A Market Moving at the Speed of LifeJuly gave us a clear look at the Denver Metro market as it is: measured, patient, and increasingly shaped by life circumstances. Moves are happening less because
How to Protect Yourself from HOA Special Assessments
Dated: August 18 2023
Views: 138
Homeowner’s associations (HOAs) are a common feature in many neighborhoods and almost all condo buildings. They can provide many benefits, such as maintaining common areas, enforcing property standards, and providing security. However, HOAs can also levy special assessments, which are unexpected fees that homeowners may be required to pay for major building repairs or improvements.
Here are some things to keep in mind to protect yourself from HOA special assessments:
• Read the HOA governing documents carefully. The governing documents will spell out the HOA's powers and responsibilities, including its ability to levy special assessments. Make sure you understand what types of projects can trigger a special assessment, and how much the assessment can be.
• Read the meeting minutes and/or review transcripts of the HOA meetings. This is a great opportunity to “peek under the hood” and see how the HOA behaves. Are they careful about expenditures? Do they receive multiple bids for potential projects? How do the HOA board and owners vote on these matters?
• Ask about the HOA's reserve fund. The reserve fund is money that the HOA sets aside to pay for major repairs and improvements. A well-funded reserve fund can help to minimize the need for special assessments. Be cautious of HOAs who don’t have a reserve study!
• Get a copy of the HOA's financial statements. The financial statements will show how much money the HOA has in its reserve fund, as well as its projected expenses. This information can help you to assess the HOA's financial health and its ability to pay for unexpected repairs.
By following these tips, you can help to protect yourself from HOA special assessments. However, it is important to remember that there is no guarantee that you will never be assessed an unexpected fee. If you are considering buying a home in an HOA-governed community, it is critically important to factor the possibility of special assessments into your decision. Sellers are required to disclose if they are aware of upcoming assessments but it’s always smart to thoroughly investigate on your own.
Pro-tip: Some homeowners hazard insurance companies can offer an additional insurance rider that can help pay or offset any special assessments that come up during your ownership.
Other potential red flags:
• The HOA may not have a reserve fund or it may not be well-funded. This means that the HOA may be more likely to levy special assessments to pay for major repairs.
• The HOA may have a history of levying large special assessments. This is a red flag that the HOA may not be well-managed.
• HOA management company has changed recently or often.
• High board or unit turnover.
• Significant increase in dues in prior years. Some increases are to be expected but be careful if they are increasing quickly as it’s a good indicator that the board doesn’t have a good handle on the budget.
• The HOA may be considering a major project that could trigger a special assessment. Meeting minutes are a great way to explore this. This is something you should absolutely review before buying in the community.
If you are concerned about the possibility of HOA special assessments and in the market to buy a condo or townhome, it is important to talk to a knowledgeable real estate agent who is familiar with the Denver condo market. We are well versed in this and can help you to find a home in a community with a well-managed HOA and a healthy reserve fund.
Justin Berry
Justin Berry is a highly experienced and accomplished real estate broker with a strong track record of success in the Denver area and neighboring foothills. With over 18 years of experience in the ind....
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