Condo Buyer’s Guide: How to Evaluate an HOA Before You Buy
When you buy a condo, you’re also buying into a small company: the HOA. It has a budget, savings, possibly debt, and a board making decisions that affect your dues and your home’s value. Before you buy in, it’s worth knowing whether it’s well run or underfunded. As an accountant and CFO, that’s exactly what I look at. This guide covers what I review for my clients before they commit. It’s general information, not legal or financial advice, and every building is different.
1. The HOA Budget and Dues
Look at what the monthly dues cover (often water, trash, insurance, exterior maintenance, and amenities) and how dues have changed over the last few years. Dues that look unusually low can be a warning sign if the HOA isn’t saving enough for future repairs.
2. Reserves and the Reserve Study
Reserves are the HOA’s savings for big-ticket items like roofs, elevators, siding, and parking structures. A reserve study estimates when those items will need replacing and how much to save. Ask for the most recent reserve study and compare the actual reserve balance to what the study recommends.
3. Special Assessments
If reserves fall short, the HOA can charge owners a special assessment, sometimes thousands of dollars per unit. Ask whether any assessments are current or being discussed, and review recent board meeting minutes for clues about upcoming projects.
4. Rental Rules
Many HOAs limit or restrict rentals, including short-term rentals. If you might rent the unit now or in the future, confirm the rules in the governing documents (the CC&Rs and bylaws) before you buy, not after.
5. Insurance
The HOA’s master policy covers some things and you’ll insure the rest with your own policy. Find out what the master policy covers and its deductible, since owners can be responsible for a share of it after a claim.
6. Litigation and Delinquencies
Pending lawsuits involving the HOA, or many owners behind on dues, can affect both the HOA’s finances and your ability to get a loan. These usually show up in the HOA documents or lender questionnaire.
7. Financing Eligibility
Lenders review the condo project, not just you. Factors such as owner-occupancy, how many units one person or company owns, commercial space, reserves, and litigation can affect which loans are available. FHA loans, for example, generally require the project to be FHA-approved or the unit to qualify for single-unit approval. Ask your lender early; see loan programs for an overview.
8. Closing Costs Specific to Condos
Condo purchases can include HOA-related fees at closing, such as transfer or reinvestment fees and charges for HOA documents. Your purchase contract and the HOA’s documents will spell these out.
How I Help
I read HOA financials the way an accountant does and flag concerns before you’re committed. If you’re weighing a specific condo, send it to me for a free HOA check.
John Taylor, REALTOR® | In Depth Realty | 801-918-5798