Homeowners associations should impact buying decision.

Affordable housing today in most urban real estate markets equates to properties where the homebuyer is part of a homeowners association or HOA. Condominiums, town home’s and single family homes in planned communities make up the majority of consumers who benefit from the association providing some of the maintenance and management of their property or common elements. Here are some of the ins and outs of being a member of a homeowners association.

-The function of most HOA’s is to manage the common elements (area’s of the property that all owner’s use and enjoy) of the property. The common elements can consist of: the grounds, exterior of your home and in some buildings the mechanical systems, hallways, elevators, stairwells, swimming pools, garage etc. Most HOA’s also are responsible for the financial management of the association and collecting assessments from all property owners in the association.

-Assessments are the monthly, quarterly or annual payment from the property owner to the association in exchange for the services provided by the association. The property owners assessments are based on their percentage ownership of the common elements of the association.

-Is a property under the management of a HOA right for you? If you like to close the door and forget about the day-to-day responsibilities of your home an HOA is a good choice for you. You have to be tolerant of other people who might have different needs and perspectives of a HOA. Over the years I have found living in three different HOA’s an enjoyable experience. The majority of other association members were flexible, but you won’t be able to control those other owners who could impact your home ownership experience.

-The management style of your potential HOA is important and could impact your ownership experience. The management could be a professional property management company or self managed. Smaller HOA’s find self-managing the day-to-day operations more cost effective and hands on. Some potential buyer’s don’t like self managed associations because they feel it conflicts with why they are purchasing a property in a HOA, which is to compensate some one else to manage the day-to-day operations of the common elements.

-The finanical management of your HOA will impact your personal finances.How the reserves (the portion of each assessment being put aside for future planned or unexpected needs of the association) of the association are allocated. Property owner’s on fixed incomes don’t like pro-active HOA boards to replace big ticket items like boilers, roofs, and windows because of the extra expense being passed back to them. Property owner’s who plan to move soon might not be long-term focused because they know that they will not derive all the benefit from the additional expense. If you are not a pet lover and move into an association that allows pets it could be a conflict, as you will might not be able to avoid pet noise or debris.

-HOA’s are managed by a board of directors or other entity specified in the declarations of the association. The board manages the financial and physical components at their control. If you are asked or are considering being on an association board, understand what is expected of a board member in your association. Determine if the association purchases insurance for board members.

-You and your attorney should carefully review the declarations, rules, budgets, and by-laws before you purchase a home in a HOA to see if you are comfortable with them. One item that you should be aware of is the percent of units in the HOA that are leased to non-members of the HOA. There are pros and cons concerning rentals in HOA’s depending if you will owner occupy, have an investment or seasonal rental interest.

Transitioning Condo Associations from Developer to Owner Controlled

Purchasing a new construction home in a homeowners association can be time-consuming to manage just within your own four walls. But, take the time to learn and understand what your developer should and should not be doing during the crucial homeowners association turnover period. “Turnover is a process, not an event and it can take a few months or many years” stated Shirley Feldmann, founder of Association Advocates, Inc., (www.AssociationAdvocatesInc.com) which specializes in consultation and project management services for homeowner associations. A unique service they offer is in critical step of when a developer turns the association over to the homeowners and their management team, either professional or self-managed.

The majority of association homeowners have not been involved in this process, unlike the developer which goes through the process on every project they build or convert, this repetitive knowledge gives the developer an edge up on naive associations. That’s why is it important to have a professional management company as your advocate to make sure the rights and obligations of all parties are taken into consideration. A pro-active stance by an association can save the time, headaches and financial resources of it’s members and management team down the road.

Although it varies by state law, associations typically must be turned over to the homeowners when around fifty-percent of the units have been closed by the developer. Some developers attempt to delay the turnover, because of inefficiencies or inadequacies of the project might be discovered by the new homeowners. Timing is crucial, you don’t want the developer to turn over the association near one hundred percent closed, before you know it, they have moved out and on to the next project. Feldmann adds:” To ensure a proper turnover, new home buyers should: Understand developer obligations, note legal time frames, determine board responsibilities and start-up protocols, review the association’s budget and make appropriate changes, decide if they want to hire a management company or self-manage, and determine when and how to hire other professionals including an attorney, engineer, and an accountant.”

While most developers are reputable, although they view each project from strictly a business perspective, while homeowners can be more emotionally involved. Approaching the turnover from a professional standpoint can eliminate stress and confusion for all parties involved. Recently I became aware of a conversion project that the developer (a first-timer) didn’t pull all the building permits, had numerous liens and building code violations against the building, this was discovered nearly two years after the first closings. These problems caused mortgage underwriters for buyers of the first resale’s to decline loaning money on the building. And, the monthly assessments more than doubled to pay the expenses of architects, engineers, and property managers to untangle this mess.