What is an HOA?
An HOA, or homeowners association, is a community organization that dictates and enforces certain rules to maintain the standards, quality, and values for all residents who live there.
What they do in exchange for dues?
HOAs assume responsibility for maintaining common areas within the complex or community, like parks, swimming pools, gyms, function halls, clubhouses, sidewalks, tennis courts, elevators, and other areas that every homeowner benefits from.
HOAs also commonly provide security, landscaping services, sometimes waste management, water, sewer, and other maintenance on roofs and building exteriors.
Additionally, HOAs endeavor to maintain (or improve) the quality of the area, ensuring that property values don't decline. They do this by instituting their own set of rules, sometimes called CC&Rs (covenants, conditions, and restrictions) that including noise ordinances, speed limit restrictions, and other public nuisances.
How much are HOA fees?
HOA fees are usually paid monthly, and separate from your mortgage payment. They can vary widely depending on the type of property, the neighborhood, and the quality and scope of the amenities provided, but typical HOA fees may run from $200 up to $500 or higher. Some HOA communities even charge on a sliding scale based on your property’s square footage.
Typical HOA rules cover:
- What color your front door has to be
- If you can hang laundry lines and laundry outside
- Barbecues, patio furniture, outdoor furniture
- Outdoor storage
- Whether you’ll allowed to have a satellite dish or not
- If pets are permitted, and if so, what type and the size
- Parking rules for owners and visitors
- What color you can paint your house/unit
- Exterior landscaping requirements and regulations
- Including watering schedules
- Garbage and recycle management
- Type and height of fences, and
- Restrictions on window coverings.
The downside of HOAs
We now understand the potential benefits of living in an HOA community, including regulations aimed at protecting property values as well as the quality of life for residents. But there can be a downside to HOAs, as well, aside from just the cost.
Homeowners that aren't used to living in an HOA community often are shocked at the scope and pettiness of rules when they first move in. It seems like every little behavior – like where a guest can park, if you can decorate your own property for Christmas, and what size your dog is, is heavily regulated, turning homeownership into life under a police state!
Rules can also be inconsistently enforced, so you don’t want to run afoul of the HOA board or management company and get on their bad list!
Additionally, the HOAs may fall short of the money needed to properly maintain the community, and needed repairs often go undone. That can happen not only with mismanagement, but when unanticipated repairs and maintenance come up, or when enough units are vacant that the remaining homeowners need to pick up the financial slack.
For instance, during the real estate bust and Great Recession of the mid-2000s, most HOAs faced an unprecedented crisis and teetered on bankruptcy when vacancy rates (due to foreclosures) and scofflaws doubled and tripled virtually overnight. According to the Community Associations Institute, about 45% of HOAs faced "serious" problems as a result of the economic downturn, with 9% describing their situation as "severe.”
HOA fees can go up at any time, with owners faced with no choice but to keep paying them or sell.
There are three types of HOAs:
These communities have an HOA in place, but you can choose not to join or participate when you buy your home there. They may collect dues, voluntarily, but they aren’t legally entitled to enforce rules.
In most HOA communities, when you buy a home or property there, you have no choice but to pay dues and adhere to that HOA’s rules.
Built-in organization of governance when you buy a condominium. HOAs are mandatory in condos and play an additionally important role since owners aren't responsible for anything outside of their own unit.
Some statistics about HOAs:
In the United States, there are now more than 63 million people living in properties that have a homeowners association – which makes up about 24% of all U.S. households!
There are about 310,000 HOA-governed communities in the U.S., comprising condominiums, townhouses, in gated communities, detached homes, or any other kinds of Planned Unit Developments.
Each year, more than 8,000 new community associations or HOAs are formed.
While you may sometimes hear complaints (and even horror stories) about homeowner disputes with their HOA, data paints another picture about that relationship.
In fact, 70% of owners “rate their community association experience as positive,” and 22% say it’s “neutral.” That means only 8% of homeowners have a negative experience with their HOA.
Moreover, about 76% of people surveyed say that their “association rules and regulations protect and enhance property values.”
About two/thirds of HOAs are run by professional property managers, while the remaining 1/3 are run by elected boards and volunteers comprising of homeowners in the community.
The 5 states with the highest number of homeowners associations include Florida, California, Texas, Illinois, and North Carolina.
Some tips for buying in an HOA community
For the vast majority of homeowners, HOAs are beneficial and welcomed. But it’s a good idea to investigate their dealings during the buying process, so you'll know what you're committing to.
Here are some tips for checking out your future HOA:
- Find out (get everything in writing!) what the monthly dues cover.
- Ask how HOA fee increases are determined, and how often.
- Look at how many times raises have been instituted throughout the HOAs history.
- In fact, they should provide you a printed record fo HOA dues for the last 10 years (or as applicable).
- How large is the HOA reserve fund?
- Ask for a record of special assessments that have been made in the past.
- Are any special assessments are planned for the near future?
- Has the HOA had any lawsuits or any ongoing?
- Obtain a copy of the minutes from the last few HOA meetings, and sit in on a meeting before you buy.
- Does the HOA have catastrophe insurance in case of an earthquake, flood, fire, etc.?
- You may even want to knock on a few doors and ask your future neighbors what they think about the HOA, as well as the neighborhood!