How Do You Review HOA Documents For A Condo Sale? It’s not the kind of thing that keeps you up at night, is it? But I think about it all the time!! Especially when I am helping clients buy a condo. Okay, Okay, it doesn’t keep me up at night, and I don’t think about it all the time. But it is important. It’s boring, yes, but when you find the condo that is “the one”, the most important item you will need to look through are the HOA documents.
You only have one chance to review HOA documents to be sure nothing is lurking in the background. Normally after you make an offer and you are accepted by the seller, you begin the escrow process. Your Realtor tells you to hire an inspector to review the home to make sure everything is in good shape. Once you get through that process, you will get some mandatory disclosures from the seller. What’s there is important, like if there are any annoying neighbors, typical issues that happen, or any other existing problems or coming problems. It should all be part of your consideration towards the purchase. What happens after that? You will get a large book-like piece of documentation from your escrow provider. They order the HOA documents and will forward them on to you, the buyer. It’s a big document. It will normally have the last meeting minutes from the HOA board, and hopefully from the last couple of meetings. It will also have financial documents, like a balance sheet, that show how much money the association currently has on hand.
You might get to this step and think everything is okay. You did your home inspection, it passed with flying colors. You reviewed the seller disclosures. There are no crazy neighbors, and they say everything is normal.
When you are hit with the stack of HOA documents, you think, “Ehhh: I am sure it’s ok.” Trust me, this is the most important part. Review these thoroughly. If you cannot digest what is there, and your agent does not know how to review them, find and or pay someone who knows what they should be looking for there.
I already mentioned the two most important parts: the meeting minutes and the balance sheet of the homeowners association. Here are some general tips on both. With the meeting minutes, read through what the board members are talking about. Are they talking about replacing all the condo roofs? Are they having to replace an association pool? Or are they doing major outside unit enhancements or ground makeovers? Those are the type of things that associations might create an assessment for – which means, you, as a new owner will have to pay for out of your pocket. You have your normal monthly HOA dues, which in Costa Mesa is usually around $350 for most condos. When you have to pay an additional assessment, that’s when you won’t be prepared, and trust me, you will be annoyed you have to pay for it. Assessments can be $500, or they can be tens of thousands of dollars.
The HOA Bylaws will also show you some important things. Can you have pets? Can you have more than one pet? Can you rent out your unit if you ever want to? Are there any restrictions on that? Is there any chatter about neighbors or unhappiness? It should also show you if there are any problems with delinquent dues or foreclosures in the community.
That’s why my other tip is this: review the balance sheet. You will want to be sure the HOA has enough reserves to pay for these kinds of things that come up. Reserves should be at least 60% funded to show a healthy balance sheet. Associations typically charge each owner HOA dues, as you know. The HOA dues go to fund the ongoing expenses that the community incurs, like gardening, water, electricity, and other maintenance items. Part of what you pay each month should be going to the association reserves, which is the money that the association saves each month to fund future issues, like roofs, exterior maintenance, and other large items that come up. The balance sheet will show how much money the association has on hand. Larger associations should have millions in the bank because large-scale renovations are extraordinarily expensive these days.
Also, be sure what the community’s insurance covers. Sometimes your own homeowner's insurance policy you will need might have to add additional coverage. It will show in the Bylaws what is and what is not covered. There are not many other sources of information on this topic but hunt around for someone who knows what they are doing.
Don’t let me freak you out most associations get guidance from outside companies or consultants, so they stay on track with things. That is also why dues seem to increase as time goes by – things get more expensive and the associations have to be prepared.
If you are in a purchase, I hope this has helped. It’s not a scary process, you just need to know what to look for.
Colin Delaney is a Costa Mesa real estate expert and loves helping people find just the right home.
