Many homes in the program are part of a Homeowner Association (HOA). The association and association board are made up of homeowners. The HOA board makes decisions, sometimes based on a vote of owners, for the community. In most cases, all owners in the community are voting members of the HOA. A more detailed description of an HOA can be found on the Colorado Division of Real Estate website.
HOAs have an impact on a buyer’s day-to-day life and finances and buyers need to understand the HOA they are buying into.
This list is not all inclusive, it is meant to assist in assessing an HOAs health before purchasing a home in an HOA.
Some HOAs have limits around the number and types of pets an owner can have. There may also be limits related to parking, running a business out of a home, overnight guests, quiet hours and/or other limitations on how a home can be used. A buyer should understand these limits and determine if they can live with them.
A buyer needs to make sure their budget can support this expense.
Some HOAs cover utilities, trash, exterior insurance, exterior building maintenance, and/or amenities such as a pool, playground or park. Not having to pay these expenses personally could offset the cost of the HOA fees within a buyer’s personal budget.
Generally, fees increase over time as costs increase. A buyer needs to make sure they plan for these increases. If fees have not changed in a while it is good to understand why. It is possible the HOA is not being properly funded. It is also important to understand how the decisions to change fees are made so these increases can be planned for.
A special assessment is a one-time fee that needs to be paid by owners for unplanned one-time expenses. Special assessments are generally larger than the monthly fee(s) and can have an impact on an owner’s personal savings.
It is highly recommended to get special assessment insurance coverage. Special assessments can be several thousand dollars. There is extra insurance, sometimes called loss assessment coverage, that can cover an owner’s requirement to pay for some special assessments. Generally, this coverage is limited to damage to common property or liability claims in common property. In most cases it will not cover maintenance or improvements. One should check with their insurance agent for details.
Reserves are money from monthly dues that are saved by the HOA for larger future expenses (replacing a roof, painting the building exterior, etc.). Many HOAs hire a consultant to conduct a reserves study. The consultant will review the complex to identify future needs and provide estimates for this work. The HOA uses this to determine how much it should be saving for these future expenses. If an HOA does not save enough for these future projects a special assessment could be issued to cover the costs.
A buyer can do a general evaluation of the property and determine if there are things they think need to be fixed or will need to be fixed in the near future. Determining if these are in the work plan for the HOA can help a buyer evaluate the quality with which the HOA is managed.
If there are special assessments issued for items which could be planned for (roof replacement, painting, etc.) this may be an indication the HOA is not being properly managed. There are of course some things that happen that are unexpected, and a special assessment is appropriate.
In a multi-unit building the HOA will likely have hazard insurance to cover parts of the building (exterior, grounds, etc.). However, this insurance will likely not cover the owner’s personal property or the interior of their home. Buyers should understand the limits of the HOA insurance so they can make arrangements to cover where the HOA insurance does not.
Buyers can examine the budget to confirm the dues coming in are enough to cover the operating expenses of the HOA and also allow for reserve savings. If this is not the case it may be an indication the HOA is not being properly managed.
HOAs have meetings to discuss issues happening in the HOA community and make decisions on how to address these. There should be minutes from these meetings. A buyer can review these to understand the current topics and make inferences as to how they will affect the buyer.
This could affect an owner’s experience in the HOA and/or create future obligations.
Many HOA’s hire a management company to manage the tasks of the HOA (arrange for lawn care, snow removal, building maintenance, communication with owners, etc.). The historic performance of the management company can provide an indication of how well they will perform for the HOA in the future.
Reviewing the following documents will give a buyer an in-depth understanding of the HOA.
