Most condo associations in large buildings have a homeowners association (HOA) board or general membership that meet at least annually to discuss and vote on a variety of items. One of the most important aspects to note when evaluating a condo HOA is whether there are any upcoming, approved expenditures.
Upcoming special assessments are always the big question, but you shouldn’t stop there because those assessments won’t be dipping into the current reserve account. A portion of HOA dues typically goes to the reserve account so there’s some money on hand. Lenders like to see healthy reserves in larger buildings, and having good reserves means the HOA won’t immediately be hit up for a special assessment if, say, the roof needs to be replaced. However, it’s not always evident based on the other disclosure documents whether a large expense is imminent. Though there’s a condo financial disclosure, it only asks about upcoming special assessments.
I recently reviewed disclosures for a building, and was surprised to find that the HOA had approved well over $300,000 in repairs for a different unit within the complex. The only place this was mentioned was in the meeting minutes. Though the HOA reserve account had $400,000-$500,000 on hand, I was told by the listing agent after I inquired that the cost of the repairs would indeed be covered by the reserve account. So it became evident that the approved expenditure would essentially deplete a large portion of the reserves. Granted, there would be some money coming into the reserve account over time, but there wouldn’t be much on hand in the event of an unexpectedly large expense.
So when you’re reviewing condo docs on a prospective purchase or are a homeowner compiling your disclosure package, make sure you review and include HOA meeting minutes (preferably two years’ worth).