Review the HOA Documents

If you are purchasing a condominium or townhome, you will also want to review the Home Owners Association (HOA) document package. Understanding the contents of the HOA documents is equally as important as understanding the sellers disclosure packets and inspection reports.

The HOA document package should include the following:

• Declarations and Bylaws
• Rules and Regulations
• The current year’s budget
• Meeting minutes
• 22.1 disclosure

When you purchase a condo or townhome, you are buying into the building and the community. Before making an offer, you need to ascertain if the association is financially viable and if there are any major maintenance concerns or issues with other owners failing to pay their dues in a timely manner. All of this plays a huge part in the value and stability of each unit. If the community requires significant upgrades and there is no monetary reserve, the individual owners could be required to pay a special assessment to cover the costs.

It is also important to understand if the community is professionally managed, or self-managed by the owners. Generally, buildings that are managed by a professional association are less of a risk.

Every community has its own unique restrictions. Some of these may not fit your list of criteria or may be too prohibitive for your needs. These restrictions may involve:

• Pet restrictions: Some communities do not allow pets while others limit the size, weight, breed, etc.
• Move-in fees or procedures: You may need to move during certain hours of the day or reserve an elevator to transport items to upper levels.
• Leasing constraints: Are you able to lease your unit? If so, for how long?

Another crucial piece of information of which to be aware is the percentage of renters within the community. If the percentage is above 50%, your mortgage lender may feel the property is too risky of an investment and decline your loan.

You also need to know if the community has the appropriate level of insurance coverage. Typically, the association should have the following:

• A $1M Commercial General Liability policy on a per occurrence basis
• Hazard Insurance with 100% Replacement Cost coverage and no coinsurance
• A Fidelity Bond protecting the HOA against embezzlement or other loss of funds (applies to communities with 21 or more units)

You will also want to know if the interior finishes of the unit are covered by the Hazard Policy or if the owner has to purchase a separate walls-in policy, also called HO-6 insurance. Let Dawn know if you need a great referral to an insurance agent.

As you review the HOA documents, take note of any questions or particular concerns so we can ask for clarification. Pay particular attention to the meeting minutes to learn about the day-to-day operation of the building as well as potential large-scale repairs in the works. The minutes will also reveal issues current owners are experiencing (and what you may also encounter should you live there.)

You’ve reviewed all the vital documentation and are ready to make an offer! Let’s discuss this next step of buying a home.