Many buyers looking to purchase a condo in today’s real estate market are obviously looking for a deal. And rightfully so with the number of foreclosures and short sales on the market these days. But what many condo buyers don’t realize or fail to realize the importance of, is that they are not just buying a piece of real estate, they are also buying a membership into the homeowners association (HOA). Most buyers are aware of this fact. Sure that means there are rules to follow, HOA dues, CC&R’s, and probably HOA meetings. No big deal, right? Well, probably no big deal unless you get hit with a dues increase or, worse yet, a special assessment that could easily cost you thousands of dollars. Suddenly that bargain condo isn’t such a bargain anymore.
When you are buying a condo (or any property subject to an HOA), there are a number of issues that you as a buyer need to be aware of that are much different than buying a single family home. The most obvious of which is the homeowners association, which you may soon become a member of. Say, for example, there are a handful of foreclosed properties in the complex. Chances are you may be hoping to purchase one of these bank-owned properties (REOs). So can you imagine that if the former-homeowners failed to pay the mortgage there is a high probability that they also weren’t paying HOA dues. Multiply that by a few former-homeowners and suddenly the HOA’s operating budget is no longer where its supposed to be at. And that can directly lead to a dues increase or even a special assessment. How can you protect yourself against such surprises? Make sure you do your due diligence on the HOA finances before making the purchase. Review the budget and financial statements provided to you. And as boring as it may be, read the board minutes and newsletters.
There is a great article from the Wall Street Journal written by June Fletcher that discusses a few more hints for buyers interested in buying a condo. This includes taking a good, long look at the reserve study. This is a great, short article for anyone in the market looking to buy a condo.
Tips for Buying a Condo at a Bargain, The Wall Street Journal, June Fletcher, October 17, 2009