Since their widespread adoption in the 1960s, homeowners associations (HOA) have only grown in popularity. Today nearly 74 million homeowners live in an HOA, and nearly 80% of new housing is built within the boundaries of an HOA.
Homeowners may have strong opinions about HOAs, but they’re nearly impossible to dissolve and are incredibly popular with municipalities. Because of this, they’re not going anywhere. If you’re considering purchasing a home within an HOA, here are seven things to consider before putting an offer on an HOA home.
1. A Brief History on the Purpose of HOAs
Initially, the creation of HOAs facilitated housing discrimination by restricting who could live in a neighborhood. Since the Fair Housing Act of 1968 prohibited housing discrimination, HOAs have focused primarily on bringing economic value to communities. However, because some HOAs have retained the ability to approve or reject potential tenants, there is still a chance for possible discrimination.
As Americans have moved from cities to suburbs, the cost of land (and homes) has increased. To keep costs low and make houses more affordable, in the middle of the last century developers began building homes closer together, grouped around a common green area. HOAs helped maintain these common areas, and as time went on, they added more amenities to make their neighborhoods more attractive to potential buyers.
2. Why Cities Like HOAs
Part of an HOA’s popularity lies in their relationship to the cities in which they are located. Because they take on many of the same responsibilities that are traditionally associated with the city, such as snow removal, garbage services, or road repair, the HOA saves the municipality money. HOA residents pay both property taxes and HOA fees but use less of the city’s services than homes outside of a neighborhood association.
The distribution of HOAs across the country isn’t uniform (see graphic). This may be tied to the housing developers in these states, or it could be related to the cities’ friendly stance toward HOAs. Additionally, homes within an HOA are worth on average 5-6% more, according to a George Mason University report, lending real weight to the benefits of HOAs in the eyes of a city that collects property taxes based on property values.
Source: Realtor Magazine
3. Who’s in Charge of the HOA?
If a housing development is still being built and the developer hasn’t sold all of the lots, the developer or a representative of the developer may sit on the HOA board. Each homeowner is allowed one vote per lot, and the housing developer represents however many lots haven’t been sold. This gives the developer more voting power in this stage of the HOA’s creation process and could pit the new homeowners against the developer. If the developer promised a second pool in the newer section of the subdivision, but reneges on their agreement to save money, their larger voting bloc can overrule homeowners.
Once the development is built out and the developer has exited the picture, the HOA board will be composed of civically-minded elected neighbors who care about the neighborhood. Or it could be full of nosy neighbors who are more interested in controlling everything that happens in the suburb. Even though 85% of HOA members say they like living within an association, a common complaint about HOA boards is how strict they are at enforcing the community rules.
One of the benefits of a locally-elected board is that if you don’t like the board members, you can run against them, and change the tenor of your whole neighborhood. In the end, you could be in charge of your HOA.
Professional HOA Management
A neighborhood association may also choose to hand over most of its responsibilities to a professional management company. In the instance of very large housing communities, locally elected board members may not be able to handle the demands of a large community.
Professional HOA management companies can handle all or part of a communities’ needs. This can include keeping track of financials, training new board members, and advising on long-term capital improvements to the neighborhood. Professional HOA management is more expensive than an HOA run entirely by volunteers, but it also provides consistent high-quality services.
4. What Kind of Amenities Do HOAs Offer?
Amenities are what make homeowners excited about an HOA. Because communities vary so widely across the country, this is just a shortlist of possible amenities available:
- Swimming pool
- Hot tub
- Tennis courts
- Basketball courts
- Pickleball courts
- Fitness center
- Garbage services
- Snow removal
- Golf courses
The larger the HOA, the more likely it is to have a large variety of benefits. Unfortunately, larger HOAs typically collect higher fees to pay for these services.
5. What Kind of Restrictions Do HOAs Have?
HOAs operate with a specific set of covenants, codes, and restrictions (CC&Rs) that spell out what you can and cannot do with your property. Just like amenities, CC&Rs vary from community to community, but the common purpose is to create a uniform neighborhood where property values increase.
You may appreciate restrictions that prohibit your neighbor from turning their home into a dog grooming business, but you may chafe against the requirement to keep your grass shorter than three inches.
Other common restrictions may have to do with the kind of dogs you can own, where you can place your garbage can, if you can cut down a tree, where you can park your cars, or what color you can paint your house. A CC&R can be incredibly detailed, or short and to the point, so you should carefully read the fine print before finding out that the HOA will restrict your hobby or home business.
6. HOA Fees: What to Expect
On top of your mortgage, property taxes, and PMI (if you have less than 20% equity), you’ll also pay HOA fees. These fees remain constant even if you pay off your home, and they aren’t tax-deductible. HOA fees may be collected monthly, quarterly, or yearly. They can be as small as $60 a year, or as much as several thousand dollars added to the cost of your mortgage. A report by Trulia says that the average nationwide HOA fee is $250, but the age and size of a neighborhood or apartment building will impact this number.
The regularly assessed HOA fee goes toward expected expenses like typical building maintenance or landscaping, but the HOA may also levy a large fee called a special assessment for a capital expenditure like new roofs for the condo complex or remodeling the pool.
For the sake of full transparency and to ease home-buying stress, you should ask the seller questions about the HOA, since the quality and money management skills of an HOA can vary significantly from neighborhood to neighborhood.
- How often does the HOA levy a special assessment?
- What kind of reserve funds does the HOA have?
- Does the HOA repair common areas in a timely manner?
- How strict is the HOA about following CC&Rs?
- Are most neighbors happy with how the HOA plans for future improvements?
- What are the HOA board members like?
7. What If You Don’t Pay the HOA Fees?
The HOA has a few options to pursue if you refuse to pay your HOA fees. They may start with taking away privileges to use common areas like the pool, fitness center, or clubhouse. If this pressure doesn’t work, they may send your account to collections, file a lien on your home, file a lawsuit, or in some rare cases, conduct a foreclosure.
The HOA’s ability to collect its fees lies in local city and state laws, and in the strength of the HOA board. A robust board of directors with active members and money at its disposal is more likely to take the lawsuit approach than a small board in a neighborhood where most homeowners don’t pay their fees.
You can talk to neighbors about what the HOA is like in the neighborhood you’re interested in. This will give you the best idea of how it contributes to homeowners’ quality of life and property values.
The Bottom Line
After all of this, you may be wondering, Is an HOA worth the hassle?
This will depend in large part on the community’s amenities, its HOA fees, the restrictiveness of its covenants, and whether you like everything that the particular HOA offers. You’ll have to weigh the pros and cons against the amenities offered by the community or city outside of the HOA, and contrast the cost of the HOA with the property taxes you’ll pay anyway. Millions of Americans love living within a neighborhood association because of the benefits it offers their families.