On the question of the association dues, one must look at it from many angles. In the monthly dues, you have a part that goes to the operating fund of the complex (the day-to-day management, ongoing expenses), and a part that goes into the “reserve fund”, which covers the future replacement of what is going to wear out, big and small items that will need to be repaired or replaced at some point in the future. Planning for these expenses is the process of maintaining a “reserve study”, which has to be updated regularly to be reliable. The reserve study shows how much the complex is “funded” over the years, depending on when those big and small items have to be repaired, or replaced.
If you look for low dues in a complex, you have to be very careful that the reserves that they fund are adequate to cover future expenses when they become necessary, like changing all the roofs, or painting all the units, or redoing the pathways or roadways. They may be low today, but may have to be increased regularly every year to meet future needs.
Often people say that the dues are “way too high”; but before you make this assessment, you have to see what you pay for through those dues. If they cover a lot of amenities, and cover adequate reserves for the near and far future, chances are that they are justified.
Sometimes people have another way to look at high dues, contributing to good reserves: they look at it as the fact that homeowners contribute today to the future health of the complex – which will benefit future homeowners. With this reasoning, some buyers prefer to buy into a complex that has low dues, and prefer to pay for repairs “as they go”, when the repair is necessary. There is no right or wrong in this matter – just a need to be well informed.
Let’s look at different scenarios: if you have very little to maintain in a complex of condominiums, (i.e. no pool, no tennis courts, no saunas, no expansive grounds) and the dues do not cover a lot of utilities for the homeowners (like water, garbage…), the dues should be fairly low in that complex. Although some amount still needs to be allocated to the reserve fund (assuming the association has to repair / change the roofs, repaint regularly, repair fences etc…).
If you have a situation where the homes are almost like a house, where the owners are responsible for their own roof, paint, walls, their own insurance, and you have some common areas which are limited in size and scope, the dues should be pretty low. The reserves do not cover a lot of items in this scenario.
When you see a complex where the dues are high, chances are the association is responsible for a lot of maintenance for the buildings and grounds, provide amenities (i.e. pool, spa…) and also provide utilities like water, garbage etc... The owners pay for these through their monthly dues, and if the reserves are adequate (100% of the needs is ideal of course), it means that a good, legitimate amount of the dues go into the reserve fund. The older the complex, the higher the maintenance and repairs are likely to be, which could drive the dues higher too.
Nowadays, and in response to abuses, complaints and misleading situations, the legislation in California has started to impose some guidelines for the financial information that needs to be prepared and sent to the homeowners every year. The goal here is of course for the homeowners to be well informed; but it is also in general to provide a trend towards better reserves, and try to avoid unexpected “special assessments” which can be devastating financially to some co-owners.
If you are interested in condominiums or townhouses, make sure that you read carefully the HOA documents, which should include among other things the following:
- Budget, audited or not,
- Financials, for the past year,
- A reserve study, updated every 3 years if the complex meets certain criteria,
- The CC&R’s (Conditions, Covenants and Restrictions) and any updates of those, describing your rights and obligations when belonging to the association,
- By-Laws, Articles of Incorporation, Architectural guidelines if any,
- Newsletters for the past 12 months
- Minutes of the Board of Directors for the past 12 months – those latter documents help you better understand the “life” of the complex.
- Small complex? - Large complex? Which is best? It is a question of preference. A larger complex will most likely have a management company taking care of things around the complex and helping with the requirements associated with disclosures. The management company has to be paid of course, and you loose some "personal touch" in the process. A smaller complex can invite the homeowners to be more involved in the management of the complex, which can give a greater sense of control and participation. Both have advantages and disadvantages.
Finally, the housing crisis has certainly had some impact on this type of properties too, creating its own set of questions and specific things to look for when one is looking to buy or sell.
As one can see, it is essential to be well informed when considering buying into a condominium or townhouse complex of homes.
For any questions or thoughts, do not hesitate to contact me
2 examples of complexes in Mountain View, with values over the years:
This article is not intended as legal advice. I am a real estate agent, and as such, cannot provide legal advice. This is just a general description of some of the aspect of PUD's and CID's.