There are certain inspections and investigations that all buyers should complete during their contingency periods, such as having the home inspected and reviewing the title documents. When your new home is a condominium or other home that has common areas, a homeowner’s association and/or monthly dues, there are additional things to be reviewed and evaluated.
The purchase of a home in a common-interest community is the acquisition of a place to live and becoming part of an existing business that maintains and repairs the common areas.
The standard Colorado contract lists the following items that a seller is required to provide to a buyer. You should carefully review and evaluate these documents to determine if the rules, financial situation and priorities of the HOA board of directors are acceptable to you:
All owners’ associations’ declarations, articles of incorporation, bylaws, articles of organization, operating agreements, rules and regulations and party wall agreements. You should review these documents to determine if the rules of the community are acceptable to you. Additionally, you will learn about how the HOA is structured and the management rules the board has to follow.
Minutes of the most recent annual owners’ meeting. Reviewing the minutes will reveal what the board and owners have been discussing. If repairs or improvements are among the topics, they may trigger special assessments or dues increases in the near future.
Minutes of any directors’ or managers’ meetings that took place within six months of the contract being signed. These minutes will reveal what issues the board has been discussing and considering. Like the previous point, there may be financial implications.
The most recent financial documents, including annual and most recent balance sheet, annual and most recent income and expenditures statement, annual budget, reserve study and notice of unpaid assessments.
By reviewing these documents, you will be able to evaluate the financial health of the HOA and determine if dues increases and/or special assessments are likely. HOA dues should be high enough to cover all the ongoing expenses plus contribute to the reserve fund. There is pressure on owners’ association board members to keep dues low, so most do not have sufficient reserves to cover a new roof, parking lot resurfacing, exterior paint or other capital improvement expenses when the need arises. In these communities, significant dues increases or special assessments will be required at some point.
In summation, be sure to get all the required documents and review them carefully. If you are not comfortable with aspects of the documents, I would contact one or more board members for clarification or additional information.
If you’re still not 100 percent clear and comfortable, I strongly recommend that an attorney and/or an accounting professional review the documents on your behalf.
Steve Setka is an exclusive buyer’s agent with Keller Williams Realty in Durango and a licensed mortgage originator. He can be reached at 903-7782 or steve@durangore.net.
