On October 1, 2022, Maryland’s House Bill 107 (HB107) came into effect, requiring all homeowner associations (HOAs), condominiums, and cooperatives in the state to conduct reserve studies for their properties. The law mandates that associations achieve the annual reserve funding levels recommended by these studies within three fiscal years, giving boards the authority to increase assessments, even beyond their existing caps, to ensure proper funding. This legislation aims to improve the financial health of community associations and safeguard long-term property values.
Overview of HB107
The new reserve study requirement mandates that homeowner associations, condominiums, and cooperatives conduct a comprehensive evaluation of their property’s long-term maintenance and repair needs. The study takes into account all the shared elements of a property such as the roof, parking lots, infrastructure, and community amenities, helping associations plan for future repair costs. This proactive approach helps prevent unplanned large assessments and ensures that the community has the necessary funds for maintenance and repairs.
Associations must adopt the reserve funding level recommended by the reserve study within three years. This is critical because a well-funded reserve can prevent the need for significant, unexpected dues increases or special assessments that could financially burden homeowners. Furthermore, HOA boards are granted the authority to increase assessments to meet the required reserve funding levels, even if those increases exceed existing caps within association bylaws.
Implications for Realtors and Property Values
The HB107 law has several implications for real estate professionals in Maryland, especially for those working in communities governed by HOAs or other forms of community associations. For buyers, it is essential to know whether the HOA has conducted a recent reserve study and whether it is meeting the recommended funding levels. This is important as properties in well-funded communities are often better maintained, and there are fewer surprises in terms of special assessments.
For sellers, transparency regarding reserve funding levels and any future assessments will be crucial when negotiating with buyers. Realtors must ensure that these details are disclosed, as failing to do so can result in legal issues or delays in transactions.
The law also means that realtors should be prepared to explain to buyers the financial health of a community, including the findings of the reserve study, to help them make informed decisions. Homes in well-managed, financially sound communities may not only appreciate more steadily but also face fewer issues with deferred maintenance, which is crucial when it comes to long-term investment value.
Looking Ahead
As other states continue to grapple with similar challenges in HOA management and community maintenance, Maryland’s HB107 could serve as a model. By setting clear standards for reserve studies and funding requirements, it ensures that both buyers and sellers in Maryland have a clearer picture of the community’s financial health.
Realtors working in Maryland should familiarize themselves with the specifics of HB107 and be prepared to guide both buyers and sellers through its implications, ensuring that transactions are as smooth and transparent as possible.
