How shoppers can check homeowners’ associations when searching for a home

Homebuyers are dealing with record high costs this year amid rising interest rates and shrinking supply.

While home shopping has become increasingly competitive, potential buyers should consider an additional factor when weighing the pros and cons of a particular property: a homeowners association, or HOA.

Homeowners’ associations are managed by community residents elected to serve as members of the board of directors, which governs the neighborhood through a set of rules and regulations. Homeowners pay HOA fees to maintain and repair common areas such as parks, roads, and community pools.

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Mandatory HOA membership can cost homeowners a significant amount, with fees as high as $1,000 per month, according to American National Bank of Texas.

If a board is low on funds or doesn’t budget properly, all they have to do is impose a special assessment, said Raylene Schifano, founder of HOA Fightclub.

She added: “Unless the members of the Assembly obtain 51% of the voting power of the majority, they will not be able to vote on the budget.” “I’ve seen budgets go from $300 a month to $800 a month.”

Since 84% of newly built single-family homes sold in 2022 were owned by HOAs, according to United States Census BureauIt will be important for potential buyers to ideally vet these organizations before signing a contract.

Different types of homes can be linked to an HOA, From single-family homes to co-ops.

Single-family homes are detached units where residents own the lot and the house on it, said Claire Trapasso, executive news editor at Realtor.com. They have their own entrances and street access and do not share utilities or other systems with other homes.

Houses and cottages are somewhat similar. However, it shares walls with its neighboring units, although it is separated by a floor-to-ceiling wall, Trabasso added.

Meanwhile, condominiums, often called condos, co-ops, or co-ops, are units in a condominium building where the residences jointly own the common space, but their ownership structure is different.

In a condo, residents own their individual units but jointly own the land and common areas with other residents. The apartments are managed by a board of directors of people in the homeowners association who make decisions for the benefit of the community, said Jamie Moore, Redfin’s senior agent.

In a co-op, residents own shares in the company that owns the building and will have a board of directors made up of every member in each unit, creating a community in which all parties will have a say, he added.

“Co-ops are very popular in places like New York and Boston, but condos are generally more popular in the rest of the country,” Trabasso said.

A high percentage of new homes built nationwide today are part of HOA-managed developments due to the financial benefit to local governments, according to Thomas M. Skiba, CEO of the Community Association Institute, a membership organization for homeowners and condominium associations.

“They don’t have to plow the streets anymore [or] “They do all this maintenance and they still collect the full property tax,” Skiba added, referring to local authorities.

Homebuyers who want to avoid the extra costs associated with HOAs can look at older homes on the outskirts of developments, Redfin agent Moore said. If you have no other choice but to purchase within an HOA, here are some ways you can evaluate the organization.

While real estate agents are not nationally required to disclose to buyers whether a property is associated with an HOA, homebuyers can take the initiative themselves and check with the organization.

Some states, such as Nevada, require sellers to provide potential buyers with a disclosure of all matters related to the homeowners’ association, including their financial situation and meeting minutes, Redfin’s Moore said. However, you should familiarize yourself with local and state laws to be aware of your rights as a homebuyer and potential homeowner.

These audit tips may not apply to co-ops, and you may not have the time to fully investigate a particular HOA.

Here’s a checklist from experts:

1. Ask for a copy of all HOA paperwork, such as charters, bylaws, rules and bylaws, which serve as the community’s constitution, said Schifano of HOA Fightclub. Also request meeting minutes to see what repairs were made or discussed.
2. Ask about monthly or annual fees, the HOA’s budget and a history of how assessments go up from year to year, Skiba said.
3. Look into the community’s reserve funds, which ensure repair and renovation. Check if the community is putting enough money aside to cover major expenses or if it is properly funded. “No one likes surprises, and this is the kind of big financial surprise [that can] “It’s going to be a real problem for every homeowner,” Skiba said.
4. Search the HOA on the county website to see how many liens, judgments and foreclosures have been recorded during the life of the community, Schifano said.
5. Look at the financial statements and see the amount of attorney fees disclosed. This indicates whether they are having a lot of problems, Schifano said.
6. She added that she is verifying that the county has permits to restore roofing, electrical and plumbing services to the community.
7. Ask to attend at least one board or annual meeting if possible. The meeting helps buyers understand who controls the community’s finances and decisions, Schifano said. The annual meeting includes other homeowners. As a true test of whether a board is doing a good job, notice whether residents seem happy, combative or content with themselves.

“The most important thing a buyer can do is ask questions of their agent, the community association and the neighbors,” Skiba said.

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