Know what you’re getting into before you start paying those lofty homeowners association (HOA) fees. Here are HOA red flags to be aware of…
Your neighborhood homeowner’s association (HOA) helps manage community areas and property value. It’s led by a board of directors and its members are made up of residents in the community. While some HOAs are voluntary, others require mandatory membership from anyone who buys property within the HOA’s area.
Before joining or buying a home in an area that requires membership, checking out the HOA before you start paying dues is a wise move, which can save you hundreds of dollars down the line. The last thing you want is to move into an area with lofty HOA fees that are changing often or one that has extremely strict rules—it can make or break your experience (and your wallet).
Here are some more HOA red flags you should look out for before joining your local HOA:
1. The HOA has low reserve funds.
Find out what the HOA’s budget is. Buyers should always request a copy of the budget review it and make sure the HOA has healthy reserves. An HOA’s reserve funds (which are partly made up of HOA member fees) are set aside to be used in case any maintenance issues come up in the community. If something comes up and funds are not available, owners could be facing special assessments. This would be on top of their regular annual or monthly fees. Special assessments are extra fees the HOA can charge members when there are insufficient funds to address any repairs or unforeseen damages (such as from a natural disaster) that come up in the community. While some special assessments may truly be unavoidable, an HOA with low reserves and special assessments that occur often can be a sign of an HOA that is not managing its funds properly.
2. They have overly strict maintenance rules.
It’s normal for HOAs to have community guidelines that homeowners have to follow for general upkeep (such as mowing their lawn), but an HOA with rules that are too strict is a red flag. Exterior improvement guidelines are intended to maintain the overall homogenous look and feel of a neighborhood. However, most HOA’s have zero understanding of modern trends in exterior home design. This can cause homes in a neighborhood to get stuck in a certain design era—which can be bad for property values. As a potential homebuyer, it’s wise to request the HOA’s CC&R (Covenants, Conditions & Restrictions) so you can get a feel for the rules and guidelines and whether it will be the right fit for you.
3. The HOA has a “Right of First Refusal” clause.
Some HOAs have a rule that you have to offer your home to the association first before putting it on the market. HOA’s first right of refusals is another HOA red flag. These are likely unenforceable. ROFR rules have a history of discrimination since they gave the HOA power to stop an individual from buying a home in the community—by buying it first. The latent effect of first right of refusal rules is that they can discriminate against minorities, single-parent households, and other marginalized people. Though these rules may not be enforced, they are certainly something to watch out for and avoid.
4. The HOA has poor communication and lack of transparency.
If the association does not communicate with members often or clearly (but makes changes anyway, such as arbitrarily increasing fees)—stay away. If the board or the property manager isn’t very transparent, or it’s difficult to get documents from them, this is a big HOA red flag. This may be a glimpse into the culture of the community and could be a sign that the association has too much power. Or that it is very disorganized and does not follow regulations properly. Both are signs of problems.
5. It’s difficult to amend rules.
If a 75 percent vote is needed to amend rules, that is a definite HOA red flag. Most people are indifferent and uninvolved. Therefore, with such a high bar, rules are unlikely to ever change to keep up with current times. Instead, what is more reasonable is a majority vote on an issue with a quorum (number of people who voted of total possible voters) of about 40 percent to 50 percent. Be wary of HOA rules that say the association can only be dissolved with a vote every 10 years. If you’re a prospective buyer, don’t hesitate to request documents and other information from your HOA to see how they operate – it could save you the hassle of paying costly fees and living under a restrictive HOA.
—- Bottom Line —-
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