What You Need To Know About Homeowners Associations

BY LISA SCONTRAS

For buyers looking for a less-expensive starter home, or empty nest ers looking to downsize, condos offer a certain appeal. No lawns to mow. No-fuss maintenance. Great amenities. A carefree lifestyle.

Yet the perfect condo is more than simply whether a unit comes with assigned parking or allows pets. Indeed, finding the right condo requires an understanding of how effectively costs associated with the upkeep of exterior maintenance — such as painting, roofing, landscaping, insurance and planned renovations — are dealt with by the homeowners association (HOA) or the Association of Apartment Owners (AOAO) board of directors. The elected members of the board make budgetary and maintenance decisions with the help of a professional condo property management company and their effectiveness maps the overall health of the association.

Vice president of Cadmus Properties, Casey Paet, has 20 years of condo management experience and offers advice for prospective condo buyers.

“Do your homework before buying, which includes looking not only at the physical condition of the property, but also the fiscal condition. Is the association healthy and being run well?” said Paet. “If any of my clients ask me, ‘How is such-and-such condo?’ my first response is to look at the budget. I’d have questions, including, what improvement projects are coming up? What are the maintenance fees? Are the fees sufficient or is there likely an assessment or a maintenance fee increase coming? Is there any current or pending litigation?”

Paet reminds condo buyers that many of the island’s condos are aging. And as these buildings get older, maintenance costs — and the resultant monthly fees — tend to increase.

“Most of the condo development in Hawaii started in the late ’50s but boomed in the late ’60s and early ’70s. What that means is that the cast-iron plumbing and electrical infrastructure has likely reached or passed its life expectancy,” he said. “Back then, the condo law was new, very vague, and did not force HOA’s to save money, especially not for a complete retrofit of these types of issues.”

It is up to the association’s board of directors to be proactive and anticipate problems associated with aging components. For instance, Paet cautions, it takes roughly two years — start to finish — to replace an elevator. “So, if a new elevator is slated for 2020, and the board hasn’t yet hired a consultant, gone out for any bid proposals, replacement isn’t going to happen by 2020.”

Information and answers to many such questions can be found in the condo documents — a packet of specific disclosures the seller is required to provide the buyer as part of the purchase contract.

“A buyer with a good agent will dig deeply and review the condo docs and report back to the buyer,” he said. Board meeting minutes will provide a good snapshot of who is on the board and if they are working together. Minutes will also reveal what issues the board is dealing with, or if they have the cash needed to maintain the property.

“The only real way a buyer can determine if the HOA is healthy (prior to purchase) is by examining the budget and reserve study — which lists planned capital improvements, and outlines, when the last repair or maintenance was done, when the next one is expected, and an estimate of what the projected cost will be,” Paet added. “The goal is to be 100 percent funded when projects are programmed to be completed. The current law requires HOA’s to be 50 percent funded at a minimum.”

Condo living is largely maintenance free and worry free. Yet, you’ll still have to pay your maintenance fees or other special assessments. So, before buying, it’s important to determine if the HOA is financially healthy and being run well.