A homeowners association (HOA) can be a blessing or a curse to those who belong to one, depending on whether the association is well-run, has reasonable fees and isn’t overly restrictive.
If you’ve never lived in—or even heard of–an HOA, here are some things you should know about one of the fastest-growing trends in home ownership.
What Is a Homeowners Association?
A homeowners association is a membership organization run by a board of directors–usually neighborhood volunteers–that regulates and manages a building, set of attached homes or a single-family neighborhood.
The HOA will set regulations governing a variety of issues, and assess HOA fees–to be paid annually, quarterly or monthly, and sometimes through special assessment–that go toward the upkeep of a neighborhood.
In many cases, an HOA is started by a real estate developer, and the company might hire a community association manager to assist the board in its duties.
Types of HOAs
Many HOAs share the same characteristics, but there are some differences based on the types of homes and financial or community arrangements. HOAs can exist in:
- Planned communities. These might include single-family homes, or a mix of homes, townhomes and apartments, and have amenities such as a pool and community center, as well as 24-7 gated security. Single-family homeowners would likely own the land their homes are on as well as their yard, but might not be in charge of yard upkeep.
- Townhome-focused HOAs. Townhome owners usually own the land their home is on and are responsible for the upkeep of the interior and part of the exterior. But the HOA could provide some exterior maintenance such as roof, gutters, trim and siding, as well as lawn care for the common areas surrounding the buildings.
- Condominium-focused HOAs. Condominium HOAs are focused on amenities, such as pools, community areas, the buildings themselves and parking lots and lawns. Condo owners will take care of the interior of their homes.
Housing cooperatives, or co-ops, while not technically part of an HOA, offer a similar oversight structure as HOAs. Co-op owners follow rules established by a board and owners likely pay a monthly maintenance fee. They also have to pay their share of operating expenses for the building they live in.
How HOAs Work
If you’re looking to buy a home in a neighborhood with an HOA, make sure to review the rules and regulations as soon as possible because once you purchase the home, you will be a member.
The rules, also known as covenants, conditions and restrictions (CC&R), can range from the common to the arcane, and will often set the tone for the neighborhood.
For example, an HOA can set strict rules on the type of changes you can make to the exterior of your home. Here are some other common things an HOA may regulate:
- Common areas/land: It’s likely your HOA fees will primarily cover upkeep for common outdoor areas, snow removal, building upkeep and–if your neighborhood has them–community fitness and gathering areas.
- Pet ownership: An HOA could specify whether you can own pets, how many and how big they can be.
- Parking: You might have rules that govern the types of vehicles that can be parked in a driveway or parking lot–for example, RVs might not be permitted–and if overnight street parking is allowed.
- Renting: An HOA might take a hard line on renting regulations to prevent the neighborhood from having too many temporary residents.
How to Research an HOA
There are a few ways you can check out an HOA before you purchase a property. You can start by asking for:
- Association bylaws. Your rights as a member and the power of the board of directors would be addressed here, including how often the board will meet, the budget and how assessments will take place.
- Financial documents. You’ll want the HOA to have a reasonable assessment fee–especially if it is not in charge of much more than the upkeep of common areas–and enough cash in reserve to pay for major repairs and projects. It may be difficult for you to assess the HOA’s finances on your own, so you may want to ask your real estate attorney to examine the financials, as well.
- CC&Rs and rules. This is where your tolerance for oversight will be tested. If any of the rules are deal-breakers, it might be a good idea to take a pass on the HOA and look for another house.
- Board meeting records. If there are major problems with how the association is run, you’ll likely see the signs in the meeting minutes. For example, there might be major disputes between the board and residents, or even with board members themselves. You also could find out about major projects and potential financial issues that could result in one-time assessments.
In addition to reviewing records, you could:
- Talk to the community association manager, who can likely clarify questions you might have about the bylaws and rules.
- Reach out to any residents you might know, or happen to meet while checking out the area.
- Conduct online research on review sites such as Yelp, although it might be difficult to get into closed social media groups for the neighborhood.
How Much Does an HOA Cost?
HOA fees should be disclosed along with the sale price for a home, but realize that, like taxes, HOA fees could go up every year. Fees range from about $200 on the low end to several thousand dollars for HOAs that are responsible for multiple community buildings.
If an HOA is well-run, it should have a full accounting of where the fees are spent and also put away a designated portion in reserve to pay for major projects such as new roofs/gutters and exterior repairs. If an HOA doesn’t save adequately for unanticipated costs, the board might need to implement one-time assessments on residents, which can add quite a bit to the monthly cost.
The fees are generally non-negotiable, meaning if you live in the neighborhood, you have to follow the regulations, and paying fees is one of them.
Frequently Asked Questions (FAQs)
Can an HOA increase property value?
Homes in an HOA had an average of 4% higher value than similar ones that were not in an HOA, according to a recent study by researchers Wyatt Clarke of IBM and Matthew Freedman of the University of California-Irvine. A well-run HOA can have a positive influence on how a neighborhood looks, such as making sure home exteriors look neat and consistent and hiring landscaping companies to keep common areas clean.
Why do some people hate HOAs?
If an HOA is overly aggressive about its rule enforcement, doesn’t care about enforcing any rules or is not financially stable, residents–and the neighborhood itself–could suffer. For example, if an HOA board looks the other way when residents change the exterior of their properties or don’t take care of their lawns, it can cause neighbors to get upset about the condition of the neighborhood and its effect on property values.
How do HOAs enforce their rules?
The power of HOAs varies by association and is regulated by state law. HOAs have specific methods for rule enforcement detailed in their bylaws and regulations. If fees are not paid, for example, some HOAs might have the power–if granted by the state–to fine residents, and eventually put a lien on their home and possibly foreclose on the property. Other issues, such as a dispute about a rule on exterior design, could end up in civil court.
Bottom Line
HOAs are not for everyone. If you don’t want to answer to an HOA and its board about how you upgrade your house and whether you want to rent it out or not, it may not be a good fit. But HOAs can offer some key advantages, including consistent upkeep of all homes and enhanced security. That’s why it’s just as important to know what you want in a home and neighborhood as it is to research the background of an HOA in any area you’re considering buying a home.
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