Homeowners Associations (HOAs) govern over 300,000 communities throughout the U.S. Many newer developments are part of an HOA, but the prevalence extends with many older communities as well. What exactly is an HOA? It usually starts with a developer who plans multiple homes for sale on a piece of land and builds single family homes, condominiums, or townhouses. The developer creates a legal set of rules and regulations that residents agree to follow. In return, residents are able to live in a community with amenities and maintenance upkeep that is taken care of by their association dues. Depending on the HOA, dues could be required monthly, annually, or both. Most HOAs have mandatory membership, that is, if you want to purchase in the community, you must become a member and follow HOA rules.
When a development is completed, the association nominates board members who are usually residents of the community. The board is responsible for the ongoing management of the community, including collection of dues, creating rules, and managing the upkeep of common areas such as pools, clubhouses, and landscaping.
Advantages of Living in an HOA Community
The biggest advantage of living in an HOA is affordability for the amenities received. Smaller lots with shared amenities help keep costs down for buyers and membership fees include much of the upkeep and maintenance required for the exterior of the home and common areas. In many cases, a buyer can afford more space with nicer amenities in a condominium, for example, than they would be able to afford in a single family home in a non-HOA neighborhood. The choice to live in an HOA community isn’t always affordability, however. Sometimes having all the exterior maintenance and upkeep along with things like beautiful landscaping, walking trails, and pools, are what draws people to buy in an HOA neighborhood.
Concerns about Living in an HOA
Living in an HOA is not for everyone because there are rules and regulations that must be followed, even if you do not agree with them. This is why reading over “articles of incorporation, bylaws, and Covenants, Conditions, and Restrictions (CC&Rs)” is so important before you purchase in an HOA. These documents are often gathered in a community handbook that your real estate agent should get for you from the listing agent of your property of interest. Never agree to a purchase without having time to review these documents. You need to be sure that nothing in these documents would prevent you from living there. Some examples of restrictions might include:
• No yard decorations
• Owning pets
• Limited size and weight of pet
• Hanging laundry outside
• Parked cars or motorcycles in the driveway
• Installing a satellite dish
• Type of fence you can install
Another concern is whether the HOA follows through on its maintenance responsibilities and the enforcement of its own rules. Don’t just inspect the property you’re interested in buying, look around the whole community. Is the landscaping attended to? Does the roofing of the condominiums look solid or in need of replacement? Is the paint and siding of all the units in good order? Do people keep their garbage cans tucked away or are they in plain sight? Sometimes you can get information from a few neighbors on whether the HOA does a good job of keeping the common areas well maintained.
Realize that you may need to get permission from an HOA board before you do something to your home, such as paint it a certain color or build a tool shed in your back yard. HOAs usually like conformity of structure to help maintain property values, so you should be well aware of what choices or control you may have to give up for the chance to live in that community.
You need to know that if you repeatedly break rules as a resident, the HOA likely has the right to impose you with a fine, force you to comply with the rules, or it may file a lawsuit against you. It can be very hard to win against an HOA board. And remember that the people you are arguing with are your neighbors.
On the financial side, remember also that you will have to pay membership dues to your HOA on top of your mortgage payments. Of course you receive a number of amenities and maintenance items taken care of for this fee, but it is still a cost to be figured in addition to a monthly mortgage. Make sure you know the HOA fee before making an offer. While some HOA fees are very low, others can make you feel like you’re paying a full rental fee on top of a mortgage. As with any type of home purchase, make sure you know what you can afford before you look in an HOA community.
Know the HOA’s Financials
You should also review the HOA’s current financials before you agree to purchase. You want to know whether there are enough reserves (available funds) for the HOA to make any costly replacements, such as roofing for the entire community or repaving the community roads. If there isn’t enough money in the HOA reserves, the HOA might have to charge a special assessment on all residents to collect the necessary funds to take care of the problem. If this information isn’t already in the documentation you received, your agent may need to request it for you—as a potential member of the HOA, you have a right to review it along with the CC&Rs prior to purchase.
Know How Much Time You Have to Review All HOA Documents
Standard purchase contracts used by real estate agents usually have a section specifically for HOA communities that dictates how many days after an accepted offer the buyer shall (1) receive the CC&Rs in his or her hands and (2) how many days after receipt they shall have for reviewing documentation and accepting or rejecting its terms. At a minimum, the timeframe for a buyer’s review is usually three days. Your real estate agent should be on top of this timeline and ensure you are doing due diligence to review the documents. Use this time wisely because this is your chance to get out of a purchase contract if you see too many restrictions or conditions that you don’t like.
Know What Your HOA Dues Cover vs Don’t Cover
If you live in a condominium community, your HOA dues should cover basic things such as snow removal of the roads, landscaping, lawn mowing, and exterior repair on things like roofing and siding. However, some HOAs may or may not include trash removal, water costs, or the replacement of broken windows under your monthly fee. Read over carefully what added expenses you might incur both on a regular basis and if something goes wrong. Most HOAs will require you to carry a specific kind of property insurance. In an HOA, it is usually the case that anything needing maintenance and repair in the interior of your home is your responsibility.
Finally, have your agent get information through the HOA’s management company or current owner on how often the HOA fee has risen in the last few years and by how much. There could be a number of reasons for rising fees, such as an increase in maintenance costs or a proactive move to increase reserves for new roofing that will be needed in the next five years. Whatever the case, you want to know the likelihood of increasing fees and factor that into what you are willing to pay for the long term.