A Homeowner association (HOA) is a private association created by a real estate developer to market, manage and sell homes and lots in planned developments. These can include, houses, townhouses, and condos.
If you buy a house in the subdivision or condominium, you are generally obligated to become a member of the homeowners association and pay monthly or annual fees.
The HOA manages the common areas and amenities and enforces the rules and bylaws. Fees often range from $150 to $500, depending on many variables. The more amenities and services provided by the HOA, the higher the cost. Some are paid yearly, while some are paid monthly. Fees typically go towards maintaining common areas and amenities, and towards protecting the quality of life and property values within the planned development.
HOAs have been known to wield a lot of power, so it is important to know what you’re buying into if you decide to buy into one.
Here’s what you need to know about your HOA:
Each HOA has a specific set of rules that you must follow known as the covenants, conditions, and restrictions, or “CC&Rs.” These rules are governed by the HOA, and might include restrictions on the color of your house, the size and breed of your dog, or the height and type of fence you choose. CC&Rs will vary depending on the HOA. Some have a larger set of CC&Rs than others.
You should be aware of all the rules within the HOA, as well as the punishment for breaking these rules.
Perhaps the most important part of living under an HOA—it can enforce hefty fines if you do not follow their rules. You could even face foreclosure on your house if you fail to pay their fees or comply with their rules. This is because when you purchase the house, you are bound to deed restrictions.
Be sure that you are OK with following all of the rules.
Know the HOA’s financial standing:
You’ll want to take a look at the HOA’s financial standing. The HOA should have a reserve set aside for special issues such as repairs or equipment replacement. If there is not enough money in a reserve fund, you could be on the hook for a “special assessment,” or a bill to help pay for the repair. For example, if the roof needs to be repaired on the building, be prepared for a special assessment. While a special assessment every once in a while might be necessary, frequent assessments could be a troubling sign. You should also figure out what percentage of homeowners are paying their fee each month, or the number of unsold houses or units within the development. You could be on the hook for homeowners that fail to pay their fees, or for a fee increase due to a lack of members to pay fees. Here are a few questions to ask about the HOA’s financial standing:
• How are HOA fee increases set?
• How often do increases occur?
• How large is the HOA’s reserve fund?
• What special assessments have been made in the past and are any planned for the future?
• What do monthly dues cover?
• Are there any current or past lawsuits?
Ask for a copy of minutes from the past few HOA meetings. This will give you an idea of how things are run within the HOA. Some HOAs hire professional management companies, and some run are run by volunteers from the community. Looking at the minutes could enlighten you to possible issues that the HOA is facing at the moment. You don’t want an HOA that’s been riddled with drama in the past.
Here are some questions to keep in mind:
• What are the current and past conflicts?
• What is the conflict revolving process?
Ask yourself if it’s worth it:
A major benefit to owning rather than buying is the ability to do as you please. If you’re someone who hates being told what to do, even if it’s for the common good of the community—think hard before moving into a community with an HOA.
One of the most appealing reasons for joining into an HOA-governed home is the access to amenities that you might not be able to afford on your own, such as swimming pools, tennis courts, and fitness centers.
If you’re not planning on using these amenities, you should ask yourself if it’s worth it to pay the HOA fee. These fees might end up costing you the same amount as the house you thought you couldn’t afford.
The Bottom Line
If run properly, HOAs are designed to benefit the homeowner by providing management and maintenance services, recreational facilities, and the enforcement of community appearance standards designed to help increase property values.
Some HOA disadvantages include association fees, fines, property restrictions, and potential mismanagement or under-management.
No one can definitively say that buying into an HOA is a good or bad idea—it’s all up to your personal preference. Just make sure you know what you’re buying into.