You’ve finally found a great condo to buy that hits on all your preferences, is in a good location and has affordable homeowners association (HOA) dues. Now it’s time to review the disclosures, particularly when it comes to the HOA. What restrictions exist or could lead to potential problems?
Here are my top 10 HOA issues to vet when it comes to condo living:
1. Flooring restrictions.. Are there serious restrictions against having hardwood floors? In most cases, HOAs require that owners cover a certain percentage of hardwood floors with area rugs or carpet. But some HOAs mandate that bedrooms have wall-to-wall carpet. If this isn’t your thing, make sure you know about it before you write an offer.
2. Pets. Condo CC&Rs typically specify pet restrictions, which often limit the size/number of dogs and cats. Keep this in mind, for example, if you’re thinking of getting a second dog and the CC&Rs limit the number of pets in a unit.
3. Building maintenance and repair. What are your individual unit’s maintenance and repair responsibilities, and what does the HOA cover? Check the CC&Rs and other documentation to see whether your deck or windows, for example, are the domain of the HOA.
4. Ratio of rented to owner-occupied units. Find out how many units are rented, and how many are owner occupied. For one thing, most lenders have underwriting limitations if there are too many condos rented in a complex. And secondly, it’s always nice to purchase a condo in a building where other owners are as equally invested in the building as you are. Make sure you check out this detail.
5. Improvements and alterations. Most CC&Rs specify that owners need HOA permission for remodeling, so that’s the way it goes. It’s not a great idea to try to sneak contractors through the hallway. So if your transaction hinges on some type of unusual renovation—a balcony off the dining room!—it’s best to talk with the HOA president or management company before you remove your contingencies.
6. Ability to rent your unit.. Short-term stays are typically prohibited in CC&Rs, and some buildings have a waiting list that prevents more than a certain percentage of units from being used as rentals. If you’d like to rent out your condo down the line, be aware of any restrictions that exist.
7. Upcoming assessments. Is the HOA planning to assess individual units for a future repair or improvement? And will you be the owner who ends up paying that assessment? It’s good to know what you may need to budget in the near term.
8. Insufficient financial reserves. Most larger buildings should have a reasonable amount of money in a reserve account for repairing, replacing, or improving building components such as the roof, exterior, or elevator. If reserves are very low, it could indicate poor HOA financial health, and also doesn’t bode well for building maintenance. Ultimately, you may be looking at a large assessment to cover an unexpected repair. And of course, lenders will shy away from providing financing on condos in buildings with insufficient HOA reserves.
9. Storage. Many condos have deeded or designated storage indicated on the condo maps. Confirm whether your understanding of the storage available to the unit for sale matches up with what’s in the condo maps and preliminary title report.
10. Litigation. Is the HOA in litigation, or planning to undertake litigation in the future? If so, that may have a major influence on your ability to get a loan—not to mention on your opinion of the property. Litigation issues should be disclosed, but also make sure to read HOA meeting minutes and check for any discussions on the topic. Sometimes there’s litigation coming up that’s not been formally started, and you don’t need the surprise after you’ve completed your purchase.