4 Pro Tips for Buying in an HOA

1. Low HOA dues aren't always a smart buy

You may have noticed recently that inflation has been… a thing. The cost of just about everything is up, including things like building insurance, elevator maintenance, utilities, and labor for building repairs. So chances are, if an HOA hasn't been raising the monthly dues regularly, they're falling behind. 

Mid to large size buildings should provide a reserve study detailing the fiscal health of the HOA. If the HOA doesn't have enough reserves to, say, replace the roof when it needs it, they might hit building owners with a special assessment - a lump sum payment to cover urgent needs the building has. These can be anywhere from $500 to $50,000. (yes you read that right) So to avoid foreseeable issues…

DO: look for a building that's responsibly raising their dues on a regular basis to keep up with inflation. 

DON'T: Limit your search to only places with "low" HOA dues - you could be missing out on a great building! 

2. Low HOA dues (or even $0) aren't always a bad buy, either

It's very common for 2-4 unit HOAs to pay for bills and repairs ad hoc, instead of formally collecting dues every month. For buildings less than 5 units, the CA Department of Real Estate doesn't require a formal budget or reserve study to be done. 

Oftentimes there's no reserve account; sometimes not even an operating account to pay monthly utilities and insurance bills. 

The responsibility of buying in an HOA this small is much closer to that of purchasing a single family home. Usually the condo (or TIC) owners self-manage the building. That means if the sewer line backs up, the owners get multiple bids and split the cost. When the insurance bill comes due, one of the owners collects money from the others and pays the bill. And so forth.

Every small building is a bit different, and sometimes casual HOAs have been functioning perfectly for many years. So when you see a building that has $0 HOA dues…

DO: Ask questions! If the building has deferred maintenance, have there been discussions about it? Is one owner resistant or unable to cover costs of repair? Or does the HOA just need someone to take the reins and move projects forward? 

DON'T:  Forget to plan ahead. Remember that in a small building you'll have a bigger percentage of shared costs. Think about future maintenance items like landscaping, roof, and termite repairs, just like you would with a single family home. 

3. Remember the 10 year rule

In California, SB800 is a law that provides a 10 year statute of limitations for HOAs to pursue legal action against the developer/builder for construction defects. 

In practice, that means that many HOAs end up in construction defect litigation shortly before the 10-year anniversary of the build. 

Once an HOA is in litigation, it can become *very* difficult to sell a unit in the building. Lenders often have guidelines against making loans in an HOA with active litigation, which devalues the properties significantly. It might also indicate there could be future construction in the building, with the accompanying noise, dust, etc. So to steer clear of issues…

DO: Look at the build date to see if the 10 year mark is coming up, and check the disclosures for any signs of potential upcoming litigation. 

DON'T: Pay top dollar for a unit in a building right before litigation begins. 

4. Avoid the drama, mama

If you think HOA disclosure documents might be the world's best sleep aid…. you'd mostly be right. But once in a while, you'll find some reality-TV-worthy drama lurking in the HOA meeting minutes. Whether it's practical stuff like repaving walkways or bitter infighting about the new paint color for the lobby, you'll get a sense of how the board interacts, and whether there are recurring issues that don't seem to be getting solved.  

If you're prioritizing your reading list, we'd suggest picking up the budget first, and the meeting minutes second. (The seller is required to provide you with the past 12 months worth.) To avoid getting into a messy HOA… 

DO: Look for clues in the meeting minutes: Special assessments past or planned? Building maintenance needs? Conflicts between neighbors? Recurring noise issues? 

DON'T: Assume that the seller is an expert on HOA matters. If they don't attend meetings or keep up with goings-on within the building, the disclosures that they personally filled out might not cover everything.  

When buying a condo, vetting the HOA is just as important as falling in love with the unit itself. Apply these pro tips for condo buyers and you'll be steps ahead of the crowd!