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April 2, 2024

The ABCs of HOAs

Condo Building

Condos are a popular option for many home buyers in San Francisco. Prices for condos are more affordable than those of single-family homes, and there’s less upkeep involved. For busy professionals, condos are generally a better fit for busy professionals who also travel frequently.

The residents within a condo building are part of a homeowners association (HOA). In larger buildings, there’s usually an HOA board, too. These entities make decisions about the property with respect to expenditures, special assessments and other issues that arise.

There’s a lot to evaluate when you’re considering a condo purchase. I thought I’d put together a primer on the basic HOA disclosures and documents of consequence so you’ll know what to expect when you locate a condo you like and may want to write an offer on.

CC&Rs: The “Conditions, Covenants, and Restrictions” are the bible of your HOA. CC&Rs are typically boilerplate for each association, and are drawn up by a real estate attorney and recorded with the city. They cover key details such as what percentage of the common area is allocated to each unit and what exclusive-use areas exist. The CC&Rs outline the responsibility of the HOA and how issues such as delinquent HOA dues and unit remodeling are to be handled. It’s key to note the voting rights within the association, too, as well as how special assessments (additional charges beyond monthly HOA dues) are managed.

Most specifically, CC&Rs outline use restrictions, such as pets, garbage disposal, right to lease, and occupancy limitations. These are important because they sometimes deviate from boilerplate matters. Some CC&Rs ban certain dog breeds, and if you prefer hardwood floors, it’s important to note whether you’ll have to put down area rugs to mitigate foot noise. A very significant limitation may be on renting your unit; make sure you’re aware of any restrictions if your future plans include holding the condo as rental property.

Finally, CC&Rs include the condo map, which is a diagram of each level of the building. You should make sure what you’re purchasing corresponds with the map, such as parking and storage. When you make a subsequent visit to the property, make sure your deeded parking and storage correspond to the condo map. And pay attention to amendments or exhibits that were added to the original CC&Rs. They may represent information that supersedes the original document.

Bylaws: This document typically outlines the duties of the HOA board, and is usually boilerplate.

Condo/Financial Disclosure: This one pager confirms the current HOAs for the unit, as well as the amount in “reserves.” The latter is the money available in the HOA bank account for maintenance and building expenditures. For larger buildings, you will want to see a reasonable amount in reserves. For smaller buildings in San Francisco, it’s not unusual to have nothing in the reserves. Residents typically use a pay-as-you-go approach. The condo disclosure states whether there’s any pending litigation, and also confirms whether there’s a move-in/move-out fee.

Budget: Depending on the size of the building, a budget can be as simple as a one-page document showing all the annual expenses and income, or a multi-page booklet that spans several years. Things to look for are reasonable maintenance and upkeep operating expenses, as well as projected income. Also, some large buildings will have one or more “reserve studies” on file. This is an estimate of the life of major building components, and how much it will cost to maintain and replace them over, say, a 30-year period.

Insurance: You should receive a declaration of current HOA insurance for the building. This insurance does not cover individual units; most lenders are requiring individual unit coverage these days. Make sure you know what’s covered, and get some quotes for your own unit. Pro tip: If the HOA insurance is about to expire, have your agent inquire about prospects for policy renewal. If there’s a possibility the HOA policy could cost significantly more after renewal or a change in the insurer, you’ll want to know that for budget purposes.

HOA Meeting Minutes: Some associations meet quarterly, some meet monthly or annually, and some don’t meet at all. If any meetings have taken place, there will usually be minutes taken by an association member. These should be included in the disclosure package. This is where you’ll be able to read about garage break-ins, the neighbor who’s playing his music too loud after 11PM or other issues.

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