Our team at Atlasa Smarter Real Estate shares our most valuable learnings about the most common HOA documents encountered by condo buyers and sellers.
SAN FRANCISCO, Dec. 13, 2023 /PRNewswire-PRWeb/ -- Home-buying can be exhausting, especially when purchasing a condo with an HOA. Our team at Atlasa Smarter Real Estate has gathered learnings from our condo sales that have helped our clients better understand the documentation associated with HOAs during the purchasing process. We hope these findings will help educate you if you are also interested in buying or selling a condo.
While living in a condo can provide a sense of community and a variety of amenities—the number of disclosures to review associated with buying a house (learn more about how to read disclosures on our blog here) increases significantly with the addition of condo-specific documents.
So let's break it down and determine what is essential to know before buying a condo and what may come in handy if you own a condo and are looking to sell.
When a property is being sold, under Civil Code Section 4525, it requires an owner of a property within an association to provide various items of information and documents to a prospective purchaser of the owner's property "as soon as practicable before the transfer of title or the execution of a real property sales contract" (Civ. Code § 4525(a)). For condos specifically, those documents may include the Annual HOA Meeting Minutes, CC&Rs, the Certificate of Insurance, and Articles of Incorporation.
Below we have outlined primary HOA documents and their importance:
Please note that only some disclosure packages will have all of the documents listed below. Some HOAs do not maintain separate documents but should list missing documents.
1. Articles of Incorporation
The Articles of Incorporation is the legal document that certifies a corporation's creation. These documents contain information about the corporation, such as:
- The name and location of the HOA
- The purpose and powers of the corporation
- Membership
- Board of directors
- Limits on Powers, Taxation
- Dissolution
- Amendments
2. Bylaws
This document notes the HOA rules for board members and outlines the organizational structure. In most HOAs, there is a board of directors and groups of officers to help oversee other operations such as architecture and landscaping. The bylaws typically include information like how to call and conduct a meeting, vote, levy assessments, and keep records.
3. CC&Rs
The CC&Rs (Covenants, Conditions & Restrictions) are one of the most important things to look at in condo documents outside the HOA's finances. This document includes details about the property usage restrictions (i.e., noise, pets, rental restrictions, storage), parcel maps, and duties of the HOA.
An upside to being a part of an HOA is that the HOA will cover repair and maintenance of certain portions of the building, primarily exterior and common areas, with the monthly collected dues. Within the duties of the HOA section, it will note whether it covers items such as:
- Common Area Maintenance and Property Management
- Garbage and Water
- Building Insurance
- Amenities such as pools, gyms, cleaning, and other common areas
- Building Appearance
The usage restrictions are also extremely important to look into. This section notes rental restrictions, window coverings, carpet requirements, and pets. Every HOA is different! Here are some of the most common rules and restrictions we've seen:
- Sound Transmission: 80% of the flooring must be covered with carpet, with the exception of the bathrooms and kitchen.
- Number of Pets: Maximum 2 pets per household.
- Airbnb or Sublets: Rentals for no more than 30 days or for transient purposes. No Airbnb allowed, no long-term rentals or sublets.
- Parking: No parking of unspecified vehicles allowed. No parking in any other spot that the space assigned.
The parcel maps will help you determine which parking space or storage space is deeded to your unit. In some situations, there are agreements between units to use different parking spaces or storage areas; however, it is good to know that CC&Rs will always "win" if disputed. The informality of HOAs changes, and most of the time, when searching for a property, it is good to ask. The HOA dues go towards the day-to-day operations and reserves—most of those details can be found in the financial statements.
4. Operating Rules
Some HOAs don't have this document in a separate section, while others will include it in their CC&Rs, so don't worry if it is not a separate document. Operating rules mention the rules about things like pets, rental restrictions, landscaping, and other items. Various rules could be important to know before purchasing, such as:
- Pet Restrictions
- Rental Regulations
- Exterior Maintenance
- Landscape Rules and Regulations
- Rules regarding satellite dishes
- Pool and Gym Rules and Regulations
5. Annual HOA Meeting Minutes
This document includes minutes of regular board meetings conducted over the previous 12 months, if requested. It is required to have HOA minutes, if available, within the disclosure package as well. Minutes from the X months need to be provided. In this case, it is only one since the meetings are held annually.
6. Insurance Summary
All HOAs need insurance documents similar to individual homeowners. The HOA insurance will cover the association for risks involved with maintenance and liability concerns. Some HOAs can even include hazard insurance.
7. HOA Form Request
This form is required to be filled out by the HOA when requesting documents. It notes the fees for the documents, as some HOA documents are not free and need to be paid for. In this document, the HOA will also mark whether the document is not available or not applicable. This can also be helpful if you need to find the HOA representatives or president's contact information.
8. Condo Financial Disclosure Statement
This document is usually filled out by the HOA or HOA president and provides a quick snapshot of the HOA's finances. It notes if there are any set increases in HOA fees, the current fees, whether any special assessments are coming up, how much money is in the reserve fund and operating account, and what the HOA dues cover.
9. Annual Budget
Every year an annual budget is drafted by the HOA; the budget covers the usual monthly expenses that the HOA may incur and, once finalized, is sent to homeowners. This breakdown shows the estimate of expenses and the amount allocated to the operating and reserve account. As a potential community member, it is important to review these documents as they can also indicate whether the monthly assessment will increase for the property in question. Within the annual budget, other items include the reserve study, budget disclosures, insurance summary, and assessment reserve funding disclosure summary.
10. Income Statement
This is the more helpful document of the two financial documents we'll cover. The Income Statement notes the revenue, expenses, and how much may be levied in special assessments from one year to another. Expenses can include items such as landscaping, maintenance, and management fees.
11. Reserve Study
A reserve study is important to look through, especially when buying a condo. A reserve study is done every 3–5 years to understand how much money the HOA will have as items need to be replaced over time. The reserve study will note the percentage funded, which is important to understand because if the HOA has a lower percentage funded, it could mean that there is not enough money to fund upcoming projects. A special assessment or an increase in dues is likely.
This was an overview of the most common documents we find when working with clients. If you are interested in purchasing or selling a condo and you'd like to learn more about how our team at Atlasa can help you, reach out to us today!
Media Contact
Deniz Kahramaner, Founder & CEO, Atlasa Smarter Real Estate, 1 650-770-3100, [email protected], https://www.atlasa.com/
SOURCE Atlasa Smarter Real Estate
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