Whether you're buying your first home or your fifth, you've probably run into some homes that are a part of a community or homeowner's association. You may be familiar with the monthly fees, some benefits, and restrictions of living in a home with an HOA, but it can often be more complicated than what you imagined.
We have compiled a guide to help homebuyers, new and seasoned alike, to demystify the HOA and determine if living in a community association is right for you.
What is an HOA, exactly?
First, the basics. A homeowner's association is a not for profit corporation that is typically put together by real estate developers to market, sell, and manage homes in a community. When a predetermined number of homes have sold, the developer will transfer the governance of the homeowner's association to a board of directors, typically homeowners, who will manage services for the community.
The HOA operates using an established set of rules, regulations, restrictions, and guidelines that you are bound by if you decide to purchase a home in the community. The association is funded by a monthly or annual fee that you are obligated to pay, in addition to your mortgage. In exchange for the fees, the HOA will offer services and amenities to keep the community running according to the board's standards.
Factors to Consider
When purchasing a home in a community association, there are many factors to consider. Be sure to read the rules and regulations to weigh to costs against the benefits. While many homeowners enjoy the added benefits of an HOA, it is not for everyone, so be sure to be clear on all of the fine print.
The Fine Print
The rules of a homeowner's association are most commonly laid out in a CC&R, or Covenants, Conditions, and Restrictions. The bylaws of an association can govern anywhere from a few to hundreds of aspects of your community.
Some commonly specified areas of regulation can include:
- Exterior aesthetics
- Neighborhood amenities
It is very important to know exactly what the HOA does and what they restrict before you purchase a home in the community to ensure that it is right for you.
In exchange for their services, you are expected to pay fees to belong to a community with an HOA. These fees can range anywhere from $50 per month to $1,000 per month and beyond. The fees are based on the size of the neighborhood and the amenities offered, regardless of whether you use them or not.
Most communities do not offer the option to opt-out of membership to the HOA, so be familiar with the consequences if you don't keep up with the fees. Some HOA CC&Rs can even place a lien on the property for non-payment.
In addition to knowing what the homeowner's responsibility to the HOA is, it is also important to make sure that the HOA can keep up with its end of the bargain by checking their finances. The best way to do this is by asking to see the association's reserve study. This will compare future expenses against current savings to ensure that unexpected costs are funded by the HOA, not you.
Pros and Cons to an HOA
Just like any major financial decision, buying a home with an HOA should be carefully considered. Here are some common pros and cons of buying into a community association.
- Amenities: These can range anywhere from fitness centers to playgrounds to clubhouses
- Aesthetics: Belonging to a neighborhood that ensures that your next-door neighbor doesn't have a couch on their lawn, knee-high grass, and overflowing garbage
- Maintenance: Often HOAs will handle yard work, trash collection, and sewer maintenance and/or have contracts for repairs
- Stable property values with shared ownership of the community
- Fees and assessments: often HOA fees are not fixed and can vary depending on the circumstances, like unexpected storm damage to community buildings; you can also be penalized financially for failing to adhere to community rules
- Fraud: HOAs can be a hotbed of illicit financial activity like embezzlement and fraud so be sure to check their financials and get involved
- Restrictions: Your dream she shed or house color may not be possible under the guidelines of the HOA, and small things like letting your grass grow a little longer than usual can be penalized
The bottom line is to get informed: know what the HOA does for you in the community and be sure that you can cope with the limitations. A community association can do great things for the neighborhood, but may not be for everyone.
GrandManors provides property management for every type of community from high-rise condos to luxury country club neighborhoods. We are experienced in working with HOA boards to achieve our common goals: providing a neighborhood to be proud of. Contact us to learn more about how GrandManors can help with your community.