concrete decisions or plan of action. Also look for financial red flags, such as consideration of a special assessment if the HOA is underfunded.
3. Operating a Condo Association Budget- You will receive a current set of financials for the condo association. A well-run HOA will have clear and timely accounting of all the HOA dues coming in and all of the expenditures going out. After regular operating expenses, there should be extra funds left over that are allocated to a condo reserve fund to pay for large repairs in the future for things like a roof, elevator, fire sprinklers, etc.
4. HOA Reserve Study - Sometimes an HOA will commission a condo reserve study to analyze future expenses and the ability of the HOA to pay for them out of their condo reserve budget. Ideally, the HOA has a condo reserve level of 70%-90% of anticipated HOA expenses, but this is a very rough guideline. It is important to look closely at the age of the complex and what realistically will need repair or replacement. A five-year old building that is underfunded may not incur large repair expenses for 15-25 years, giving them plenty of time to properly build up condo reserve funds. A 30-year old condo building that is underfunded may face immediate repair needs and have to issue a special assessment to the residents to cover these expenses.
5. Special Assessment - If a condo association does not have enough money budgeted for large HOA repairs, they will issue a special assessment to the homeowner association members. This is a one time payment of additional homeowners dues, sometimes paid in a lump sum and sometimes paid over time if the amount is large enough. I've seen special assessments reach over $10k-$30k per HOA unit, so they can be substantial. If you are buying a condo with an upcoming association special assessment, it is not all a bad thing and shouldn't necessarily deter you from buying the home. The updates that are being paid for will improve the condo building and ultimately improve the value of what you are buying. Obviously if the amount is substantial, you should negotiate with the seller to see if they will contribute some or all of the special assessment as part of your transaction.
6. HOA Rules & Regulations - Every condo has a set of association rules & regulations that the homeowners agree to live by. These cover a wide variety of HOA topics like quiet hours, pet policy, rental policies, etc. These rules are difficult to change, so make sure that you are comfortable with them before agreeing to become a resident.
7. Condo Association Insurance - The HOA will take out an condo insurance policy that covers the condo building in case of fire or other catastrophe. That condo association policy may or may not cover the interior fixtures in your condo, and definitely does not cover your personal possessions. You should pass along a copy of the HOA insurance policy to your insurance agent who will figure out the appropriate level of coverage that you will need when you buy your condo.

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