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Know Thy Association

Most Realtors serve a mix of buyers and sellers. That means they need to look at issues from both sides. Your buyers want protection from a bad deal, and your sellers want to maximize what they walk away with.

One of the trickiest issues for buyers and sellers can be condo associations or Home Owner Associations, usually called HOAs.

What Are Associations and HOAs?

Real estate pros understand that condos are part house and part apartment. You own your living space but common areas, like the pool, roof, and landscaping are commonly owned. HOAs are very similar, except the homes are separate and common ownership usually involves landscape and security fencing.

In either case, all owners are required to belong to an association that jointly owns common areas and are responsible for their care and maintenance. Oh yea, these groups are also legally liable.


So What’s The Problem? Isn’t Community A Good Thing?

Sometimes, but all this “togetherness” can create liabilities for the homeowner and concerns for lenders. After all, each condo association or HOA member shares in the liabilities of the association. Whether you are representing buyer or seller, there are three key areas you need to investigate thoroughly.

1. Association Finances

There are plenty of laws requiring uniform accounting and disclosure of association finances. Be sure there are enough cash reserves to deal with upkeep today and future refurbishment when it becomes necessary. How’s their income? Are dues enough to pay current bills and put money away for the future? Is everyone paying up? Look at the delinquency rate and how aggressively these debts are pursued.

2. Legal Liabilities

Here come the lawyers. Is the group in any litigation currently? It is good to know if they are suing or being sued. Current litigation may not be a deal breaker, but it is sure good to know.   No matter the current situation, having plenty of liability insurance is very important.

3. Resident Make-up

Believe it or not, the buyer’s lender just might want to know what percent of the condos are occupied by renters and what percent by owners. The lender is making a long-term commitment and needs to know if they are financing your home or some future income property.

Solving Issues

So what do you do if there are problems? Communication goes a long way in keeping small issues from becoming large ones. Talk to the member leaders of the association. They may have a big stake in maintaining property values. They can light a fire under the management company, if needed.

Look to see if the association will experience any major changes, like insurance renewal, near the close date. If so, work with lender and association so there are no problems.

HOAs can be great. They help maintain the value of a neighborhood. Keep your clients happy by staying one step ahead of issues your buyer’s lender might have with the association.