Charles and Natasha have been a vital part of the local real estate community, and are active in the La Jolla Town Council.
Charles is also a non-practicing certified public accountant who, prior to his involvement in real estate, worked as a CFO for a Fortune 100 company. Natasha is a former high school teacher with a bachelors degree in physics and mathematics. For the past 14 years, Alexander has also been an options trader with stock market derivatives.
They’ll address trends in the marketplace, as well as answering questions from readers in their biweekly real estate column.
If you are considering purchasing a condominium, a club dominium, a townhouse or even a single-family detached home within a private community, you may come face-to-face with the HOA — homeowner’s association. In certain areas of San Diego, and particularly in La Jolla, HOAs are dominant. In fact, San Diego County claims more than 6,500 HOAs operate for the benefit of their respective housing communities.
A homeowner’s association is a legal entity, originally created by the builder. The intent is somewhat self-governing, giving the powers to the condominium owners to collect fees, maintain common areas, enforce maintenance and design standards, hire property managers and enforce CC&Rs (covenants, conditions and restrictions).
Some owners love the HOA because it enforces consistency and uniformity regarding exterior appearances, while others protest that the rules restrict personal expression. Regardless, most owners living with an HOA do enjoy paying someone else to manage, maintain and upkeep the exterior and common areas.
Sometime before the close of escrow, you will receive a set of HOA documents, which will likely be 100 pages or more, and may at first appear to be intimidating. As with all real estate-related documents, it is critical to review and understand these documents. These are not to be placed in a sealed moving box, not to be read for months or years to come. The HOA documents will typically include (1) bylaws and original charter; (2) history of changes or modifications and the respective voting status; (3) recent month’s financial statements; and (4) CC&Rs.
HOA rules and regulations apply equally to each owner, and they are not negotiable, nor can they be modified to suit the whims of each owner. One way to change the HOAs in the future is to actively participate on the board of directors and petition for change and to present the changes for a majority vote. Probably the three most important sections of the full set of HOA documents are the financial statements, CC&Rs and any current or pending legal actions.
The financial statements generally are not difficult to understand. If in doubt, however, seek out an accountant or someone you trust to interpret them for you. You want to understand the sources of funds (i.e., where the money is coming from — monthly fees, increases, decreases and owner defaults or delinquencies) and the application of funds — who gets them and how much is spent.
It is important to note sufficient funds to pay for operating expenses, and that there is sufficient excess to contribute to the reserve account. The reserve account is where many HOAs have difficulty. The reserve is nothing more than the equivalent of a savings account where funds are being accumulated to adequately pay for large, lesser-recurring events like elevator and roof replacement, pool and spa resurfacing, lobby upgrades, etc. If at some point in the future, the reserve account is inadequate or if a significant and unexpected expense arises, the HOA may levy a special assessment against each owner. This may take the form of a one-time lump-sum cash assessment or a pro-rated increase added to future monthly fees, until such time as the deficit is eliminated.
The CC&Rs are a set of governing rules that apply to the use or restricted use and access of common areas, with regard to parking spaces, pool and spa regulations, use of social or meeting rooms, rental terms (should owners choose to rent their units), window and door designs, exterior paint colors, interior construction or remodeling, etc. These rules generally apply to owners, visitors and renters.
Lastly, you want to search the documents for any notification of legal action (past, present or pending) and any complaints, especially those related to defects voiced by owners. Each of these may suggest a future liability — and any liability represents the likelihood of additional costs to the owners.
Do you have a question about real estate in San Diego? Send your inquiries to Cschevker@san.rr.com. We will respond directly to you, and those questions that have a broader appeal will be published along with our next column in La Jolla TODAY.