Ask anyone about what is a homeowner association, and you will get a mixed bag of looks. Some will love them. Others will think they are the worse thing imaginable. The truth is they serve a particular need to an area, but like all organizations, there are good ones and bad ones. It’s just a difference in opinion that makes up the wide range of reactions.
What is a Homeowners Association?
A homeowner association is a group of homeowners in a neighborhood, subdivision, or condominium project who have organized to create and enforce the rules of their properties inside their jurisdiction. If you purchase a home within one of these areas, you are automatically a member and must pay your dues (a.k.a. Homeowner Association Dues or Fees) on a monthly, quarterly or annual basis as outlined in the HOA charter.
What do I need to know about Homeowners Associations?
Homeowners Associations (HOA’s) are usually relevant when you live in a condo, townhouse, or gated community but aren’t restricted to only those three. HOA’s purpose is to maintain common areas, whether outdoor or indoor, shared costs of building repairs (such as fixing the roof of a condo building), and maintaining neighborhood standards.
Before you jump into a neighborhood that has an HOA, there are a few things that you need to know:
1) How Much Are HOA Fees?
On average, HOA fees usually range from $200-$400 per month depending on the area and what’s included in the fees. There are some questions you should ask and information you should get regarding the fees when vetting an HOA. This can be a big extra cost when you are a first-time homebuyer.
Here are some questions you should ask:
What do the fees cover?
There may be some items on this list that will surprise you, good and bad. Things like garbage pick-up or cable may be covered, and you would otherwise have to pay for that.
Record of fee increases over the past 10 years
Get a record of how often the fees have been increased in the last 10 years, as well as a record of all special assessments for the last 10 years. Special assessments are expenses the HOA must pay when they don’t have enough money in the reserve to cover the cost. This cost is divided between residents and can be thousands of dollars on top of the fees you already pay. By having access to these 2 records, you’ll have a better sense of the HOA’s habits and where they like to spend their money.
Check the reserve fund.
The reserve fund is where all the HOA fees go until they are needed. If this fund is extremely low, special assessments are usually on the horizon.
• The important thing to note here is that HOA’s are often run by volunteers in the community – everyday people that don’t always have a background in finances. It often becomes a bit of a political game. Nobody wants to pay taxes, but everyone wants all the benefits that come from paying taxes. In an HOA, nobody wants a fee increase, but the same people who complain about them will be the ones complaining the loudest when the special assessment comes along. You can’t have it both ways. You’ll want to check that the money appears to be managed properly and not wasted. By assessing the 10-year history, you should be able to get a handle on this
OMG, the rules! Sometimes they’re not bad, but some rules are ridiculous. You definitely want to get a list of them and READ IT. You don’t need to wake up 9 months from now all pissed off because you got a letter in the mail informing you that you planted the wrong type of flower in the front left corner of your house and you need to replant a red one in its place before the next HOA meeting (Ok, that might be a bit extreme, but you get the point).
Ignorance is not an excuse; read the rules ahead of time. These rules might include, but are not limited to:
- Landscaping requirements
- Stipulations on what can be done to the exterior of your house (paint color, type of siding or brick, etc.)
- Restrictions on pets
- Restrictions on what type of vehicles can be parked in the driveway or on the street. (eg. no RVs or boat trailers)
- Snow clearing requirements
Once you know the rules, it’s important to make sure the property you’re looking at is in compliance with these rules when you buy. You don’t want to start off with a list of things to fix the second you move in.
3) HOA Management
It’s a good idea to get a copy of the minutes from the most recent HOA meeting or if you have time, sit in on one. It will give you a good idea of how the HOA is managed and the type of “personality” or demeanor of the HOA committee.
Be aware of extremes in either direction. Having a committee of people breathing down your neck every time your grass isn’t perfect can be just as bad as having a neighbor whose house looks like it’s been abandoned and a committee who doesn’t seem to care.
If possible, to get a bit of perspective on dealing with the HOA, it’s nice to be able to talk to someone who’s part of the community but not on the committee.
4) Consider Your Personality
Before moving into a home governed by an HOA, think about the type of person you are. If you’re the type of person who likes everything in the neighborhood to be in order and appreciates the fact that everyone is required to put in the same effort as you and maintain certain standards, you may love an HOA.
But, if the idea of someone telling you how to maintain your yard makes you want to cringe, HOA’s might not be for you.
Look into what the HOA’s insurance covers. Things like fire, hail damage, flooding, earthquakes, or other natural disasters can be particularly important. Make sure that there are no holes between what your policy covers and what the HOA covers.
Millennial Homeowner Story:
“I went into my first place blind. It was a condo in a high rise, and I had several units to choose from. It was in a nice area, and I thought I was getting a deal. Two months after I moved in, I got a letter from the HOA telling me that they had voted to redo the roof and that there would be a one-time fee of $5,000 from every tenant to help cover the cost. This was followed by another vote to redo the lobby for an extra $3,000 per tenant. Had I known about this, I never would have bought [the condo]. [My advice]: do your due diligence first. It takes a little extra time, but the savings can be considerable.” –Paul
Remember sellers are always trying to sell a house the cheapest way possible.
What is a Homeowners Association Final Thoughts
A homeowner association is not a good thing or a bad thing. Just as they can help a neighborhood, you can also find yourself tearing your hair out at times. The best thing you can do is sit in on a meeting, ask around and do your due diligence before you buy a place that has one. Remember, an informed millennial homeowner is a great thing.