The homeowners association model goes back much earlier than people would believe. The first recognized homeowners association was in 1916 in California, but the concept didn’t really take off until the post-World War II building boom.
The HOA boom accelerated significantly during the 1960s when the federal government and the Federal Housing Administration encouraged master-planned suburban communities with shared green spaces and amenities.
According to the Foundation for Community Association Research, there are about 373,000 U.S. community associations that include about 78 million Americans. That figure is likely to rise as more homeowners band together to cover public costs as local governments worry about budget shortfalls. This, of course, is the reason potential HOA homeowners need to do their homework.
We talked recently about HOA reserves and the necessity for associations to have well-funded reserves. As a future buyer, you can request to see the community’s reserve study reflecting the HOA’s financial health. Make sure reserves cover major capital projects and that the amount of funds being added to the reserves is adequate.
This is important information, especially if you are planning to apply for a mortgage. Mortgage lenders are looking closely at HOA reserves, and Fannie Mae and Freddie Mac are also increasing scrutiny of HOA finances.
Condo boards typically plan three to five years in advance for major capital improvements or repairs. Roof repairs, paving projects, siding, pool repairs and updates, and tennis court maintenance are some of the capital improvements that condo associations are faced with.
In addition, many associations have clubhouses that contain furniture, kitchens and other entertainment items such as pool tables, which on occasion need to be repaired or replaced.
When discussing the improvement projects for a condo association you are considering buying into, your first question should be: Is the project funded now, or will there be full funding by the date the project is slated to begin? And for large projects, what are the anticipated start and completion dates? It also can’t hurt to ask about insurance claims during the last couple of years. Was there a storm, or is there a systemic problem with the buildings?
Finally, spend some time walking the grounds of the community and eyeballing how things look to you. Just as you would with a private home, look for peeling paint, evidence of mold, landscaping issues or anything else that to your eye doesn’t add up.
Most associations are deed restricted and have rules about leaving things outside your personal unit. Get a copy of the rules and see if there is an obvious culture of rules being broken.
Condo associations sometimes live by their own rules, with oversight by the state the condo is located in. You can usually find the condo laws for any state online.
After reviewing the reserve schedule and the budget, if it looks like there’s a shortfall and the project is being pushed into the next year, that is a red flag to be followed up on.
That said, condo living is not going away, no matter what you read. The idea of shared expenses is more popular now than ever as expenses increase and the population ages. The concept has been around a long time, and that should tell you something.
