Homeowner Association Due Diligence is Key for Home Buyers

By Robert Jenson (c) 2008

We've all heard tales of woe about "homeowners associations from hell" thatare so militant with enforcing their community's bylaws, the quality of lifefor the home owner is actually diminished.

The Community Associations Institute estimates that nearly one out of everysix Americans lives in a community association and that, in 2007, HOAsgoverned 23.8 million American homes and 58.8 million residents. And withsignificant economic impact, as the institute estimates the real estatevalue of all homes in community associations approaches $4 trillion,approximately 20% of the value of all U.S. residential real estate.

These HOAs have full authority to enforce a development's covenants,conditions, and restrictions (CC&Rs). Before purchasing a condo, townhomeor single family home in a master planned community, it's imperative forprospective buyers to actually read those CC&Rs and understand exactly whatthey encompass to assure they mesh with the buyer's lifestyle and togenerally avoid future hassles.

Below are a few top HOA frequently asked questions and answers to helpwould-be homeowners assure mandates purported to serve the community's bestinterests actually serve their personal best interests:

What are some important questions to ask a HOA before you purchase aresidence?

Before purchasing a condo, townhome or other attached residents, it'simperative to ask a homeowners association about parkinglimitations/restrictions, pet limitations/restrictions with respect toquantity, size and type, restrictions related to outdoordecor/furniture/grilling restrictions (for balcony/patio), and if there areany current outstanding assessments the new owner will be responsible forassuming (on top of normal HOA) and term of those special assessments (1x ofongoing?). Also ask if there is any active litigation, as this may affectbuyer financing, and also indicates possible red flags with property ingeneral you will want your home inspector to do extra due diligence on.

How should you expect the HOA to respond?

HOA should respond to prospective buyer inquiries with full disclosure -meaning they should provide you with all answers you are seeking or, at thevery least, the means for you to find those answers as many will merelydirect the person inquiring to the CCNRs.

What's important to know about published bylaws, covenants and restrictions?

It's important to understand that many aspects of the residence andcommunity property are actually governed, as many vastly underestimate thepower and "reach" of a HOA. Of particular note are any and all bylawentries related to HOA fees and the implications if any given rule is"broken."

Is it wise to ask a lawyer to read over the bylaws/restrictions beforepurchasing the property?

If you have an attorney available, then yes, but no need to hire just forthis purpose unless the development has active litigation going on, in whichcase it would be a good idea to consult with the attorney about thesituation at hand. The attorney could also review the "special assessments"to confirm they do or do not apply to you as a new buyer.

If you don't agree with something in the bylaws/restrictions, do you haveany recourse? Should you consider running for a post on the HOA board so youcan change one or more of these rules?

If you don't agree with HOA bylaws/restrictions, the best recourse is to notbuy the property. If you're flexible on the bylaw and willing to spend thetime and energy required to run for a post on the board, you might be ableto change things once you're a community resident. However, if it'ssomething you feel strongly about at the onset, always go in with theexpectation that "this is the way it is going to be."

Typically, what do monthly HOA assessments/fees cover, at minimum?

HOA fees typically cover common ground concerns such as landscaping, pestcontrol, pool and fitness center maintenance, guard gate/security servicesand common area taxes. They sometimes cover utilities such as trash, wateror cable television.

How often do HOA assessments/fees increase (and at what percentage), so youcan be prepared for rising costs down the road?

As a rule of thumb, HOA fees can change as often as ever 2 to 3 years,usually increasing at a 10% clip (at a minimum). Special assessments mayoccur annually but for different reasons (redoing roofs, new front gates,mailbox upgrades, painting the exteriors, etc.)

Some HOAs get bad publicity for being dictatorial and too restrictive. Whatcan you do to research whether your future HOA has a bad reputation or not?

To find out if a given HOA has a bad reputation, it's always a good idea tospeak with current residents...but don't stop there! Also speak withresidents in neighboring communities who may have heard rumors and may bemore apt to discuss since their community's home resale prospects won't beaffected.

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Please contact me, Robert Jenson, for more information on this or any otherreal estate related matter at Rob@TheJensonGroup.com or through my Web sitelocated at www.TheJensonGroup.com.