COLUMNS / PROPERTUNITIES

       
 

What the #*&$ is a Homeowners Association?

And why are they taking my money?

I’ve been selling real estate for almost eight years now, so it’s easy to forget that terms I use literally several times a day might be completely foreign to a real estate first-timer. I had a meeting the other day with a buyer who is dipping his pinky toe into the real estate waters for the first time. He’s able to spend just over a million dollars, but is uncertain whether he wants a house or a condo. Obviously there are pros and cons to each, depending on whether one is up for the responsibilities and expenses that come with owning your own house, or whether one prefers the convenience and more maintenance-free lifestyle a condominium offers.

As I was explaining these differences and trying to get to the root of his wants and needs, I mentioned HOA dues to him. He kind of glazed over, and I realized I was speaking a foreign language. He’d never heard the term and didn’t know what these dues were or their purpose.

The first thing you need to know, above all else, is that HOA dues are an additional cost you’ll need to factor in and plan for when figuring out what your total monthly costs will be for ownership of a condominium. These dues are not negotiable, and you don’t have a choice as to whether or not you pay them.

In short, every condominium building (and some residential neighborhoods, actually) has a homeowners association. The HOA is a legal entity. The governing board (consisting usually of a president, vice president, secretary and treasurer) is made up of residents of the building but typically hires an outside management company to oversee building operations. The purpose of the association is to oversee the upkeep of the building, ensure that proper maintenance is done and that care is taken to preserve the integrity of the property and keep its value solid. The basis for the amount of dues each unit pays can vary. In some buildings, it’s based on square footage. In others, dues are the same for every unit. In some, there’s no discernable rhyme or reason to how the dues are assessed. When you buy into a building, membership in the association and payment of dues are usually a requirement of purchase.

What are these dues used for, you ask? Your building, like any other, needs maintenance, upkeep and repairs, and it needs them regularly! Roofs, exteriors and common areas are most always the responsibility of the association. That money has to come from somewhere. The dues also typically cover things like water, garbage collection, security, pool and recreational facility maintenance and gardeners. They sometimes can include things like basic cable service or earthquake insurance. There are typically at least two funds in an HOA—an operating fund and a reserve account. The former goes to recurring expenses mentioned earlier, while the reserve fund is important in the event of significant repair costs or to repair any unexpected damage the building might incur. Without sufficient reserves to fall back on, a resident might find himself faced with a special assessment (more on that shortly).

When you go into escrow on a condominium, you will receive a stack of documents pertaining to the HOA. You will receive CC&R’s (Codes, Covenants and Restrictions), HOA by-laws and the rules and regulations of the building, as determined by the HOA. There are times when a major expense comes up that must be addressed but exceeds what the reserves can provide for. HOAs have the power to levy special assessments on homeowners when necessary (usually by a vote of the association, but they can be mandated when they feel it’s absolutely necessary). Special assessments can range from $500 or less per unit to tens of thousands of dollars per unit (usually paid over many years).

If you are considering a condominium building, it is incumbent upon you to do your due diligence and read the rules and regulations of the building. The last thing you want is to find out that there is a 20-pound weight limit on pets and your St. Bernard is not going to be welcome in your building. Carefully review the minutes from several recent meetings to determine if any dues increases or special assessments have been discussed. Investigate whether there has been any recent or pending litigation involving the HOA. Often lenders won’t lend if there has been.

Jefferson Hendrick is an L.A.-based Realtor with Keller Williams. Contact him with questions, concerns and real estate inquiries at [email protected] or facebook.com/jeffersonhendrickrealtor.

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