This photo has nothing to do with this post - I just liked it!

If you are planning to buy a condo, or a house in Lake Forest, Mission Viejo, Rancho Santa Margarita, or other South Orange County area, there is a good chance that you will be buying in to a home owners’ association (HOA).  If that is the case, make sure you read over all the HOA documents soon after you receive them.  These are usually provided to you during the escrow process, and you will normally have 5 days after receiving these to either approve them, or cancel the purchase and get your money back.

What should you look at, or what should you look for?

Start with the budget. This will show you the items that are expected to be paid each month by your dues.  Some budget items can be expected to go up almost every year – like costs for electricity, water, utilities, gasoline, insurance, and most labor.  Also, look at the year-to-date actual financial statements to see how they compare to the budget.  Have there been unexpected or substantially over-budget expenses?  Is the income (from dues) under the budgeted amount?  If there have been a lot of foreclosures in the association, the unpaid dues from those homes will have to be written off, and the shortfall will have to be made up by an increase to the next year’s dues budget.  By law, in California, the HOA dues may be increased by the board of directors by up to 20% without a vote of the homeowners.  If a 20% increase is not enough to cover any shortfall, a “special assessment” of up to 5% of the annual budget may be declared by a vote of the board of directors.  Most associations publish their new budgets in November for the following calendar year, and the new dues assessments go into effect in January.

Review the Rules. Most HOAs have rules that address many areas of your life.  Putting a basketball hoop on your garage, or a portable one in the driveway, may be restricted.  Do you have a boat or RV?  Many HOAs require that they not be visible from any other property or from the street, or that you may only park your RV in front of your house for the time it takes to load or unload it after a trip.  Also, if you drive a commercial vehicle, know that there may be restrictions on keeping that in your driveway.  Do you work from home?  Some associations will not allow any kind of manufacturing or retail types of businesses, or will restrict the hours that you can operate.  What kind of pets do you have?  Chickens, ducks and pot-bellied pigs are often outlawed, and some associations put a weight limit on the size of dogs that are allowed.  Read over the rules and make sure there aren’t any that you can’t live with!

Architectural Guidelines. Before you plan that room addition, front porch, patio cover, or major remodel to your new home, find out what is likely to be approved by the architectural committee.  If you want to add a 2nd story, or change the exterior look of the home, find out before you buy that it will be allowed!

Meeting Minutes.  The minutes from the Board of Directors’ meetings will tell you what is going on in the Association.  Much of the time, the minutes are quite routine and boring, but check to see what issues are coming up at board meetings.  Are neighbors fighting about something?  Is the association failing to enforce the rules?  Are they anticipating discontinuing any services, or upgrading any of the commonly owned facilities?  Are there any lawsuits threatening the Association?

Buying a home that is part of an association means that you are buying ownership in that association.  Do your homework – You need to know what you are buying!

]]> http://livelakeforest.com/2008/10/before-buy-hoa/feed/ 2 http://livelakeforest.com/2008/07/should-sell-or-lease-your-orange-county-home/ http://livelakeforest.com/2008/07/should-sell-or-lease-your-orange-county-home/#comments Tue, 15 Jul 2008 02:39:53 +0000 Vicki Lloyd http://vickilloyd.wordpress.com/?p=161 In Orange County today, as well as many other places, there are home owners who are going through the difficult decision process of whether to sell their current home, or lease it and wait for a better time to sell.  Some of these people have taken a job out of the area and will not be able to commute from their current home.  Others have reasons to move such as not being able to go up and down stairs any more, or not having the energy or strength to clean and maintain the house anymore.

While nobody knows exactly what will happen in the future, it is generally expected right now that the current real estate downturn will continue for another year or two at least.  When trying to make this decision, it is a well worth your time to dig in to all the details and possibly consult with a tax expert to fully consider all of your choices.

These are the steps that I recommend to my “maybe sell, maybe lease” clients:

1. Look at what it really costs to own the house.  Add all of your costs, such as monthly mortgage interest, property taxes, HOA dues, insurance, gardener, pool service, etc.
2. Find out what amount of rent can reasonably be expected for a house like yours. Ask a Realtor to run the lease comps for you, call around to apartment leasing offices, check on Craig’s List to see what others are offering at what monthly rate.   (If you are in Orange County, call me and I’ll help!)
3. Check with your favorite tax expert about depreciation or any capital gains tax issues.  If moving out of a primary residence, you usually have up to 3 years to close a sale and still have the capital gains exclusion of $250K for single, or $500K for married home sellers.  (Who knows if this will stay in place with a new Congress and President?)
4. Consider the hassle or cost of selling later, either with a tenant in place, or the cost of carrying it with no tenant income while marketing it for a few months until it closes.  There may also be costs to paint or replace carpet prior to being able to market the property after a tenant vacates.
5. Take a look at your current loan for both rate and terms.  If it was set up as a short term fixed rate that will reset to a higher rate later, find out exactly what that rate and payment could be in a “worst case” scenario.  If you are planning to refinance it prior to it resetting, it would be wise to try to do it while still occupying it yourself.  Non-owner occupant rates are always higher than for owner occupied!
6. Consider offering a lease-option. There are many pros and cons to doing this, but sometimes it can work well for all parties.

Other posts you may like :
Lease Options Explained
Over Pricing Your Home

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The bad news is that there are a lot of homes that have been foreclosed, or are in the process of foreclosure, or sellers who are “upside down” with their financing.  The current inventory of 355 homes in the active status compared to the 81 that have closed in the last 90 days, equals a 13+ month level.  Additionally, 53 of those 355 (15%) are currently owned by a lender.  Many others are listed as “short sales” and require the approval of a lender before they can be sold.  In total, 201 homes are classified as distressed – either bank-owned or short sales!  For buyers who want to buy a clean well-maintained home in Lake Forest, there aren’t nearly the number of choices that the high inventory indicates. 

This graph shows for each price range the # homes that are bank-owned, the # homes that are listed short sales, and the remaining # of homes that are available as a “regular” sale.

What homes are on the market?  Search for homes, or get a Free Market Analysis Here.

For my sellers in Lake Forest, Rancho Santa Margarita, Mission Viejo, and other South Orange County areas, here is a list of important, but not totally obvious hints to follow when your house is on the market.

• If you have an answering machine – turn the volume to either “off” or “0″.  You don’t want potential buyers listening to your private messages!  I have actually been in a house with buyers and overheard messages saying things like “Well, Susie, I think it’s time we reduce the price, or this will never sell.”
• Keep your house ready-to-show every day!  Make up your bed, clean the kitchen counters, pick up any clutter, clean the litter box, and don’t cook any fish, garlic or currey!  You should be able to show your home on a 10 minute notice, so don’t leave more than 10 minutes worth of cleaning and straightening left undone.
• When an agent calls to ask if they may show the property, the answer is “YES!”  After that, you may ask if they have an idea about the timing. 
• When an agent & client arrive, invite them in, then leave!  Both agents and buyers really hate it when owners hover over them, or worse yet, point out each and every little feature of your home.  Your listing agent should prepare a flyer, and a supplement sheet if necessary, that lists all the upgrades and unique features.  When you leave the house, let the agent know if he should lock the door when they are finished.  If you are just next door without your house key, you don’t want to be locked out!
• If a buyer’s agents asks you anything (other than “where’s the light switch?”) tell them that your agent has all the details and answers and they should contact him or her.  Don’t talk about where you are going, why you are selling, how many kids in the neighborhood, or anything else.  Innocent conversations can end up costing you in your negotiations.
• Ask your listing agent for a copy of the MLS printout for your home.  Double check that they put in the correct address, # bedrooms, square feet, HOA dues, phone number to call for appointment, price and commission to buyer agent.  Anyone can make a typo, and another set of eyes to proof-read can’t hurt!