Here are a few red flags to be aware of, according to this article written by Hiranmayi Srinivasan on Real Simple.
Beth McCarter, mom of two and creator of The Travel Fam blog, says her family moved within two years of buying their first home because of the HOA. McCarter recalls coming home one day with both kids in the car and finding an HOA employee parked in her driveway.
“She would not move when asked,” says McCarter. “She was taking pictures of my flower bed and handed me a warning letter. It was an extremely distressful experience.” McCarter has since moved into another neighborhood with a better HOA and says the experience has been “totally different”. She says a red flag for an “overzealous HOA” is a developing neighborhood. “The builder is motivated to keep everything cookie-cutter-looking because they are still selling homes,” says McCarter.
1 The HOA has low reserve funds.
Find out what the HOA’s budget is. “Buyers should always request a copy of the budget and review it to make sure the HOA has healthy reserves,” says Ashley Melton, a realtor in South Carolina. An HOA’s reserve funds (which are partly made up of HOA member fees) are set aside to be used in case any maintenance issues come up in the community. “If something comes up
and funds are not available, owners could be facing special assessments. This would be on top of their regular annual or monthly fees,” says Melton.
Special assessments are extra fees the HOA can charge members when there are insufficient funds to address any repairs or unforeseen damages (such as from a natural disaster) that come up in the community. While some special assessments may truly be unavoidable, an HOA with low reserves and special assessments that occur often can be the sign of an HOA that is not managing its funds properly.
Look through the HOA’s reserve study to make sure that the reserves are properly funded. “Usually, if the HOA is 70 percent or more funded, they will be able to make all their repairs on time with enough cash flow,” says Scott Ford, president of residential real estate development consulting firm, California Builder Services. “If they’re less than 40 percent funded, walk away!” he warns.
2 They have overly strict maintenance rules.
It’s normal for HOAs to have community guidelines that homeowners have to follow for general upkeep (such as mowing your lawn), but an HOA with rules that are too strict is a red flag. “Exterior improvement guidelines are intended to maintain the overall homogenous look and feel of a neighborhood,” says Chuck Vander Stelt, a realtor in Northern Indiana.
“However, most HOAs have zero understanding about modern trends in exterior home design. This can cause homes in a neighborhood to get stuck in time of a certain design era—which is bad for property values,” he explains. As a potential homebuyer, it’s wise to request the HOA’s CC&R (Covenants, Conditions & Restrictions) so you can get a feel for the rules and guidelines and whether it will be the right fit for you.
3 The HOA has a “Right of First Refusal” clause.
Some HOAs have a rule that you have to offer your home to the association first before putting it on the market. “HOA first right of refusals are another HOA red flag, and these are likely unenforceable,” says Vander Stelt. ROFR rules have a history of discrimination, since it gave the HOA power to stop an individual from buying a home in the community—by buying it first.
“The latent effect of HOA first right of refusal rules discriminates against minorities, single-parent households, and other marginalized people,” explains Vander Stelt. Though these rules may not be enforced, they are certainly something to watch out for and avoid.
4 The HOA has poor communication and lack of transparency.
If the association does not communicate with members often or clearly (but makes changes anyway, such as arbitrarily increasing fees)—stay away. “If the board or the property manager isn’t very transparent, or it’s difficult to get documents from them, this is a big red flag,” says Ford. He says this may be a glimpse into the culture of the community, and could be a sign that the association has too much power—or is very disorganized and not following regulations properly. “Both are signs of problems,” adds Ford.
5 It’s difficult to amend rules.
If a 75 percent vote is needed to amend rules, that is a definite HOA red flag. “Most people are indifferent and uninvolved,” says Vander Stelt. “Therefore, with such a high bar, rules are unlikely to ever change to keep up with current times. Instead, what is more reasonable is a majority vote on an issue with a quorum (amount of people who voted of total possible voters) of about 40 percent to 50 percent.”
He also says to be wary of HOA rules that say the association can only be dissolved with a vote every 10 years. If you’re a prospective buyer, don’t hesitate to request documents and other information from your HOA to see how they operate—it could save you the hassle of paying costly fees and living under a restrictive HOA.