January 4, 2020 — When people hear about Home Owners Associations (HOA) there is generally one of two reactions. Either they loathe them, citing high costs and restrictive rules, or they tolerate them as a necessary evil. They have no super fans. Also called Community Associations, HOAs govern critical aspects of life in condominiums and active adult communities. It is essential that retirees know something about their HOA before they move in. As Joe West, CEO of the Community Associations Network, told Topretirements many years ago, the most important thing to consider when buying into a community is: “Don’t fall in love with the house before you check out the association”.
In any 55+, active adult, or condominium development that has shared facilities the Community Association is the top dog. It establishes the rules, enforces compliance, manages the assets, and insures the financial and legal well-being of their communities. Even in the most successful community plenty can go wrong. When serious problems happen, as did in last year’s condo collapse in Surfside, Florida, the consequences can even become tragic.
5 things to know about your HOA before you buy:
Before you buy you retirement dream home some due diligence is required to help eliminate the risk of serious disappointments down the road. Here are some things you need to know.
How effective is your new HOA?
The people running your HOA and the structure that governs it are critical. Are board members forthcoming with information? Do they seem engaged and receptive, and do new members join the board from time to time? You have a right to know what you are getting into. Are there regular board meetings, and do things get done? Is member input permitted and acknowledged? Were you able to secure copies of the minutes? Do the financial documents look up to date, and have they been audited?
How strong are the finances?
The condo building that collapsed in Surfside had an overwhelmingly negative financial situation – although millions were needed for urgent repairs, there were almost no reserves to pay for them. Does your new community have reserves salted away for future projects like streets, elevators, roofs, painting, and other repairs? Is there a recent reserve study? Has there been a history of unplanned assessments to pay for projects, instead of carefully salting away money to pay for them? When a board continually underfunds the budget and hopes nothing goes wrong, that should be a warning flag. If there is a significant number of homeowners who are in arrears on their dues or assessments that is also cause for alarm.
Are there serious problems coming up?
There are always building and infrastructure issues that will come up – stuff wears out and systems fail. Are these projects being talked about at board meetings, and is there a plan to fund them? Buying into a community that faces imminent huge assessments could be a costly mistake.
Has the transition from developer to HOA been completed?
Perhaps the most perilous time in any community’s life cycle comes when the developer exits the sales phase and control moves to the association. Communal assets and amenities are often sold to the homeowners, or perhaps retained by the developer. If that is the case, how much, and how, will they be paid for or managed? Does the new HOA have good bylaws and a qualified board in place to run things?
Are there HOA rules you don’t know about or appreciate?
Moving into your new active adult community and discovering that you have too many, or the wrong kind, of pets can be a horrible discovery. You might not realize that you cannot park boats or RVs on the property, change the color of your house, or construct a fence. Get a copy of the rules and regulations, and asked questions if you are unsure.
Finally, good to know
The laws governing the nation’s estimated 270,000 residential and commercial HOAs are confusing and sometimes non-existent. States like California and Florida have extensive laws, but many other states have just a condominium law or a poorly written, often amended, HOA law. The absence of clear legal guidance can be a problem. Having an effective board and reasonable bylaws is a good defense against that.
Everyone would like an HOA with low fees. Sometimes you get good value for these fees, and sometimes you don’t. HOAs are often viewed as some type of ogre by many homeowners. But in practice most people that volunteer for these boards deserve more credit– they work hard and they spend a lot of time unraveling tricky questions. As you get familiar with your community, consider running for the board and offering your experience and hard work.
For more on this topic see the 3 part series at Topretirements.com: “Meet Your New Boss, the HOA”.
Comments? Please share your thoughts about HOAs, including your personal experience, in the Comments section below.