When we buy a condo, we are all seduced by the décor, the ambiance, the view, and other visuals, when really we should be checking out something else that is non-visual!
The Home Owners Association (HOA) often plays a very nondescript role in the entire condo selection process, especially for first-time condo buyers. However, the HOA can play a very important role in the use of your finances if you find yourself in an unfortunate situation after moving.
To avoid a surprise, ask a few relevant questions about the HOA. One of the important factors would be ‘who runs the show?’ In a very small condo complex, it may be run by the residents, but a professional management company is preferable, especially in a condo of any size.
Professional management companies charge for their services, but they can often save this fee by getting lower quotes for repairs since they will be using the same company many times. There is also less chance of the company using its influence on residents’ votes, so they can be interpreted as fairer. Ultimately, it’s a business for them, and the HOA will be run as such, rather than as a part-time rush before each meeting deadline.
Always ask to see the HOA’s rules, financial report, bylaws, and minutes from recent meetings. Conditions, covenants and restrictions (CC&Rs) will affect your lifestyle, so make sure they “fit” with it.
The financial report will tell you if there are any big rate increases coming up or if “emergency” fees will be due soon. This raises the important question, what will happen if there is a big emergency? How do you pay and how much money is in the kitty HOA?
Maintenance reserves will be important; approximately one-third of the gross annual fees are expected to be charged to all residents of the reservations. A favorable minimum amount would be $4,000 per condo, although it is manageable.
Another aspect that the HOA handles is the percentage of rental units allowed. Less than 20% is acceptable, but more and reselling the condos becomes risky. Tenants often don’t have the same respect for the property or neighbors, thus lowering desirability. Mortgage companies are also aware of this and are reluctant to give mortgages to high-rent complexes.
Once you’ve answered all of these questions, you can consider whether you want to have a professional inspection done. These inspections include the common areas as well as the condo you are interested in. Once all of these precautions are in place, you’ll feel more confident to go ahead and make an offer.