My wife and I are thinking about downsizing into a smaller house, but many of the available ones are within existing developments and governed by a homeowner's association (HOA). The places we've looked at and liked the best so far have very high fees –several hundred dollars per month. We're hoping to stay in this home well into retirement, but should we be worried that these fees will keep going up and up?
You're right to take homeowner's association fees into account when buying a property. They represent the ongoing obligation you'll have as an owner to pitch in on the costs of building and maintaining common areas and in some cases parts of your own property, such as a shared roof or walls.
And yes, the possibility exists that these fees will rise. The trouble is, that possibility exists whether the fees are high now or not. In fact, unusually low fees are sometimes a sign that the association hasn't been able to talk the owners into paying for needed maintenance, repairs, and improvements. The day will come when they can't put this off any longer, and you may have to pay some whopping special assessments along with the usual fees.
Too-high fees can also be a problem, of course, particularly if they exceed some owners' ability to pay, resulting in disputes and foreclosures.
You'll definitely want to do more than take the existing monthly fees at face value when considering buying a home in an HOA. Check out:
1. the number of owners who are paying the fees that they owe (if more than 15% of them aren't complying, the HOA may be in trouble already)
2. the dollar amount that the HOA has in reserve (it needs money to draw on if a sudden repair or emergency arises)
3. under what circumstances the HOA can impose special assessments or other fees, and whether it has done so recently, and
4. whether the HOA is embroiled in any financial or legal disputes – or soon to be.
How do you find out such things? First, review the master deed or "Covenants, Conditions, and Restrictions" (CC&Rs). Then, talk to the other owners, read over the minutes from recent HOA meetings, and follow up on any unsettling information you uncover.