How Potential Home Buyers Can Assess the Health of an HOA
This may be a relatively large surprise expense for new community members. This is only one issue that may occur for homeowners buying into a poorly managed HOA. What areas do potential buyers need to review before seriously considering the purchase of a home in a specific community and HOA?
Who Lives There
Have an idea of who is living in the HOA before making an offer. Are the units owner-occupied? What is the percentage? In addition, are there obvious signs of disrepair or neglect? What is overall the condition of buildings, fences, siding and gutters? Rusting fences and peeling paint on a number of buildings may be indicative that management is not taking care of the property or may lack funds in their reserve.
Basic Financial Status
Check the reserve study to find out how much money is set aside to fund required maintenance. Potential buyers should be wary of a percentage between zero and 30 as this range occurs with those properties that are at a high risk of issuing a special assessment. The low risk HOA range is between 71 and 100 percent. Look to see whether or not the study is being followed and if capital improvements are being made on a scheduled basis.
Community members need to pay dues on time to ensure that funds are available for future needs and that there exists an effective assessment collection process. A community with a small cash reserve that experiences collection times of over thirty days may not be able to cover current or future expenses. Find out the percentage of owners who are over 60 days delinquent in payments. It is important to be aware of the days receivable in any HOA community. Use the average days member assessments in the budget and annual assessment to determine days receivable. Agents should be able to help a buyer determine whether or not to buy into an HOA based on the collection of assessments.
Reserves for the Future
An HOA should have a reserve plan to cover future maintenance and other expenses. Information should be available on a HOA’s budget and balance sheet. Those looking to buy into an HOA should take into account the community’s ability to receive the funds they need to operate as well as set aside a healthy percentage for future community needs. Too many HOA’s are poorly managed and issues, such as neglected foundation problems on buildings, can severely undermine the value of affected properties.
Management Issues
Has the management of the company changed hands frequently and are there any behaviors that indicate problems with those who should be caring for the property? These may serve as red flags for those who want to buy into an HOA community. Law suits and bad debts can impact the health of an HOA. It is important to review the financial statements and learn whether or not such issues are plaguing a specific HOA.
Agents Can Help Homebuyers
Understand the options to learn more about an HOA and perform some due diligence before purchasing a property managed by an association. Homebuyers with little experience in living in such communities may want to turn to an experienced local agent to find out more about red flags and what questions they should be asking when communicating with a seller. Get the financials and more on an HOA before buying in. | bit.ly/3XLoEJb
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