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How To Do Due Diligence on an HOA Before You Buy Into the Community—and Why It’s Crucial for Homebuyers

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If you’re considering buying a home in a homeowners association, you’re in good company.

According to data gathered by iProperty Management & Investments, 53% of homeowners live in HOA communities and approximately 4,000 new HOAs crop up every year.

There are a lot of obvious benefits to buying a property in an HOA.

“HOAs are set up with rules and regulations that residents must follow in order to maintain the community’s standards. They can be beneficial because they help to keep the community clean and safe,” says Boyd Rudy, an associate broker at Dwellings Michigan in Plymouth, MI.

However, HOAs tend to get a bad rap.

“Some people find HOAs to be restrictive, and they may not like having to adhere to the community’s rules,” Rudy says. “Whether or not an HOA is a good fit for you will ultimately depend on your personal preferences.”

Before submitting an offer on a home in an HOA, homebuyers should understand precisely what they’re getting into. To protect your investment and your peace of mind, here’s how to do your due diligence.

How to do due diligence on an HOA

Looking into an HOA should start with basic questions.

“Talk to your real estate agent first and get a sense of the HOA’s powers, finances, and history,” Rudy says.

You should also get the latest documents to review yourself.

“You can ask for them directly at the HOA,” says Bob McCranie, a broker at Texas Pride Realty Group in Dallas. “The latest documents should include their covenants, bylaws, minutes from recent meetings, any community rules, the HOA financials, and the resale certificate.”

Take the investigation a step further if you really want to be careful, and search court records, says Jonathan Dessaules, a licensed attorney at Dessaules Law Group in Phoenix.

“Most judicial branches offer public access to court cases, and a search online for litigation with the association’s name often works well, too,” Dessaules says. “You can see if they seem sue-happy or if the HOA gets sued frequently. And if they do, is it for reasonable things?”

Consider any restrictions

Before investing in a home linked to an HOA, you’re going to want to know what you can and can’t do.

“You should look at the governing documents and find out if there are any restrictions that the HOA places on homeowners,” says Eyal Pasternak, founder of Liberty House Buying Group in Miami. “These include the permission to rent out a property, keep pets, restructure a house, decorate around the holidays. There may even be rules on visitor hours.”

Understand the financials

There is a fee built into living in an HOA, and that will be clear upfront. But you need to understand if you’re potentially on the hook for any other expenses.

“HOAs are responsible for keeping up the community’s appearance and property values,” says Rudy. “One key way they do this is by pooling resources from property owners to pay for commonly shared expenses like landscaping or road maintenance.”

HOAs might also ask community members to contribute to big-ticket items like a new roof for the clubhouse or repaving a parking lot.

“Contributions are generally mandatory, so you should be aware of what kinds of projects are in the works that you may be asked to finance,” says Rudy.

There are also liabilities.

“If the HOA is sued, you want to know if members will be responsible for legal fees and damages,” Rudy says. “Understand the HOA’s insurance policy to ensure you are protected too.”

Chat with neighbors and look on social media

You can read all of the HOA’s documents but never truly have a sense of what the community is like.

Jeff Lichtenstein, president and founder of ECHO Fine Properties in Palm Beach Gardens, FL, recommends hitting the ground to learn about the community.

Ask neighbors walking around how they like living there and then ask if they know of any projects in the works for the community.

“Sometimes homeowners won’t know about rumors, but if you ask enough residents, you may hear something,” says Lichtenstein.

You should also see if the community has a presence on social media.

When in doubt, have a lawyer or accountant review the documents

Even if you’re skilled at reading contracts, you’re going to want to have someone whose job is built around it to take a final look at the HOA’s governing documents for any glaring issues.

“It’s important to have a local real estate attorney do a deep dive on any prospective HOA from an in-state legal perspective,” says Baron Christopher Hanson, a real estate agent with Coldwell Banker Realty in Stuart, FL. “If the HOA is solid, honest, and well-governed, they should have a squeaky clean history. If not, serious red flags will usually be found by a good attorney.”

Get to know the board

If you’re set on moving into a community, befriend the board. Your real estate agent should be able to introduce you and provide their contact information.

“Get to know the members of the board,” says Casey Ames, a real estate agent with Equity Northwest Real Estate in Meridian, ID. “Knowing the people—and knowing they know you—can be crucial in times of need. It will make assistance faster, and it will make the fees you pay worth the service you’ll get.”

The post How To Do Due Diligence on an HOA Before You Buy Into the Community—and Why It’s Crucial for Homebuyers appeared first on Real Estate News & Insights |®.

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