The San Francisco-based startup is helping lenders, title companies and iBuyers do due diligence on homeowner’s associations, InspectHOA co-founder Anton Tonev told Inman.

InspectHOA, a startup that helps lenders, title companies and iBuyers streamline the cumbersome process of evaluating homeowner’s associations, has landed $3.1 million in a seed funding round led by SVQuad.

Launched in 2020, InspectHOA’s founders say they’re already facilitating thousands of transactions per month for clients that include Better, EasyKnock, Endpoint, Homeward and Spruce.

Most new homes are part of a homeowner’s association, according to Census Bureau data, and having up to date information on HOAs is a critical part of underwriting mortgages and getting to the closing table.

After their monthly mortgage payment, HOA fees are often a homebuyer’s second biggest expense — making them an important factor in determining how much they can borrow. Lenders also want assurances that HOAs are managing properties well, which means diving into HOA expenses and reserves.

InspectHOA streamlines the process of evaluating HOAs by acquiring HOA documents that are legally required for closing real estate transactions, including bylaws, covenants, financial budgets and reserve studies. The company then digitizes those documents, extracting essential information to facilitate analysis.

Now providing services in more than 40 states, San Francisco-based InspectHOA has built a database with information on more than 40,000 HOAs, and plans to be providing services nationwide within three to six months, Anton Tonev, the company’s head of business development, said.

Tonev, who co-founded InspectHOA with CEO Vishrut Malhotra and Atin Hindocha, the company’s head of operations, likened the company’s services to a home inspection for HOAs.

Anton Tonev

“Initially, we started with a couple of iBuyers in the space to start learning what are the important things for them from an HOA perspective — speed, efficiency, making sure that there are no hidden risks that can ruin their investment,” Tonev told Inman. “Very soon we realized that title companies and lenders are actually the companies that have the biggest pain points when it comes to HOAs.”

After fine tuning InspectHOA’s solutions — which include document acquisition, HOA review, HOA search, and post closing solutions — the company grew rapidly in 2021, and expects to quadruple its revenue this year.

BV Jagadeesh

“HOAs are one of the few areas of real estate transactions that still need to be automated and standardized,” SVQuad managing partner BV Jagadeesh said in a statement. “This is also a terrific beachhead market, opening billions of dollars of future monetization potential. InspectHOA has great traction with title companies, lenders and investors, and we couldn’t be more excited to be part of their journey.”

In addition to SVQuad, InspectHOA’s backers include Inventus Capital Partners, and Dheeraj Pandey, co-founder of business software company DevRev. Angel investors include Flyhomes CEO and co-founder Tushar Garg, and Treebo Hotels co-founder Rahul Chaudhary.

Most new single-family homes are in HOAs

Source: U.S. Census Bureau.

Approximately 65 percent of new single-family homes completed in 2020 were in a homeowner’s association, up from 46 percent in 2009, according to the latest Census Bureau data. One of the main drivers is that HOAs take some of the financial burden of new construction off of local governments, University of California, Irvine, economics professor Matthew Freedman told Inman in 2019.

Freedman said his research shows that properties that belong to an HOA actually sell for a premium, but noted that some researchers have criticized HOAs because they believe that homebuyers don’t fully understand or read the restrictive contracts.

Tonev said InspectHOA can simplify the process not only for lenders, title insurers, and investors, but for real estate agents and their clients.

In addition to generating an HOA score — which boils down InspectHOA’s complex analysis of an individual property’s HOA into a single number akin to a credit score — clients can take a deeper dive into an HOA’s financials, bylaws, operations, and financing.

“Some people love it, because it kind of gives them everything they want to feel comfortable about,” Tonev said of the HOA score. “Others hate it, because if their client see an average of 50 or 56 and the average HOA score is 60, their clients might get worried and maybe not continue with a transaction.”

InspectHOA strives to provide “apples to apples” comparisons that take into account property type, square footage, and geographic location.

“For every HOA, we give you some highlights,” he said, using a condominium in Stamford, Connecticut as an example. “In this case, we’ve highlighted that the monthly dues of $549 are somewhat higher than comparable properties in the region. But the reserves are underfunded — they’re only 28% of expected maintenance costs.”

By using InspectHOA, would-be homebuyers can uncover major red flags, such as whether an HOA is involved in lawsuits, or dive into details like how expenses for services like trash pickup, snow removal, and garbage compare with other HOAs.

“Maybe yours is overspending on pool management, but maybe you have a fantastic pool … that would require more expenses to manage it,” Tonev said. “All we’re saying is you as a buyer should have access to this level of transparency when you make decisions.”

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Email Matt Carter

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