How to Evaluate a Condo and HOA

There are always more condos than single-family homes available at any given point in time. And condos are the most popular property type in San Francisco, especially for first-time home buyers who want to be in popular, central neighborhoods. But before you rush out and write an offer on one, it’s important to consider the complexity of owning this type of property.

Here’s a quick condo primer that will help you evaluate the fundamentals of a unit and its homeowners association (HOA):

HOA dues: How much are your monthly HOA dues, and what do they cover? Is the total amount in line with buildings of the same scope? Are there any unit owners who are behind on their HOA dues?

HOA reserves: How much does the HOA have on hand in the event a major component of the building needs to be replaced?

Rental capability: What is the restriction on renting your unit, should you decide to move and not want to sell? And how many units in the building are rented?

Affordable housing designations: Is unit resale restricted by any city ordinances, such as affordable housing laws?

Pending litigation: Is the HOA involved in any lawsuits?

Special Assessments: Will there be any future, per-unit charges in addition to the existing HOA dues?

Parking: Is the parking space deeded to the unit, or is it leased separately? Are you able to rent your parking space in the event you want to? Will your car fit in the space?

Pets: What are the number or pound restrictions for pets in each unit? What restrictions exist for pets off leash?

Insurance: Is the insurance policy current? Does it include earthquake insurance? (You’ll know if the HOA dues are substantially higher than usual.)

Renovations: What’s the process required for remodeling any part of your unit? Similarly, did the previous owner complete any renovations, and were they done with permits?

Available Services: Is there a lobby attendant? Fitness center? Common garden or roof deck? HOA lounge? Check out every aspect of the building—even the trash and recycling room.

Move-out Fees: Is there a fee for moving in, and what days/timeframes does the HOA permit moves to take place?

The ABCs of HOAs

Condos are a popular option for many home buyers in San Francisco. Prices for condos are more affordable, and there’s less upkeep involved. For busy professionals, condos in central neighborhoods fit more lifestyles than that of single-family homes.

The residents within a condo building are part of a homeowners association (HOA). In larger buildings, there’s usually an HOA board, too. These entities make decisions about the property with respect to expenditures, special assessments and other issues that arise.

There’s a lot to evaluate when you’re considering a condo purchase. I thought I’d put together a primer on the basic HOA disclosures and documents of consequence so you’ll know what to expect when you locate a condo you like and may want to write an offer on.

Here goes:
CC&Rs: The “Conditions, Covenants, and Restrictions” are the bible of your HOA. CC&Rs are typically boilerplate for each association, and are drawn up by a real estate attorney and recorded with the city. They cover key details such as what percentage of the common area is allocated to each unit and what exclusive-use areas exist. The CC&Rs outline the responsibility of the HOA and how issues such as delinquent HOA dues and unit remodeling are to be handled. It’s key to note the voting rights within the association, too, as well as how special assessments (additional charges beyond monthly HOA dues) are managed.

Most specifically, CC&Rs outline use restrictions, such as pets, garbage disposal, right to lease, and occupancy limitations. These are important because they sometimes deviate from boilerplate matters. Some CC&Rs now ban certain dog breeds, and if you have hardwood floors, it’s important to note whether you’ll have to put down area rugs to mitigate foot noise. A very significant limitation may be on renting your unit; make sure you’re aware of any restrictions if your future plans include holding the condo as rental property.

Finally, CC&Rs include the condo map, which is a diagram of each level of the building. You should make sure what you’re purchasing corresponds with the map, such as parking and storage. When you make a subsequent visit to the property, make sure your deeded parking and storage correspond to the condo map. And pay attention to amendments or exhibits that were added to the original CC&Rs. They may represent information that supersedes the original document.

Bylaws: This document typically outlines the duties of the HOA board, and is usually boilerplate.

Condo/Financial Disclosure: This one pager confirms the current HOAs for the unit, as well as the amount in “reserves.” The latter is the money available in the HOA bank account for maintenance and building expenditures. For larger buildings, you will want to see a reasonable amount in reserves. For smaller buildings in San Francisco, it’s not unusual to have nothing in the reserves. Residents typically use a pay-as-you-go approach. The condo disclosure states whether there’s any pending litigation, and also confirms whether there’s a move-in/move-out fee.

Budget: Depending on the size of the building, a budget can be as simple as a one-page document showing all the annual expenses and income, or a multi-page booklet that spans several years. Things to look for are reasonable maintenance and upkeep operating expenses, as well as projected income. Also, some large buildings will have one or more “reserve studies” on file. This is an estimate of the life of major building components, and how much it will cost to maintain and replace them over, say, a 30-year period.

Insurance: You should receive a declaration of current insurance for the building. This insurance does not cover individual units; most lenders are requiring individual unit coverage these days. Make sure you know what’s covered, and get some quotes for your own unit.

HOA Meeting Minutes: Some associations meet quarterly, some meet monthly or annually, and some don’t meet at all. If any meetings have taken place, there will usually be minutes taken by an association member. These should be included in the disclosure package. This is where you’ll be able to read about garage break-ins, the neighbor who’s playing his music too loud after 11PM or other issues.