One of the greatest errors I have seen buyers make is the lack of investigation into a Homeowners Associations (HOA’s) business. Many people don’t realize that these organizations have a lot of control over them, as homeowners, and their lives in the home they are about to purchase. With just a little investigation it can be determined if the HOA is in good condition, solvent or problems are on the horizon.
When considering a purchase in an HOA run community, the first things to ask for are the Covenants, Conditions and Restrictions or CC&Rs. The CC&Rs spell out what a homeowner can and cannot do with their property, what the HOA and the homeowner are responsible for as far as maintenance to the property and the homes and what restrictions are in place. This could have far reaching consequences! Let’s say you are an auto enthusiast and you want to work on your car or you are an animal lover and have dogs or cats. If the CC&Rs restrict this or ban these activities all together, then you won’t be happy living in that development as you will not be allowed to pursue your pleasures. It is best to know about all these items prior to placing a contract on a property or at the very least make it a condition of the contract so you have time to read these CC&Rs (and the other items mentioned below) to determine if this is the development for you. In addition to the CC&Rs, remember to get a copy of the Minutes of the HOA meetings for at least the past year, if not longer. These minutes should spell out any anticipated actions of the HOA and the possible costs involved. Along with these items and a copy of the last year or two budgets, you can make a determination if the HOA has the funds to complete the items being contemplated and/or if the HOA will have to increase the monthly or annual fees or place a “special assessment” on all the homeowners. Reserves are a way of saving money for repairs or emergencies, over time, by taking a little of the monthly or yearly fees and placing that money into an account to insure the money is there for those unexpected items that always pop up.
Please realize that as a perspective purchaser, you have a right to these items mentioned as you are the one having to live with the consequences should you decide to purchase in that development. Knowing if the HOA is solvent and has good reserves for future projects and/or emergencies is the key to knowing how the HOA is run. Typically, HOA’s that are run by Professional Management Companies are your best bet. These companies have the expertise and resources to oversee the monies and ensure that the CC&Rs are enforced. HOA’s run by the homeowners “typically” do not have adequate reserve funds and if something arises they usually just levy a “special assessment” against all the homeowners. This could run into the hundreds or even thousands of dollars. This has happened several times across Atlanta when an HOA has had to replace all the roofs, plumbing or resurface the roads in a development and did not have adequate reserves built up. The homeowners of these complexes had to come up with the money for the needed repairs. If they didn’t, then a lien was placed against their property.
With just a little forethought and investigation, all these things can be found out prior to moving into a development, making your choice easier and your life happier in the long run.
About the Author: Robert Koppes is the owner of KT Appraisal Services, LLC and is a Certified Residential Real Estate Appraiser with the State of Georgia (License # CR004733). He holds the CREA designation from the National Association of Real Estate Appraisers and also holds the MRA designation from the National Association of Master Appraisers. Robert has been an appraiser since 1994. Robert’s areas of specialty include valuation of properties in the 20 county Metro Atlanta area with emphasis on Conventional and FHA funding and consultation and valuation of foreclosure properties. He can be reached at 678-254-4050 or by email at firstname.lastname@example.org.