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When you are in the market to buy a condo there are some thing you need to know about Home Owners Associations (HOA).  The HOA is responsible for building amenities, maintenance and, in some cases, utilities.  As an owner, you may have some voting rights for the management of the budget, but the majority has the final say.  I like to make sure that my homebuyers review the building’s finances to know whether or not the HOA is financially strong or as useless as a Deutsche mark.   

Here are some important factors for your condo buyers — or to have reviewed by your advisor or attorney. Typically, I will make sure the seller is contractually obligated to supply these documents in the purchase and sale agreement:

1. Examine the assets & liabilities statements to see if there are funds to balance the expenses.
2. Examine the HOA’s money reserves to make sure there is enough to maintenance and operating expenses.  If an emergency cost arises this could cause a drastic increase in HOA dues
3. Examine the last 2 years of financial statements to make sure spending is consistent.
4. Find out if the building is regularly spending money on repairs and upgrades. You may find this in a reserve study or capital impotents/maintenance budget.  Allowing all kinds of maintenance to pile up can lead to a huge assessment or HOA lawsuit to pay for the bills later on.
5. Examine the last year’s condo board meeting minutes for any suggestion of contingent liabilities, which suggests there may be a lawsuit in the wings. While lawsuits usually are covered by insurance, you’ll want to know whether or not it’s a litigious board.

All these are great starting places to look at the financial strength of a condo HOA.  However, you should be prepared to discover additional questions to answer during your investigation.  I believe it is better to be forewarned when it comes to making one of you largest investments and working with a real estate broker can help you navigate these pitfalls.