Broker Check


November 12, 2020

Considering buying a condo, townhouse, or detached home? You might be downsizing, just getting started or looking for a winter getaway. The convenience of an association that takes care of maintenance while you enjoy the pool, pickle ball courts and other amenities can be very appealing.

That convenience comes with a price in the periodic dues or assessments you will pay to cover the homeowner association(“HOA) shared operating costs and to build reserves for major expenses in the future. The HOA is typically governed by a volunteer board that creates an annual budget and sets the amount of the regular dues and special assessments.

If you are considering buying a property with an HOA, you need to take extra steps to evaluate the financial strength of the association. Determine if the dues are up to date and if not, what is the delinquency rate. Some associations pay a professional management company which can help ensure all members pay their dues in a timely manner. Besides visiting the prospective property to evaluate condition, talk to residents, review association newsletters, websites, or resident blogs. These resources can provide insight into any litigation or special assessments that could be looming.

Once you have signed a purchase offer, the seller should provide association documents which will include the formal rules of the association along with the financial statements. Your offer can be contingent on your acceptance of these documents and allow you to terminate the offer if you find something you do not like.

With the financial documents in hand, review the cash flow statement to determine where the expenses are going, and the balance sheet to see if there are outstanding loans, reserves for major repairs, and how much cash the association has on hand. If you are not comfortable reviewing these financial reports, speak with your CPA, financial planner, or attorney. The small cost to have an expert review these documents at this stage could help you avoid a large, unexpected financial outlay after moving into your new home.

Additionally, if you are looking at a new property, the developer may be subsidizing the HOA dues to lure buyers with lower dues. If so, be sure you understand this arrangement and be prepared for higher HOA dues once the developer leaves and the owners take over.

Even if you find something of concern during your review, it doesn’t have to derail your purchase. You might find a great property but realize a special assessment is pending or there is some other shortfall. Ask the seller to reduce their sale price by that amount. This could ensure you get the place you want but provide you a financial cushion to address future expenses.

At WealthCharter Retirement Planning, we have been helping our clients review their property purchases for over 20 years. We look forward to speaking with you.