When you buy a condo or townhome, you are going to be presented with a large stack of Homeowner Association (HOA) documents to review as part of the purchase transaction.  Even single family homes can be members of an HOA.  This task can be daunting because you’ve probably never had to review—and approve of—documents like these in the past.  The documents will include such things as: CCRs and the Bylaws, budgets, meeting minutes, reserve studies, the resale certificate and more.  

Let’s look at each item individually, in order of importance.

Resale Certificate:  This is probably the most important item to review.  It is a rundown of all of the most important information related to the property you are buying, and it is has been specially prepared for you by the seller and an HOA representative.  It should cite the monthly HOA payment amount, how many units are owner occupied, if there are other units delinquent in their dues, and if there are any current or pending special assessments, among other items.  

CCRs and The Bylaws:  I call these “the rules” because these are the guidelines that the community follows to rule itself.  CCRs stands for “Covenants, Conditions and Restrictions” and deals more with the property itself, and the Bylaws deal more with how the HOA is run by its Board of Directors.  The CCRs will cover how many pets are allowed, whether you can paint your house purple, if rentals are allowed, and what the HOA is responsible for versus what you as a homeowner is responsible for.  The Bylaws get into who is on the board, how often the board meets, how meetings are conducted, and so forth.  

Meeting Minutes:  This is my favorite HOA document.  This is where you can hopefully get a feel for how the HOA operates.  You can see the kind of issues they are dealing with and, very importantly, if they are discussing any upcoming major repairs or assessments.  I recommend reading at least one year of meeting minutes.  

Budgets and Reserve Study:  The budget is the actual operating budget for taking care of the community.  Every HOA has different budget obligations.  Some only cover general insurance and common area maintenance, and others cover water bills and have gyms and pools to maintain.  The reserve study is a projection created by a third party firm about what the HOA will need to think about budget for maintenance over the next 30 years.  The budget can be difficult to assess, and I recommend speaking directly to a member of the HOA board (not the seller!) for their thoughts if the budget is realistic and being followed.  The reserve study is simply a guide and it is up to the HOA whether to follow it or not.  Ask the HOA board member about the reserve study, too.  Reserve studies can be flawed and overly cautious sometimes.

A few other items to note about HOAs when reviewing documents.  

*The HOA needs to be registered with the state as a business entity, so make sure the title company has verified this.  I’ve actually come across HOAs that are being operated illegally!

*Inquire if any other elements of your purchase require a deed, like a parking spot, garage or storage unit.  Make sure that item is included in the contract and transfers to you at closing.

*And, some homes and neighborhoods may have legally-binding CCRs but no HOA to enforce them.  In those cases, make sure the CCRs are reasonable for your needs, and rest assured that someone would have to go to a lot of legal trouble to try to enforce anything in them.  

This step in buying a condo or townhouse can be quite daunting.  I usually try to sit down with my buyers for an hour or so to review the documents and then set them up to speak with an HOA representative for follow-up questions.  If you need help with the condo buying process, just let us know.  We are always happy to help.