When purchasing a condominium, buyers naturally spend considerable time physically evaluating the unit. They inspect the plumbing, electrical systems and appliances. They look for water intrusion. They consider the condition of the floors, windows and HVAC system.
But with a condominium, inspecting the unit is only part of the due-diligence process. A condominium buyer is also buying into a homeowners association. That means assuming a share of the financial obligations associated with maintaining the building and common areas, while becoming subject to the association’s rules and restrictions. Those issues cannot necessarily be discovered during a physical inspection.
The California Department of Real Estate recently emphasized this point, warning buyers that many important aspects of ownership in a common-interest development cannot be observed by inspecting the property and advising buyers—and their agents—to carefully review the HOA’s governing and financial documents. The question, however, is not simply whether the buyer received the HOA documents. The more important question is whether anyone actually analyzed them.
Start With the Basic Questions
There are several questions we believe every condominium buyer should ask:
- When were the HOA dues last increased?
- Are there plans to increase the dues again?
- When was the last special assessment?
- How much was it?
- Why was it necessary?
- Are any additional special assessments currently planned?
These questions provide a useful snapshot of the association’s recent financial history. An HOA that has repeatedly increased dues or imposed substantial special assessments deserves additional scrutiny. Likewise, knowledge of a significant assessment that has already been approved may materially affect a buyer’s decision about the property.
California law recognizes the importance of this information. Civil Code section 4525 requires disclosure of current regular and special assessments, as well as assessment changes that have already been approved by the board but have not yet become payable. But asking about currently planned assessments is only the beginning.
“No Special Assessments Are Planned” Doesn’t Necessarily Mean There Is Nothing to Worry About
Imagine that an HOA has not planned any special assessments. That sounds reassuring. But suppose the building is 35 years old. Its roof is nearing the end of its useful life. Its elevators will require modernization within several years. Significant plumbing work is anticipated. And the HOA has accumulated only a fraction of the reserves necessary to pay for those projects.
Technically, the answer may still be correct: no special assessment has been approved or planned. But it doesn’t tell the buyer what they really need to know. More importantly, the buyer needs to know whether the HOA is prepared to pay for major repairs and replacements that are reasonably foreseeable. To begin answering that question, buyers need to look deeper into the HOA documents.
The Reserve Study May Be One of the Most Important Documents in the Package
One of the first documents we look for when reviewing HOA disclosures is the reserve study.
California law generally requires qualifying associations to conduct a reasonably competent and diligent visual inspection of the major components the association is responsible for maintaining at least once every three years and to review the study annually. The reserve study identifies major components with a remaining useful life of less than 30 years, estimates their remaining useful lives, estimates the cost of repairing or replacing them, and addresses the contributions necessary to fund those expenses. That information can tell a buyer considerably more than the current monthly HOA dues.
Consider a hypothetical building with relatively modest dues and no planned special assessment. At first glance, it may appear financially attractive. But if the reserve study identifies several major building components approaching the end of their useful lives while showing inadequate reserves to pay for them, those low monthly dues may not be as attractive as they initially appear.
Conversely, relatively high HOA dues are not necessarily evidence of poor management. An association may be collecting more each month precisely because it is adequately funding reserves and preparing for predictable future expenses.
The amount of the monthly assessment therefore should not be viewed in isolation.
Look at What the HOA Owns—and How Old It Is
The reserve study also provides another piece of information buyers sometimes overlook: the age and remaining useful life of major building components. Roofs do not last forever. Neither do elevators, boilers, plumbing systems, waterproofing systems or other expensive common-area components.
A buyer purchasing into an older building should therefore ask not only how much money is in the reserve account, but what that money will eventually have to pay for. California reserve disclosures include estimates of the replacement cost, remaining life and useful life of major components. They also compare estimated reserve needs with the cash reserves actually accumulated by the association.
This allows a buyer to look beyond the association’s present financial condition and consider what expenses may be approaching. A well-funded reserve account can reduce—but not eliminate—the risk that owners will suddenly be asked to contribute substantial additional amounts when major repairs become necessary. An underfunded association with aging components presents a very different financial picture.
The Balcony Inspection Report Has Become Essential Reading
There is another document California condominium buyers should now pay particular attention to. Effective January 1, 2026, Civil Code section 4525 requires sellers in covered common-interest developments to provide prospective purchasers with the report from the HOA’s most recent exterior elevated-element inspection conducted under Civil Code section 5551.
These inspections address qualifying exterior elevated elements such as balconies, decks, stairways and walkways, including their load-bearing components and associated waterproofing systems. For buyers, simply confirming that the inspection occurred is not enough. It is important to determine what issues arose, whether repairs were recommended, whether any safety concerns were noted, and how the HOA intends to pay for it.
A balcony report identifying substantial repairs should therefore be considered alongside the reserve study and the association’s financial statements. The physical problem and the financial ability to address that problem are two sides of the same issue.
Review the Board Minutes
Buyers should also consider requesting and reviewing the HOA board meeting minutes. Under Civil Code section 4525, a prospective purchaser may request approved minutes from non-executive-session board meetings conducted during the previous 12 months.
Meeting minutes can provide context that may not be obvious from financial statements alone. They may reveal discussions about upcoming repairs, insurance difficulties, recurring maintenance problems, potential assessments, owner disputes or other issues under consideration by the board. They can also help a buyer determine whether an issue described as merely “under discussion” may actually be progressing toward a significant expenditure.
Not every discussion in board minutes ultimately results in action. But the minutes can help buyers identify questions worth asking before their contingency period expires.
Don’t Ignore Litigation and Insurance
The Department of Real Estate also specifically recommends investigating whether the HOA is involved in existing, threatened or contemplated litigation.
That matters for several reasons. Litigation can be expensive. If reserves are used to pay legal expenses, fewer funds may be available for building maintenance and repairs, potentially increasing the likelihood of future assessments. Certain litigation—particularly construction-defect litigation—can also complicate financing or resale.
Insurance deserves similar attention. Buyers should understand what insurance the HOA maintains, what the policy covers, the applicable deductibles, and what insurance the individual owner is expected to obtain. In California’s current insurance environment, this deserves more attention than it might have received several years ago.
The CC&Rs and Rules Matter Too
Financial condition is only one part of HOA due diligence. The governing documents can impose significant restrictions on how a buyer uses the property.
Depending on the community, those restrictions may address pets, rentals, parking, architectural modifications, flooring, balconies, exterior alterations and numerous other issues. A restriction that is irrelevant to one buyer may be extremely important to another. Someone planning to rent the unit in the future, for example, should understand applicable leasing restrictions before purchasing—not after.
Likewise, a buyer planning a significant renovation should investigate whether the proposed work will require HOA approval and whether the governing documents impose meaningful limitations.
Receiving the Documents Is Not the Same as Reviewing Them
This may be the most important lesson. A typical HOA disclosure package can contain hundreds of pages. Buyers sometimes receive the documents electronically, confirm receipt, and move on to the more familiar parts of the transaction. Agents can fall into the same trap.
California’s Department of Real Estate recently emphasized that a buyer’s agent should not simply deliver HOA disclosures and consider the job complete. The DRE advises agents to carefully review the management documents and explain their practical application to the buyer, while referring legal and financial questions to the appropriate professionals when necessary.
That distinction is important. Due diligence is not a document-delivery exercise. It is an investigation.
The Lesson – Look Beyond Physical Condition And Current HOA Dues
Ultimately, buyers should not evaluate an HOA solely by performing a physical inspection and asking whether its current dues seem reasonable. Buyers need to understanding, among other things, what components the HOA owns, what condition the components are in, anticipated replacement or repair costs, whether reserves are sufficient to cover those expenses, and, if not, how the HOA plans to address those costs.
A condominium with high monthly dues but healthy reserves and well-maintained building systems may represent a very different financial risk than a building with low dues, inadequate reserves, and several major capital projects approaching.
Neither situation automatically makes a condominium a good or bad purchase. But buyers should understand which one they are buying into. When you purchase a condominium, you are not simply buying the space inside the walls of your unit – You are also buying into the financial condition, physical condition and future obligations of the association that owns and maintains everything around it. And that deserves every bit as much due diligence as the unit itself.
Please call or email us at 213-973-9439 or info@esquirereb.com to further discuss our expertise in assessing the financial health of an HOA, or how Esquire Real Estate Brokerage can help you in the Southern California real estate market.
