We’re often asked by prospective Buyers first, what’s an HOA and what does it cover, and second, what are the pros and cons of living in a neighborhood with an HOA?
The first is relatively simple to answer.
You’re required to join an HOA – or Home Owners Association – when you purchase a condominium, townhouse or other type of property in a planned development, such as a leased land property, a gated community, or even an ordinary subdivision. The primary purpose of an HOA is to maintain and improve property values in the neighborhood.
You pay monthly or annual fees for the upkeep of common areas and the building, if it’s a condo or townhouse, and for any other additional amenities like a pool, clubhouse or gym. HOAs are perfect for people who want to own a home but don’t want the physical responsibility for things like, for example, snow removal and landscaping.
With that in mind, many Buyers worry about how much it will cost them in monthly or annual fees – which will sometimes get added to a mortgage unless you pay them yourself. Consider the impact of HOA fees on your short- and long-term finances. A condo with high HOA fees might end up costing you as much as the house you don’t think you can afford.
HOA fees often range from $200 to $400 per month, or can be $400 for the entire year. The more upscale the building and the more amenities it has, the higher the HOA fees are likely to be.
In addition to monthly fees, if a major expense such as a new roof or a new elevator comes up and there aren’t enough funds in the HOA’s reserves to pay for it, the association may charge an extra assessment that can run into thousands of dollars.
The other question is how living with an HOA will affect the Buyer’s life. Here are some things to consider:
Voluntary HOAs – Traditional neighborhood associations in that they’re informal, have no legal standing and are generally organized to deal with a specific issue confronting the neighborhood. That issue could be something like organizing to block certain outside developments or circumstances that are considered harmful to the neighborhood, or just to get some seasonal parties going. They typically have small dues, but you aren’t required to pay them or even to join the HOA.
Mandatory HOAs – If you buy a house in a mandatory HOA neighborhood, you’re required to join the HOA by virtue of the fact that you will be a homeowner. There is no provision for you to opt out – once you close on the sale, you’re in. You will be required to pay an HOA fee, on an annual, semi-annual, quarterly, or monthly basis. There are covenants and restrictions, that you will be required to sign at closing, that will include bylaws that mostly tell you what you can’t do with your property.
Condominium HOAs – This kind of HOA is much like the mandatory HOA, except that it provides more substantial amenities. When you buy a condo, you own only the interior of the home. The exterior, from the walls and ceiling outward, are common property. That means they’re owned by the HOA.
As a result, condo HOAs can be even more restrictive than those that cover detached homes. However, condo HOAs also bear greater responsibility. Since the physical structures are owned by the HOA, it is the HOA that must pay to make exterior repairs and improvements, including replacing the roof, pavement, landscaping, windows and siding as needed. They also pay the hazard (exterior) home insurance on the property, and often certain utilities, such as trash removal.
Fees are usually monthly and a lot higher than with detached housing. But the HOA will also provide certain services, such as landscaping and snow removal. It’s the perfect arrangement for people who don’t want to concern themselves with exterior maintenance of any kind.
What are the benefits of a HOA?
Residents of condominiums and town homes must be equally responsible for maintaining the common areas such as landscaping, elevators, swimming pools, clubhouses, parking garages, fitness rooms, sidewalks, security gates, roofing and building exteriors.
Many of these common areas, such as pools and tennis courts, also exist in subdivisions of single family homes. Regardless of whether the HOA governs a building, such as a condo or town home structure, or a neighborhood of individual houses, HOA fees help maintain the quality of life for the community’s residents and protect property values for all owners.
In addition to maintaining common areas, HOAs also set out certain rules that all residents must follow called covenants, conditions and restrictions (CC&Rs). In a common building, rules may include what color front door you may have, whether you’re allowed to line dry your laundry outside, whether you can have a satellite dish, the size and type of pets permitted, and so on. In many ways, these rules are similar to the types of rules apartment dwellers must follow.
Do I want to live in a neighborhood with a HOA?
Some Buyers might not want to be told what color they can paint their home, the exterior landscaping allowed, the types of vehicles able to be parked on the street or in the driveway (no RVs, for example), permissible type and height of fences, and restrictions on window coverings for windows facing the street.
If you want to do anything that differs from these rules, you’ll have to convince the HOA to grant you a variance, which is probably unlikely. No matter where you live, you’re likely to be subject to city ordinances and restrictions related to the use of your property.
HOAs add yet another layer of restrictions and because their members are more likely to know what you’re up to, the HOA is more likely to enforce the rules. So, let’s take a look at some of the rules and regulations you need to know about before you decide to join one of these communities.
Are you the type of person who hates being told what to do? If so, living in a community with an HOA may be a very frustrating experience for you. One of the major benefits of homeownership is the ability to customize and alter the property to suit your needs, but HOA rules can really interfere with this.
HOAs aren’t for everyone. You might be suited to living within an HOA if you prefer the company of like-minded neighbors. But an association might not be a good fit if you’re a free spirit – the type who likes eclectic yard art or wants to have chickens and cows roaming around.
Learn the HOA’s rules.
You may be able to find an HOA’s CC&Rs online as well as information about what happens if you violate a rule. Make sure any online information is current. If you cannot find this information online, ask your real estate agent to acquire these documents for you or contact the HOA yourself.
Pay particular attention to rules regarding fines and whether the HOA can foreclose on your property for nonpayment of HOA dues or fines resulting from CC&R violations. Also, learn about the process for changing or adding rules and whether HOA meetings are held at a time you will be able to attend, if you wish to do so. If the rules are too restrictive, consider buying elsewhere.
Make sure the home you want to buy isn’t already out of compliance with HOA rules.
Buying into an existing problem can be a headache, so find out what the rules are and whether you would have to make changes to the home to comply.
If environmentally friendly living is important to you, be aware that some HOAs may dictate that you use fertilizers, pesticides, sprinkler systems and whatever else it takes to keep your lawn picture-perfect. They may limit the size of gardens, ban compost piles and prevent you from installing solar panels. If these things are important to you, make sure you check the fine print first.
Homes located within an HOA tend to maintain their value better than those located in areas without a community association because the HOA monitors how well homes are being maintained.
Fees
Make sure to ask your HOA the following questions: How are HOA fee increases set?
How often do increases occur, and by how much have they historically been raised? Can you get a printed history of HOA dues by year for the last 10 years? How large is the HOA’s reserve fund?
Also, ask for a record of special assessments that have been made in the past and ask if any special assessments are planned for the near future. Note that economies of scale can mean that special assessments are higher in smaller HOAs.
Find out what the monthly dues cover. Will you still have to pay extra for garbage pickup? Is cable included?
Compare dues for the complex or neighborhood you’re considering to the average dues in the area. Keep in mind that you will have to pay for recreational facilities whether you use them or not. Find out the hours for amenities like pools and tennis courts. Will you be around during those hours, or will you be paying for facilities you’ll never be able to use? Be aware that the HOA may have rules about how many guests can use common facilities. If guest restrictions are severe, forget about that housewarming pool party you envisioned.
HOA Meetings
Try to get a copy of minutes from the last meeting or sit in on an HOA meeting before you buy. The meeting minutes can be very telling about the policies of the HOA. Some questions to ask are: What are current and past conflicts? What’s the process for resolving any conflicts? Has the HOA sued anyone? How was that resolved?
Be alert for potential drama. Talk to some of the building’s current owners, if possible – preferably ones who aren’t on the HOA board and who’ve lived in the building for several years.
Talk to the HOA president and get a sense for whether you want this person making decisions about what you can do with your property. If a private company manages the HOA, investigate it before you buy. Some HOAs are professionally managed, but it’s common for associations to be managed by building residents who fill the position as volunteers.
Even if you like the current HOA board or management company, it can change after you move in and you may end up getting something totally different than what you expected.
Not all HOAs are over-managed. The opposite problem may be an HOA where no one really cares and where no one is interested in maintaining the building, making repairs, hearing resident grievances or being on the board. Residents may simply take turns serving as HOA president or randomly appoint someone, so be prepared to serve in this role whether you want to or not if that’s the case with your community’s HOA.
This would also be a good time to check into any restrictions preventing you from renting out your property or that make it difficult for you to do so. If your property is being under-managed you might not have an issue, but if you’ve got a hyperactive manager it could be a totally different story.
Is the HOA Covered by Insurance?
Find out what kind of catastrophe insurance the HOA has on the building. This is particularly important if you’re considering a condo or townhouse purchase and you live in an area that’s prone to floods, earthquakes, blizzards, fires, tornadoes, hurricanes or any other type of potential natural disaster – and that’s virtually anywhere.
Before you purchase a property subject to HOA rules and fees, make sure you know exactly what you’re getting into.
