SILVAR  :  Newsroom  : Real Estate Articles

Real Estate Articles

HOA compliance is all about disclosure

Wednesday, March 9, 2011

More than 130 members of the Silicon Valley Association of REALTORS® gathered at a meeting last week in Los Gatos 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.

"It's all about disclosure," said Berry. "It's not about anything else but disclosure."

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.

An HOA compliance expert, Berry said agents need to be meticulous about getting complete documentation and disclosure in transactions involving CIDs.  She 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 will not be caught by surprise by undisclosed defects in the common areas and underfunded reserve accounts, which could mean special assessments for them down the road. Agents need to make sure the preliminary title report and all HOA documents are in order. Agents and their clients should review state laws, documents that HOAs are required to provide, and ask questions. Berry noted forms change, and homeowner associations rarely provide a complete or updated set of disclosure documents.

Also, while some HOAs state they have adequate reserves to maintain deferred maintenance, 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 reserve study is an important part of evaluating the value of a CID property. Reserve planning helps assure property values by providing protection against declining property values caused by deferred maintenance and inability to keep up with repairs and maintenance.

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

The HOA compliance expert said it is very important that these disclosures be obtained and reviewed by the appropriate professional so the buyer can make an intelligent decision as to whether to purchase the property.


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

» Back to Real Estate Articles

Site Navigation