Check Out a Homeowner’s Association Before Buying a Home

Read Time: 5 minutes

If you’re thinking of buying a condominium, townhome, or single family home in a planned community, you’ll enjoy a lot of added benefits designed to protect your investment.

Homeowner’s associations (HOAs) oversee upkeep and amenities such as pools, gyms, common area landscaping, gated security, and more. You’ll pay a monthly fee to ensure your development’s standards remain high.

However, in exchange, you’ll also be subject to several rules and conditions that can cause problems and burdensome restrictions in some cases. Violations can lead to fines and legal headaches, making your daily life miserable.

Although it may not feel that way, the purpose of the fine isn’t to generate income for the association. It’s meant to generate compliance.

The other thing of note is that something that might not be illegal under city laws can be illegal under the HOA rules. That can include paint colors, having too many pets, parking a commercial vehicle, installing a flagpole, and dozens more restrictions.

How an association is administered is spelled out in a series of governing documents, and it’s wise to review these before you buy so you know exactly what you’re getting into.

Read the Documents

The most important step is to read all the HOA governing documents.

Don’t be afraid of the documents just because they’re a legal contract. Properly written HOA documents shouldn’t require a law degree to read them and should contain terms that a layperson should know.

If needed, hire an attorney to do that job for you. But don’t blow it off until after the fact.

If you read the documents, you may find rules and regulations incompatible with your lifestyle and should not buy a home in the development.

As soon as you can, request all HOA governing documents, which often include: 

  • Articles of incorporation
  • Bylaws, rules, and regulations that go into detail about what is allowed
  • Declaration of Covenants, Conditions & Restrictions (CC&Rs) 
  • A statement of the current periodic homeowner’s dues amount
  • Copies of financial records to see how your dues may be spent and how healthy the HOA is.
  • Copies of the association’s meeting minutes from the past year or two.

You can get these documents from your real estate agent, by contacting the association directly or from the title company handling the purchase and sale transaction.

Pay Close Attention to the Bylaws

The bylaws generally describe things such as the voting rights of the members, meeting requirements, and budget and assessment procedures. 

A board of directors runs the association, and the bylaws will specify the number of members on the board and the length of their terms. Bylaws also detail members’ voting rights and meeting, budget, and assessment processes.

Pay close attention to how assessments are levied. Some HOAs can levy these without members’ votes, creating a harsh reality over which you have no say or control.

If a development is new, the developer may control the first board. However, after a certain percentage of the property in the development has been sold, state laws or the CC&Rs will require the developer to turn over board control to the members. 

Focus on HOA Fees

Homeowners association fees, usually charged as annual dues, pay for insurance, new roofs, lawn mowing, pool cleaning, and other communal expenses. Find out if they’re capped and how often they can be raised.

It’s also important to check the association’s financial reserves. Determine if the reserves are fully funded and if there’s enough money for emergencies.

Another important area is whether the HOA is current on large-scale maintenance work, major repairs, and other big-ticket items. Make sure upcoming projects are properly funded. If they’re not, your assessment will go up in the near future to cover those expenses.

Is There Enough Insurance Coverage?

Homeowners association insurance should cover catastrophic events and disasters like fire, tornadoes, and storms. Depending on where you live, this could be an ongoing concern, and while getting impacted by these things is bad, not having the means to recover is much worse.

Insurance can also protect an association against lawsuits, such as slip and fall accidents in common areas, negligence, criminal wrongdoing, or other legal battles that often pop up in larger developments.

How Are Complaints Resolved?

The homeowners association’s bylaws should detail how you can file a complaint. Filing it in writing is probably the best step, detailing it with documentation.

For example, if you paid for work the HOA should have covered, have a copy of the bill available for the board.

If you are cited for a violation, some homeowners association boards are liberal by forgiving fines if the homeowner complies. Others may have a stricter policy, which is largely dictated by who is on the board and their interpretation of how the community should operate.

Reviewing the Association’s Financial Documents

You’ll pay dues as part of an HOA; from this, the association adopts an annual budget. The assessment statement will indicate the amount and frequency of regular assessments you will pay.

Also, see if you can determine the history of new or increased fees. These are often levied periodically to cover increased maintenance costs.

The bylaws and CC&Rs will detail procedures for setting and raising assessment amounts and whether there is a limit on annual assessment increases. Also, pay attention to the amount of reserves, another good indicator of the HOA’s financial health.

Special assessments may also be levied if an emergency arises or a large one-time project has not been budgeted. New roofs, sewage infrastructure, painting, and other large outlays can add a hefty one-time bill that could strain your finances without recourse.

Members can sometimes vote for or against the assessment, but in other associations, that’s not the case.

Meeting minutes are another good place to understand how business is conducted. It can reveal conflicts or upcoming issues that need to be addressed and give insights into how well the association functions.

Kirk Haverkamp

Kirk Haverkamp is an award-winning reporter and editor with more than 25 years of experience in journalism and public relations. He has contributed to Credit.com, Investopedia, and MetroMode online magazines, among other work. He has a B.A. in English from Hope College and a Master’s Degree in journalism from Michigan State University.

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