In the most current newsletter for the Davis-Sterling Act, an immensely reliable source concerning one of the governing laws for homeowner association, advises about questions everybody should ask in the process of purchasing a condo. The majority of these questions should also be of interest when looking at townhomes and other PUDs. We at Distinct Property Management, a Santa Cruz Property Management company, could not agree more as proper information prior to the purchase of the new home or rental property will lead to a much more satisfied and successful homeowner ship.
1.Maintenance. Don’t assume the association takes care of everything, it doesn’t. Find out what your maintenance responsibilities are so you can budget for them. Inspect the common areas. If the paint is peeling on buildings, trees are overgrown, lawns are shabby, sidewalks are tilting–roofs and plumbing are probably in a similar condition. Poor maintenance means you can expect stagnant property values and special assessments as water starts infiltrating common areas through roofs, windows, water lines and drain lines–leading to mold and litigation.
2. Reserves. This is an extension of the maintenance issue. Does the association have healthy reserves so it can repair large ticket items? If not, special assessments are inevitable. Reserves in the 70% to 100% funding range are excellent. Reserves below 50% mean probable future special assessments. The lower the reserves, the more imminent the special assessment. If reserves are below 30%, look elsewhere for a condo.
3. Insurance. How much insurance does the association have? If it’s at bare minimum levels, you face a higher risk of a special assessment in the event a claim is filed against the association. Is the development in an area deemed high-risk for an earthquake? If so, does the association carry earthquake insurance? If not, are you prepared to lose your investment in the event of significant damage?
4. Litigation. Ask the seller about litigation over the past ten years. Also ask for the past two years of minutes. All HOA’s management by Distinct Property Management have all the minutes available online, accessible by the homeowners 24/7. A slip and fall lawsuit is not a problem. If the association has had ongoing litigation with members over the past ten years, run for the exit. The association is dysfunctional. There will be no peace until the litigants all move or die.
5. Rentals. Inquire about the percentage of rentals in the development. A high rental population creates problems for rules enforcement, maintenance and oversight of the property. If the rentals are nearing or exceed 15%, you should be cautious. If they exceed 30%, it does not matter how beautiful the condo is, you’re stepping into quicksand. At 50%, the development is in a death spiral.
6. Pets. If they don’t have pet restrictions, is the property a dog patch? If so, barking dogs at all hours of the day and night plus dog doo-doo in the common areas will be a challenge. If they have restrictions, do you have pets that violate those restrictions? If so, are you willing to give up your loved ones for the condo? If your Realtor tells you the rules don’t matter because the association will never discover the violation, get a new Realtor.
7. Parking. Is there sufficient parking in the development? If not, it will create problems for you and your guests. Visit the property on a weekend when everyone is home and see what parking is like.
8. Noise. Ask the seller about plumbing noise, crying babies, TV and stereo sounds, etc. from surrounding units. If there is a unit above yours, ask about noise from hardwood floors. If all the above can be heard through walls and floors, it indicates cheap construction–a harbinger of future maintenance problems. It also means you won’t get any sleep at night.
9. Finances. Ask for a copy of the budget and annual financial statement–and read them. Ask about delinquencies. A delinquency rate above 15% means that higher dues to make up the deficiency are probable. Also ask about past dues increases. If they proudly tell you that dues have not increased for ten years, it means they kept their dues down by deferring maintenance for ten years. It also means large increases and special assessments are looming.
10. Sales Activity. If you see a lot of “For Sale” signs in the association, you better find out why. Like rats fleeing a sinking ship, they might know something your Realtor isn’t telling you.
RECOMMENDATION: It does you no good to sink your last penny into a condo and then lose it the next year when you get hit with a dues increase and large special assessment to cover delinquencies, litigation, artificially low dues and underfunded reserves. Any Realtor can read the MLS and drive you around to look at condominiums. What you need is a Realtor who is knowledgeable of how associations work and respects them. A good Realtor with condo experience will provide invaluable guidance.
[blockquote signature=”—Cosette T., homeowner in an HOA”] I am a homeowner in a complex under the management of Distinct Property Management, Inc. Nora Brink and Rossana Bruni have consistently responded to any and all concerns that have arisen on our properties over the past 2 and 1/2 years since we hired them. Furthermore, Nora and Rossana are both extremely professional when coordinating and conducting our business during the board meetings for our homeowners association, and Rossana is exceptional in her financial oversight.
What a fabulous duo!