Buzz
As you search for a home, you’ll likely come across properties in communities governed by homeowner associations (HOAs) or condominiums—there are around 370,000 HOAs across the United States, with about 75% of newly constructed homes being part of an HOA or condo board. This means you’ll need to consider HOA fees as well as occasional special assessments for unanticipated repairs or maintenance when calculating your home budget.
While there are many reasons to be cautious about HOAs and condo boards, most are mandatory associations you’ll have to join when purchasing a property. Despite tales of overbearing HOAs, there are plenty of well-managed boards that effectively oversee the community’s finances and common areas.
However, if you’re buying into a neighborhood managed by an inefficient or possibly corrupt HOA, you may face hidden financial challenges. Even if you adore the house, the neighbors, and the association fees seem reasonable, massive assessments could be in store after you close the deal. If you’re considering buying in a community with an HOA, here are some signs that you may be on the verge of major future expenses.
Inadequate Reserves
A properly managed homeowner's association should keep reserves—funds saved for unforeseen expenses like urgent repairs. Without reserves, any issue that arises will result in a special assessment. If you purchase your property just before a major issue emerges, you might find yourself facing hefty charges shortly after making one of the biggest investments of your life.
Whenever you're thinking about buying in a community with an HOA, it’s essential to review the financial records to ensure the association is well-managed. If you see that the reserves are alarmingly low, it’s a warning sign that you could be stepping into a situation where large assessments are inevitable. The HOA will need to rebuild its reserves, which may mean dipping into your wallet when costly repairs or lawsuits arise, like a leaking roof or a dispute with the community.
Lack of Repairs
Part of your research when evaluating any HOA should involve reviewing the repair and maintenance history. If recent repairs are lacking, it could be a red flag that there’s a list of issues just waiting to become your responsibility in the near future.
For instance, roofs are costly. If you're purchasing a condo in a building that hasn't had a new roof in decades, it's only a matter of time before a new one is required, and you can expect an assessment to cover the cost. What you should look for is a history of consistent, forward-thinking maintenance and repairs. While maintenance does come with a cost, it’s far easier to budget for a regular, manageable fee than to face an unexpected demand for a large sum of money.
Different states have varying requirements for record-keeping, and even a well-run association may not have records older than a few years. However, they should have maintenance logs and be able to tell you when major items like roofs or significant communal areas were last repaired, replaced, or updated. Signs of postponed maintenance should raise red flags, as they may indicate looming costs down the road.
Frequent Lawsuits
A major indicator that a large assessment could be coming soon after you close on your property is ongoing litigation. If your HOA is involved in multiple lawsuits, not only will legal fees increase, but any settlements or verdicts against the association will likely result in higher fees or assessments that come directly out of your pocket.
Court records are public and easily accessible (often a quick search for your city’s name along with “court records” will lead you to the right place), so you can check the local legal dockets for the association’s name. If the board or HOA is constantly suing or being sued, it’s not just a sign of poor management; it also means you’ll be stuck with legal bills once you become the property owner.
Deteriorating Shared Spaces
A key responsibility of any community association is maintaining the 'common' areas. In some communities, this is as simple as taking care of roads and sidewalks or the landscaping surrounding the building. However, in other communities, amenities like clubhouses, playgrounds, pools, and rooftop decks are part of the attraction for potential buyers.
When evaluating a condo or home within an HOA, take a close look at the common areas. Is the party room in top condition, or does it show signs of wear with a broken sound system? Has the pool been out of service for years? If the last renovation of the common spaces dates back to the '80s, be prepared for future repairs or upgrades, and those expenses could be on the horizon.
Lack of Documentation
One of the best indicators of the health of a community is reviewing several years' worth of meeting minutes and other important documents. These records will reveal much about the association's management, approach to repairs, and overall operations.
A major warning sign? If the HOA or board refuses—or simply can’t—provide you with meeting minutes. Both situations are concerning: refusal often means they’re hiding something (likely something that could cost you a lot once you become an owner), or the association is disorganized and doesn't maintain proper records. Either way, the lack of transparency suggests that big financial issues are ahead, as secrecy or incompetence never leads to strong financial management.
Absence of Recent Meetings
If you can’t get your hands on several years’ worth of meeting minutes or important documents because the board hasn’t had a meeting in a while, that’s a huge red flag. Not only does it indicate poor management, but it also suggests hidden issues that are likely to surface soon. Even if the property seems perfect and the fees are reasonable, the lack of meetings means no one is overseeing essential matters like maintenance and repairs. When these problems eventually come to light, they could become your responsibility once you close on the property.
