When searching for your next home, the neighborhood or community you choose matters when it comes to things like affordability, proximity to work and the right schools for your kids.
If the neighborhood you like best is governed by a homeowners association, you’ll have a few more factors to consider, from the additional monthly cost involved to whether you’ll be willing to abide by certain rules. First, it’s important to understand exactly what a homeowners association does.
What Is an HOA?
A homeowners association, or HOA, is a group of all the homeowners in a defined area. It’s run by a board of neighbor volunteers that oversees services such as the maintenance of common areas, regular trash pickup and snow removal, and it establishes and enforces community rules, or covenants.
Most HOAs are nonprofit corporations initially created by the developer who establishes the subdivision. The developer agrees to form an HOA in order for the local city or county to agree to the planned neighborhood and ensure basic utilities are provided for residents. A group of neighbors can form an HOA for an existing community as well, although they’re more likely to be voluntary and serve more of a social and political role than an HOA that organizes utilities and other services.
Types of Properties With HOAs
HOAs are common in communities constructed by a single developer. The Community Associations Institute estimates that about 73.9 million people in the U.S. live under a community association, which includes HOAs of single-family houses, condominium associations, townhomes, master-planned communities and cooperatives.
— Community of single-family houses. An HOA for a sprawling neighborhood of single-family houses can be limited to covering services like garbage pickup and sewer connection, or include gated security, a club house with a pool and even a golf course.
— Condominium community. In a condo community, the association covers all common space, some utilities and often the exterior of the buildings, which are considered shared property.
— Townhome community. A homeowners association of townhomes will often be responsible for the shared walls between townhomes, in addition to any other common space.
— Master-planned community. A large community consisting of single-family houses, townhomes, retail and offices will have an HOA that manages all common space for residential properties, but also work with the management or chamber of commerce that oversees commercial properties in the community.
— Cooperative. Cooperative housing is not exactly the same as an HOA, but there are many similarities — there is a governing board that can amend rules and enforce them. However, by living in a co-op you do not purchase an individual home like you would with a condo or house, but shares in ownership of the entire building. A co-op has the oversight to approve or decline new potential members — so if you’re looking to buy into a co-op, your financial history or the type of pet you have could be scrutinized.
Are HOAs Worth the Money?
Depending on the type of home you purchase and services and amenities covered in the monthly dues, your HOA fees could be less than $100 per month or thousands of dollars per month.
Whether you consider paying to be part of an HOA worth the additional monthly or annual fees is subjective. If you’re considering buying a home that’s part of an HOA, you may find that you love the additional services the community provides and the subsequent boost to your property value, or you may find that the rules and regulations many HOAs establish to be restricting.
When you buy a home in an HOA community, you’re agreeing to abide by the rules and pay dues as decided by the governing body. Here are five things to know before you close on the deal.
Read the Rules
When an HOA is created, the developer establishes a declaration and initial bylaws, which act as the organizational base for the community. Eventually, the developer will turn over management of the HOA to the homeowners, represented by an elected board of volunteers within the community. The board can discuss and propose changes to bylaws, set covenants, establish the annual HOA budget and choose vendors for work throughout the community.
All homes built under the HOA are forever tied to the association, which means if you purchase a house that’s part of an HOA, you are agreeing to comply with the rules regardless of whether you think they make sense. You may need permission to put a shed in your backyard, or you may not be allowed to paint your front door blue, for example. If you’re not willing to follow the rules, your best option is to buy a house elsewhere.
“I believe the biggest pain point residents have in their association is when they’re not aware of the covenant, and it’s brought to their attention because they’ve violated the covenant,” says Dawn Bauman, senior vice president of government and public affairs at the Community Associations Institute.
You do have the opportunity to know what you’re getting into ahead of time, however. Homebuyers under contract on a home that’s part of an HOA typically have three days to review all association documents, with no penalty for backing out if an issue arises, but you may be able to review them earlier.
“Homeowners associations won’t release that document to you directly, so you need to ask your real estate agent or the listing agent to provide that documentation for you,” says Elliot Machado, a real estate agent with ONE Sotheby’s International Realty in Miami.
Know What You Have to Pay
Costs vary based on what services the HOA needs to organize. For example, if your sewer maintenance and trash collection are paid for separately, your HOA dues don’t have to cover those services. Some subdivisions need only utility and maintenance care. Others focus more on making the space feel like an exclusive community, with tennis courts and gatherings maintained and planned with dues.
You’re required to pay all dues established by the HOA, even if you don’t take advantage of amenities like common areas. If you refuse to pay, you can find yourself in a heap of financial issues, including a lien on your property that can keep you from selling your house before paying off the debt.
Factor your dues into the monthly cost of your mortgage, as it can lower your effective budget to purchase the home. When working with a lender in particular, “your preapproval number comes down,” says Dennis Bowers, a real estate agent with Compass in Naples, Florida.
If you find yourself owing money to the association for another reason — because you damaged a fence or sign, for example — you’re liable for those costs, too.
Inquire About Your HOA’s Legal Power
Most states have laws clearly defining the role of an HOA that are often adopted from recommendations in the Uniform Common Interest Ownership Act, created in 1982 by the Uniform Law Commissioners, a nonpartisan group of attorneys that established the general legislation for HOAs and have regularly maintained it since. The uniform law includes guidelines for holding HOA board elections and what bylaws may or may not prohibit.
“It’s very comprehensive,” Bauman says. “Then some of the states adopt certain versions of that. They don’t usually adopt it wholesale because it can be quite cumbersome.”
Once you’re living under an HOA, it’s important to pay attention. You not only want to know the existing HOA rules before you take ownership of the house, but you also want to read the minutes of previous and upcoming board meetings to know what’s going on.
If board meetings are open for all members to attend or there are occasional public forum meetings, it’s important to attend and be able to weigh in on future decisions. HOAs often only feel restrictive when you aren’t aware a decision you don’t like has already been made.
Having a dispute with the board is probably the biggest concern for most homebuyers considering a property under HOA jurisdiction, but the number of property owners who report being dissatisfied with their HOA is in the minority. CAI’s 2020 Homeowner Satisfaction Survey found 71% of residents say their HOA’s rules protect and enhance property values, and 23% believed the rules have a neutral effect — only 4% believed the HOA rules harmed property values.
The best course of action to ensure you support any moves your HOA makes is to get involved yourself. Running for a board or committee position will help you get to know your neighbors better, and if you’re elected, you’ll have a key role in ensuring all voices are heard. Not to mention that you’ll have a say in rules and policies to ensure they improve the community and increase property values without overreaching.
[Read: The Guide to Earnest Money.]
Alternatives to HOAs
If you don’t agree with HOA policies or can’t afford the dues, you can choose to live outside an HOA by purchasing a home in a neighborhood that does not have a governing community association. While house hunting, make it clear to your real estate agent that you do not want to live under an HOA.
While plenty of condo communities in downtown Miami and single-family home communities outside the city have HOAs, Machado says there are plenty of neighborhoods that are HOA-free. Older neighborhoods within the city are less likely to have a governing HOA. Suburbs like Coral Gables and Coconut Grove may offer a similar, high-end feel of a luxury community, but instead of paying HOA dues “you essentially pay a higher tax to have your own police station and other features,” Machado says.
You also have the option to rent rather than own a home. While having a landlord will still mean you have rules to abide by, you don’t have to be concerned about how the community’s changes could impact your home value.
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Update 05/06/21: This story was published at an earlier date and has been updated with new information.