Estate home value growth depends on good management

If you are buying a home in an established estate or cluster development, it is important to bear in mind that the future value of your property will depend not only on its individual location and condition, but also on how well the development as a whole is managed by the homeowners' association (HOA).

To gauge this, you need to take the following steps before signing any offer to purchase:

* Establish the percentage of owner-occupants in the community versus the number of tenants. There is a good reason that banks are often reluctant to grant loans to prospective buyers in developments where more than a third of residents are tenants. They know from experience that resident owners are more likely to take care of their properties, and the communal areas and facilities, than landlords who don't live in the community. And the market value of property is directly related to the availability of financing. No loans will mean falling values.

* Ask to see the current assessment/ levy collection record, and find out what percentage of owners are 90 days or more in arrears with these payments. If the percentage of delinquent owners is high, it means the HOA does not have an effective collections policy or procedure and, quite simply, that the management committee is not doing its job properly. Assessment funding is needed to ensure proper maintenance of communal grounds, roadways and security equipment and if funds are inadequate to pay for this maintenance, all home values in the development will be threatened.

* Find out if the HOA has a stated reserve fund requirement and how much it has in this kitty. Such a fund is vital to cover the predictable costs of repairing or replacing communal assets without having to raise special assessments, and should be funded from the monthly assessments / levies paid by owners. A well-run community will have more than 75 percent of the reserves it needs in the bank, and lower levels generally spell trouble because the resistance to paying special levies may well result in necessary repairs and replacements being deferred, to the detriment of property values in the estate.