Condominiums and other properties covered by a Homeowners Association have specific challenges that ordinary properties don’t have. Often, they have strict rules and regulations that can sometimes be a dealbreaker for potential buyers.
Real estate licensees need to take great care when selling properties that are covered by a Homeowners Association. Disclosure of anything that may affect a purchaser’s decision to buy or not buy a property is essential. It’s also important to be very careful what you tell prospective buyers so you don’t find yourself facing a lawsuit in the future.
Here’s how to effectively manage risk when selling or buying condos or other properties covered by a Homeowners Association.
What Restrictions a Homeowners Association Might Have
Restrictions will vary from property to property, but here are some examples you may come across when selling condos or other properties covered by a Homeowners Association:
- Restrictions on paint colors for external areas of the property
- A limit on the number of vehicles you can have parked at the front of the property
- Restrictions on types of vehicles (for example, RVs, or boat trailers may not be allowed to be parked on the premises)
- Visitor parking restrictions
- Limitations on renting the property, especially when it comes to offering the property as an Airbnb, holiday home or short-term accommodation
- Fence height and fence material restrictions
- Decorations for outdoor spaces might be restricted
- Any extensions or additions may be prohibited or heavily regulated (for example, patios or carports)
Details are important when selling these properties, and licensees must be very careful what you tell the prospective buyers. For example, you might just presume that it’s fine for the property to be painted or that having two vehicles parked at the front of the property will be fine, when in fact, it may be prohibited.
Homeowners Association Fees
Ongoing Fees
Most Homeowners Associations charge monthly, quarterly or annual fees to help maintain the common areas and amenities of the building that benefit all residents. This includes things like landscaping/gardens, outdoor entertainment areas, rubbish collection points, foyers, elevator systems, gymnasiums, pools, spas or saunas, and in some cases routine maintenance.
Fees might also be charged for utilities, such as sewerage, water and garbage disposal. The fees Homeowner Associations charge vary greatly and could be anywhere from $100 up to $1500+ per month. The more amenities a building or community offers, the more a resident can expect to pay. It’s crucial that prospective buyers know what tthe ongoing payments currently are, and how much they might increase in the future. Best to get this in writing, either from the Homeowners Association or from their CC&Rs or Association Regulations, to pass on to potential buyers.
Fines and Penalties
Some Homeowners Associations have the power to enforce financial penalties or fines for infractions against their regulations. Not knowing about a regulation isn’t typically accepted as a reason not to pay a fine or penalty. All property owners and residents are expected to know, and if they have purchased a property governed by a Homeowners Association, they have formally accepted they will abide by these rules.
Other Costs
Some Homeowners Associations charge for their time and efforts in collating all the required documentation and disclosures to sell a property. This would normally be paid by the seller. The costs allowed for this will vary for each property, and there are differences between states. Some states, such as Arizona, set limits on how much an Association can charge.
An Association may even charge to transfer paperwork into a new owner’s name, or they may charge a percentage on the sale of the home. As a real estate licensee selling or buying property covered by a Homeowners Association, it’s important that you’re aware of all the costs involved and that this information is disclosed. You do not want prospective buyers to be surprised by these ongoing fees post-purchase.
Tips to Avoid a Claim
The main thing licensees can do to avoid a lawsuit when dealing with property covered by a Homeowners Association is don’t assume anything. For a regular standalone property, it might be quite reasonable to assume a property owner can repaint their picket fence, or even replace it with a different, more modern fence. But properties covered by a Homeowners Association can have very strict rules which prohibit such things. Never tell a prospective buyer that something is okay without first checking. Better yet, real estate licensees should recommend to all prospective buyers to do their own due diligence. In simple terms, this means doing their own research and “homework.” (Potential buyers can find CC&Rs and other Association Regulations online for many communities.)
Every Homeowners Association’s rules are different, so it’s essential real estate licensees have the latest information available when selling a property. Licensees should also provide the contact details of the Homeowners Association, so that prospective buyers can ask any questions they might have about the restrictions, rules or fees involved as part of their own due diligence process.
Protect Against Potential Lawsuits
All real estate licensees should have real estate errors and omissions insurance to protect against potential lawsuits. Even if you’re innocent of any wrongdoing, that doesn’t mean that you’ll never have a claim against you.
Find out more about how to protect your real estate business with CRES real estate E&O insurance. Individual licensees, as well as real estate brokerages, should have E&O coverage. With an E&O + ClaimPrevent® policy, you’ll even get access to our legal team of qualified real estate attorneys who can help you prevent claims before they become costly lawsuits.
Contact CRES at 800-880-2747.
