New Construction & HOA Boards -- Who's in Charge?
Posted 07-09-2019 at 03:29 PM by Sunshine Rules
As buyers tour the many new construction communities in our area, most make touring the model homes and community amenities a priority.
Few buyers are thinking about the HOA board and who's in control of it. Generally, the builder retains control of the HOA board until a specific, designated turn over point in time.
This brings up potential issues that I have seen happen in the past with new construction when the HOAs are currently being run by the builder. The property management company answers to the HOA board, which is stacked with builder/developer people. Therefore, certain recorded covenants may be ignored by the current HOA board & the management company as enforcement of those rules could have an adverse impact on sales.
However, those rules are all on the books, and when the HOA board control finally gets turned over to the actual residents of the community, they can, at that time, start enforcement of ALL recorded covenants, including those regarding pet restrictions. Which is why it is so important that buyers get and read the actual recorded deed restrictions/covenants before purchasing a home in any community that has a mandatory HOA and recorded covenants rather than taking the word of the on site builder reps/ sales people as to what you can and cannot do.
Another potential issue that can come up upon residents taking over the control of the HOA board has to do with financial decisions made by the builder/developer pre-takeover. While under builder control, homeowners generally have no meaningful input to the establishment of annual operating budgets or reserve funds, and the builder can sometimes opt out of paying required assessments on unsold lots and spec homes.
Since the builder essentially creates the budgets, operating expenditures may be set artificially low in order to minimize the builder's share of contribution to the HOA, while maximizing builder profits from home sales. Additionally, in order to sell homes for higher prices, it’s very common for the monthly or quarterly HOA assessments on new homes to remain lower than actually necessary to properly fund a budget & reserves in order to give buyers the impression that they are getting a better value based on the current HOA fees. So buyers should be aware that those impressively low monthly/quarterly HOA fees can and often do increase after the HOA control is turned over to the residents from the builder.
If the community is approaching the time for builder's transition of turnover of control of the HOA to the residents (the recorded HOA documents will state when that should occur, otherwise the state of FL states it occurs when the builder is 90% built out), it is extremely important for the residents thru their attorney(s) to take a close look at its reserve accounts and budgets dating back to the beginning of the community.
Buying a new construction home obviously has lots of benefits: you get to design your home your way, everything's new and under warranty, new construction in our state is up to the latest hurricane building codes, the community amenities are all new and, probably best of all, no one else has ever lived in your home. However, it pays to be educated on all of the ins and outs of HOA boards, HOA rules & regulations and budgets before you sign that purchase contract.
More information leads to better choices......
Few buyers are thinking about the HOA board and who's in control of it. Generally, the builder retains control of the HOA board until a specific, designated turn over point in time.
This brings up potential issues that I have seen happen in the past with new construction when the HOAs are currently being run by the builder. The property management company answers to the HOA board, which is stacked with builder/developer people. Therefore, certain recorded covenants may be ignored by the current HOA board & the management company as enforcement of those rules could have an adverse impact on sales.
However, those rules are all on the books, and when the HOA board control finally gets turned over to the actual residents of the community, they can, at that time, start enforcement of ALL recorded covenants, including those regarding pet restrictions. Which is why it is so important that buyers get and read the actual recorded deed restrictions/covenants before purchasing a home in any community that has a mandatory HOA and recorded covenants rather than taking the word of the on site builder reps/ sales people as to what you can and cannot do.
Another potential issue that can come up upon residents taking over the control of the HOA board has to do with financial decisions made by the builder/developer pre-takeover. While under builder control, homeowners generally have no meaningful input to the establishment of annual operating budgets or reserve funds, and the builder can sometimes opt out of paying required assessments on unsold lots and spec homes.
Since the builder essentially creates the budgets, operating expenditures may be set artificially low in order to minimize the builder's share of contribution to the HOA, while maximizing builder profits from home sales. Additionally, in order to sell homes for higher prices, it’s very common for the monthly or quarterly HOA assessments on new homes to remain lower than actually necessary to properly fund a budget & reserves in order to give buyers the impression that they are getting a better value based on the current HOA fees. So buyers should be aware that those impressively low monthly/quarterly HOA fees can and often do increase after the HOA control is turned over to the residents from the builder.
If the community is approaching the time for builder's transition of turnover of control of the HOA to the residents (the recorded HOA documents will state when that should occur, otherwise the state of FL states it occurs when the builder is 90% built out), it is extremely important for the residents thru their attorney(s) to take a close look at its reserve accounts and budgets dating back to the beginning of the community.
Buying a new construction home obviously has lots of benefits: you get to design your home your way, everything's new and under warranty, new construction in our state is up to the latest hurricane building codes, the community amenities are all new and, probably best of all, no one else has ever lived in your home. However, it pays to be educated on all of the ins and outs of HOA boards, HOA rules & regulations and budgets before you sign that purchase contract.
More information leads to better choices......
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