Everything You Need to Know About Homeowners Associations
There’s a lot to consider when deciding to purchase a home. Some issues will be front and center, like the location and condition of the property, but others will be less visible and require due diligence on the part of buyers to get the full picture.
One major example of a sometimes underappreciated factor in the home buying experience is the impact that a Homeowners Association (HOA) will have.
What Is an HOA?
HOAs are private organizations that manage residential communities. Their leadership, often called the HOA Board, is composed of unpaid volunteers from the community that are elected by their neighbors and tasked with establishing and enforcing rules and regulations that dictate how the community will operate.
What Rules and Restrictions Do HOAs Set?
Not every HOA operates the same way, but generally their rules and regulations are codified in a document called a Declaration of Covenants, Conditions, and Restrictions (CC&Rs). CC&Rs will explicitly address how homeowners can use and alter their home:
- Paint Color: Some HOAs limit the colors that the properties in their community can be painted. Some require homeowners to submit new color choices for board approval before painting can commence. These and other exterior design choices may be strictly limited to ensure that the whole community maintains a common character.
- Hardscaping and Landscaping: Installing fences, stone paths, cement patios, decks, artificial turf, sheds and external garages, and tall shrubs may all potentially require a sign off from the HOA board.
- Usage: For certain issues related to the use of the property, HOA rules can be even more strict than similar regulations that apply to the municipality the community is located in. For example, even if a city doesn’t require quiet hours until 11PM, the HOA can set an earlier time. Furthermore, HOAs can impose other limits on how the property is used, such as by not permitting certain types of pets or pets of certain size. They may also require homeowners to keep their vehicles parked in their garages and not on the street.
- Maintenance: Though HOAs typically manage landscaping and maintenance for the common areas, the individual homeowners are responsible for keeping their own property neat and tidy. HOAs often create penalties (usually in the form of a fine) for units that fail to stay within their guidelines by not performing routine maintenance such as mowing lawns, fixing broken roofs, and otherwise keeping the home safe, functional, and looking good.
How Do HOA’s Enforce Their Rules?
As mentioned, failure to abide by HOA rules can result in fines, and failure to pay HOA fines or fees can result in the board placing a lien on the home, which may prevent the owner from selling until they have paid off and removed the lien.
In addition to setting CC&Rs, HOAs also serve as a sounding board for the community. They set up regular meetings where members can discuss the board’s actions and voice their concerns about their homes and the community as a whole. HOA boards also perform a liaison and social role, organizing community parties, setting up a neighborhood watch, and interfacing with local governments.
What Types of Properties Are Commonly Governed by an HOA?
Not every residential community has an HOA, but they are fairly typical in many common-interest developments and other housing developments made up of individual units that share some facilities and common areas, such as:
- Housing Cooperatives (Co-ops)
- Planned Neighborhoods
- Retirement Communities
- Vacation Timeshares
How Are HOA’s Paid For?
The primary goal of most HOAs is to preserve the value of the properties in their community. Protecting the distinct character of the area is often a secondary priority. To achieve those goals, HOA members are required to pay fees, which are collected by the board and spent on maintaining common areas, general upkeep, and administrative costs.
Alternatively, some HOA boards opt to hire an HOA management company, a third party that performs that actual work on behalf of the board. Use of an external management company often means paying slightly higher HOA fees, so it’s important for buyers to inquire about that detail ahead of time.
How Much Do HOA Fees Typically Cost?
HOA fees may pay for necessary maintenance issues like trash pickup and repairs as well as for elective expenditures like elaborate landscaping, extra security, and amenities like gyms, pools, party rooms, tennis courts, and other shared community resources. How much a buyer can expect to pay in HOA fees will depend on the value of the property they are looking at, the amount of amenities it offers, and how involved the HOA board is in managing the community.
Some HOAs are more proactive than others about maintaining and improving their neighborhood and hence ask more of their members. HOA fees for a single family home can be as low as just a few hundred dollars a year up to thousands of dollars a year, depending on these factors. It also should be noted that HOA boards have wide latitude to change their fees and can do so with little warning.
Prospective buyers should find out how their HOA fees will be calculated and incorporate that estimate into their total monthly cost analysis before making an offer. Additionally, some communities require the initial HOA fee to be paid at the closing, so buyers should be prepared for that possibility. In cases, the seller may have already paid fees for the current and/or upcoming billing cycle. Buyers should make sure their initial fees are appropriately prorated in that event so they aren’t double paying fees that have already been paid.
Is an HOA Right For You?
Many homeowners enjoy the benefits of living in a community run by an HOA, especially those that want to live in a community with a shared look and feel and intend to use many of the amenities on offer. Other homeowners want more autonomy and more control over how they use their home and what it looks like.
Ultimately, it’s a personal decision for each buyer, but, regardless, every person or family shopping for a home should spend significant time scrutinizing the details of any HOA before purchasing a property in that community to make sure the costs and restrictions are in line with their needs and budget.
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