Homeowner’s associations (HOAs) are common in many neighborhoods to keep the area looking neat and orderly. As a buyer of a condominium, townhouse, or single-family home in a “planned development,” you may also encounter the HOA structure.
Despite the fact that the HOA can alleviate some of the homeowner’s responsibilities, they can also entail additional homeowner responsibilities. This is what you need to know and the questions to ask both the association and yourself and your family before purchasing a home that is part of a homeowner’s association (HOA).
The most important things to remember
- Residents in a condominium, co-op, or even a neighborhood may join a homeowner’s association (HOA).
- Members of the HOA are elected by the residents of the building complex or community and are responsible for maintaining the grounds, master insurance, community utilities, and the overall finances of the property.
- Maintenance fees and one-time assessments are common in HOAs, which require all unit owners to contribute to the community.
- According to the bylaws of the HOA, certain responsibilities belong to the associations, while others are the sole responsibility of the individual unit owners.
Plans for a new neighborhood HOA
In many planned communities, residents are required to join the HOA and pay fees to help maintain common areas, shared structures, and the exteriors of their homes. By joining, you agree to abide by the organization’s rules, regulations, and guidelines (CC&R). Rules like these could prevent you from having a purple front door or from parking your RV in the driveway because the CC&Rs usually include restrictions on how your home looks and what vehicles you are allowed to park outside of it.
Is a life in a planned community something you’d be interested in? You may want to look into HOAs, and if so, which ones might be best for you. If you’re interested in shared amenities, have a tolerance for rules and regulations, and are comfortable with self-governance—because most HOAs are run by volunteers who live in the development—then the answers to those questions will depend on your financial situation.
How to Handle Homeowners’ Associations Using these 9 Tips
1. Fees can vary greatly.
According to a Trulia study based on data from the American Community Survey, HOA dues in 2015 averaged $331 per month. In Warren, Michigan, the average rent was $218 per month, while in New York City, it was $571 per month. According to Trulia, dues are generally higher in older, larger buildings and complexes.
According to Nate Martinez, a real estate agent with RE/MAX Professionals in Glendale, Ariz., the number and size of a development’s amenities also affects prices.
A gated community with a clubhouse and golf course, for example, is likely to charge higher fees than one with only a modest common area and no clubhouse.
For example, fees can vary even within a single development because of differences in the square footage of a property as well as its location and orientation.
It’s common for home listings on multiple listing services (MLSs) to include HOA dues. The information should be available on REMAX.com, Zillow.com, Realtor.com, and other listing sites, according to Martinez.
Find out how often fees have increased over time and how much they have risen.
It’s a good idea to get a copy of the last decade’s worth of HOA dues bills printed out. HOA fees are typically raised only once a year, according to Martinez. According to Martinez, HOA increases are typically planned three to five years in advance, using estimates of future utility, labor, and maintenance costs as well as other factors.
If you have access to them, take a look at the projections. Martinez recommends checking the HOA’s bylaws to see how much fees can rise each year, since they are only estimates. To determine if the initial HOA fees are artificially low in order to entice buyers, that research can help determine whether the fees will rise significantly over time to cover the gap between revenue and costs.
As more homes are added to the development and more homeowners are available to share the HOA’s fixed costs, HOA fees for new developments may actually decrease over time as more homeowners are available.
There is a lot of variation in what you get.
According to John Manning, the managing broker at RE/MAX on Market in Seattle, purchasing a home in a community is actually a bundle of legal obligations and entitlements in addition to physical living space. Some of the specific rights and services that the HOA provides may vary as widely as the fees that are charged. The only agreement between homeowners in a gated community may be the upkeep of the gate, or there may be a HOA in place with the legal authority to manage much more, according to him.
Look at what is included (and what isn’t) in terms of your household’s finances. For example, will you have to pay for garbage removal? Is there a utility bill? Which ones are you referring to? Cable and/or internet service?
Regardless of whether or not you take advantage of perks like recreational facilities, you must pay for them. Inquire about the hours of operation of facilities like swimming pools and tennis courts to see if they’ll fit into your plans. Consult the guest policies and fees if you plan to bring friends or family to use the facilities.
Then compare them to other nearby developments—especially those that you’ve already narrowed your search to—to see what’s included and what isn’t. According to broker Manning, the best source to learn about HOA ranges in your area is a professional real estate broker with experience in homeowners associations.
3. Additional Charges May Occur.
The financial management of a HOA can be done in a variety of ways. These decisions have a significant impact on how the company handles unforeseen costs and large-scale investments like replacing an HVAC system.
RE/MAX on Market’s managing broker, John Manning, says that the market in Seattle has been booming “In some cases, associations prefer to have a large cash reserve on hand in order to meet any maintenance, legal, or management obligations that might arise. For repairs and maintenance, some HOAs charge lower fees and rely on special assessments, which are funds collected outside of HOA fees.” Similar to local tax assessments, these levies are being imposed.
Here’s a breakdown of how the testing process works: Each homeowner may be charged a special assessment when a HOA’s reserve funds are insufficient to pay for a major expense such as a new roof or elevator. Millions of dollars are at stake because of these hefty fines.
Besides the HOA’s strategy, the age, condition, and amenities of the building will all factor into the size of the reserve fund. Repairs and capital investments are frequently planned out over several years, with annual costs and a projected balance in the reserve fund taken into consideration.
Request a copy of these documents and keep an eye out for any discrepancies between the required expenditures and the fund’s current balance. When it comes to sifting through these spreadsheets, professional assistance can be invaluable. By allowing clients to meet with an expert in financial analysis, Manning says that his company’s goal is to “ensure that the financial statements are discussed with the clients.”
Such a list ought to be available from the HOA. Ask if there are any future special assessments planned. It is worth noting that in larger HOAs, where the number of homeowners is greater, special assessments for a particular capital expense may be lower than they would be in smaller HOAs, where the number of homeowners is smaller.
Paying the Fees and Getting Approval for Your Mortgage
When considering a property purchase in a planned community, you’ll have to take into account the HOA fees. Prospective mortgage lenders will do the same.
Your monthly HOA fees will be taken into account by banks when determining how much of a mortgage you can afford, just like property taxes (which are not included in HOA fees at most developments). Therefore, you may have to make difficult tradeoffs when choosing between properties. HOA fees can reduce the amount of money you can spend on your home if you choose a property with higher fees instead of one that has no fees at all.
Even though fees can reduce the value of a property, there is evidence that they actually increase it. Clarke’s microeconomics research found that, after adjusting for home size and location, properties in a HOA sold for an average of 4% more than those that weren’t. In the beginning, the premium is the highest; as the house and development get older, it decreases.
This information is available from your prospective lender, and you should already be familiar with your property taxes and HOA fees. An online mortgage calculator can help you get a rough idea of what you can expect to pay on a mortgage for the amount of money you’re looking for, as well as other relevant information, like your planned down payment.
Again, you can get this from any lender you speak to. Some mortgage calculators, like the one we linked to above, also offer the option of requesting rates and maximum loan amounts directly from mortgage lenders.
There are a lot of covenants, and they all add up.
Don’t rely on other people’s experiences to learn about a HOA’s rules and covenants because each HOA has its own unique set of rules and regulations. Also, give careful consideration to whether or not you’ll be able to handle them.
The CC&Rs can be obtained by contacting the HOA directly or by contacting your real estate agent if you can’t find them online. Don’t buy anything until you make sure the document is up to date.
It’s possible that you’re more restricted than you think. It’s not uncommon for CC&Rs to limit the height of your grass, whether you can plant trees or remove them, which vehicles you can park on the street or in your driveway, how high fences can be, and what window coverings you’re allowed to put on your street-facing windows.
Green living is a priority for many people, so check out the HOA’s green provisions, starting with what can be planted around your home and how that vegetation can be maintained.
It is possible that the size and composition of your garden may be restricted by HOAs that prohibit xeriscaping, an environmentally friendly form of landscaping for arid climates, in some cases. In addition, the rules may mandate the use of specific fertilizers, pesticides, or sprinkler systems to maintain the yard, and prohibit the likes of compost piles and solar panels.
Check for any language that might make renting out your property difficult or impossible. When it comes to customary practices, it all depends on where you live. “Short-term [vacation] rental prohibitions are common in the Seattle area. As Manning points out, “mortgage lenders may be reluctant to lend on buildings with high rental occupancy” if the percentage of non-owner-occupied units is too high.
Conflict Resolution is the sixth point.
Disagreements arise in planned communities, too, sometimes over residents who defy the rules or break them in some other way. Before making a purchase, learn about the procedures for establishing and enforcing rules, as well as the penalties that may be imposed on those who violate them.
A punishment can be harsh. It’s possible that you’ll be fined or sued by the HOA, or that the HOA will put a lien on your home, in some cases. Consider whether the HOA has the ability to foreclose on your property if you fail to pay your HOA dues or CC&R fines.
Ask about how the HOA handles conflicts and changes to the rules, as well as how the HOA is organized.
Request a list of conflicts and rule violations that the association has had to deal with. Ask about any lawsuits that aren’t included in that information. Do a background check on the HOA to see if there have been any lawsuits against it in the past, present, or in the future. Also, if there have been any such cases, look into the results.
Reputation of the Homeowners’ Association
There are benefits to investigating who runs the association and how well the people in charge work together since this organization essentially serves as a hyper-local government for the community.
Many homeowners’ associations (HOAs) are governed by residents of the community who volunteer and are elected by their peers. Some organizations, on the other hand, are run entirely by professionals. If the HOA is run by a private company, do your homework before you buy. Inquire about the HOA’s employees and any companies it works with on a contractual basis.
If you can, get in touch with some of the building’s current owners—preferably those who aren’t on the HOA board and have been living in the building for a while. Is there a strong sense of camaraderie on the board? Are disagreements resolved in a civil and constructive manner? Be on the lookout for signs of constant or even constant drama. It is common for HOAs to be hindered by self-interest, power struggles and petty politics.
Get to know the HOA president to see if you trust him or her to make important decisions on your behalf. The president should be asked about interest in serving on the board by residents: Is there a high level of desire, or is it more of apathy? There is a chance that this conversation will inspire you (or not) to run for office and give up some of your free time to fulfill your new duties as a board member.
Compliance with the HOA’s rules and regulations is essential.
Don’t rely on the current owner of a house that interests you to tell you about any lingering issues between the association and the current owner. These issues could be yours if you don’t ask about them in a timely manner when you take over the property.
Dead or overgrown landscaping or peeling paint are two examples of obvious potential problems.
However, has the homeowner made any changes to the property without HOA approval? What could happen to the property’s owner if the modifications aren’t in line with the guidelines? In some cases, the seller may be compelled to fix the issues as part of the sale agreement or to provide cash at the close.
Requirements for insurance coverage
When it comes to insurance coverage in a planned community like a HOA, the HOA may cover some perils and the homeowner for others.
These may be required by law in your state. Every part of the building up to the unit’s unfinished drywall must be insured by a condominium HOA in Florida. In the meantime, it is the homeowner’s responsibility to insure all of their own personal property, such as their appliances, flooring, cabinets, and other window treatments.
It’s important to check the state’s laws before deciding on the exact division of requirements. You should check to see if your HOA is adhering to these rules before you buy a property.
Purchasing a condo or townhouse in an area prone to major natural disasters such as flood, earthquake, blizzard, wildfire, tornado or hurricane is especially important to have catastrophe insurance. “Earthquake insurance is very common [in planned developments] in the Pacific Northwest, though it is not required,” Manning says.
If the HOA offers additional insurance coverage as a perk for owning a home in the development, you should inquire about it. Manning says that “forward-thinking HOAs can make a condo building more attractive” in this way. When it comes to HOA fees, they could add “earthquake and other types of hazard insurance.” To be safe, you should double-check to see if the HOA’s additional coverage also extends to areas that are legally the responsibility of the homeowner.
The End of the Story
Being part of a planned community and subject to the rules of a HOA can be both a blessing and a curse. It gives you the opportunity to give up some of the responsibility for maintaining your home in exchange for the shared amenities and security that come with living in a community. In exchange for a more uniform appearance, it is possible to lose the unique character of a typical neighborhood while also reducing your exposure to your neighbor’s poor decorating choices and neglect.
Your level of contentment in a condominium or other “planned home” will be influenced by how well you accept these tradeoffs. Consider hiring a real estate agent who is familiar with planned developments and homeowners’ associations before making an offer on a home in one of these communities because there are several differences between buying in a planned development and buying in a single-family home.