A homeowners association can be a crucial component of a community. It sets the rules and regulations for residents, from whether they can run a home business to what color they can paint their shutters. They also require residents to pay annual or monthly fees to keep the association operating.
Buyers are entitled to review an HOA agreement before closing. Understanding its terms is so crucial that some states require a period of time, often several days, to give a buyer the time to review association documents and back out of the deal without penalty.
Consider these issues when reviewing a homeowners association.
Obtain the association agreement
- What does the agreement's covenants/restrictions section, which sets the rights/responsibilities of the association and the homeowner, say?
- What do the bylaws spell out? How does the association operate? How does it elect its members?
- What do the rules and regulations specify about such things as parking restrictions, yard regulations, paint colors?
- Did you read the articles of incorporation that set up the HOA?
- What services is the HOA responsible for?
Pro tip: Start reading the agreement as soon as possible. They are often tedious and contain legal verbiage that might confuse readers. Consider an attorney to help.
Ask about the association's financial health
HOAs can provide a variety of community services such as maintenance of common grounds, garbage collection, snow removal and operation of recreational facilities. If it runs a budget deficit, it can assess residents to make up the difference.
- What is the association's budget?
- Are there any past bills the association hasn't paid?
- Does the association have significant financial resources for major repairs?
- Are there any ongoing projects the association is funding, and for how long?
- Are there any legal proceedings involving the association? What is the association's potential liability if there are any lawsuits?
- Does the association have enough insurance to cover liabilities?
What does it cost residents?
Association fees are charged through monthly dues and, if necessary, special assessments that residents must pay.
- What are the monthly or annual dues for residents and what services do they cover?
- Will there be any upcoming fee increases or assessments?
- What fines, and how much, can be assessed on residents?
- What are the costs of violations/penalties?
Pro tip: Check a state or municipal government's webpage to see if it lists past and ongoing legal actions to verify any ongoing litigation.
Personally investigate the association
Meetings and minutes provide information on what the community finds important and what issues residents face. Walking a neighborhood can reveal signs of poorly maintained common areas. It's also helpful to speak to residents about their experiences and concerns.