More than 130 members of the Silicon Valley Association of REALTORS® attended SILVAR’s Los Gatos/Saratoga District tour meeting a few weeks ago and listened as Jacquie Berry, owner of Community Association Data Source, emphasized the greatest mistake any seller can make is an incomplete disclosure.

When dealing with homeowner associations (HOAs), it gets especially complicated because the law requires more disclosures from common interest developments (CIDs), in addition to the normal disclosures required in the sale of single-family homes. Common interest developments are condominiums and planned developments that are governed by a homeowner association which administers the property and is responsible for repairing, replacing, or maintaining the common areas. The homeowner association places restrictions on the use of the property and the common areas.

Berry shared the following statistics: There are over 48,000 homeowner associations in California; CIDs make up a quarter of all housing in the state of California; 49 percent of CIDs are self-managed and less than 25 percent are 100 percent funded in their reserves.

Berry said lenders are asking more questions about the financial health of HOAs so buyers won’t be caught by surprise by undisclosed defects in the common areas and underfunded reserve accounts, which result in special assessments. Agents and prospective buyers should review state laws, documents that HOAs are required to provide, and ask questions. She noted forms change, and homeowner associations rarely provide a complete or updated set of disclosure documents.

Also, HOAs may state they have adequate reserves to maintain deferred maintenance, but they do not specify a timeline for which these reserves are adequate. HOAs must prepare a reserves budget every year, providing a current estimate of the costs of repairing and replacing major common area components over the long-term. Ideally, reserve funds should be able to cover all major repair and replacement costs when needed.

“The value of the property is directly related to reserves,” stressed Berry.

Berry said it’s very important that these disclosures be obtained and reviewed by the appropriate professional so the buyer can make an intelligent decision as to whether or not to purchase the property.

“It’s all about disclosure,” Berry said. “It’s not about anything else but disclosure.”

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