What is an HOA? 11 Things You Must Know In 2020

What is an HOA? 11 Things You Must Know In 2020

If you’re moving into a subdivision, planned community, or condominium building, you may encounter the acronym “HOA” or the words homeowners association.

A homeowners association is an organization that makes and enforces rules about properties for its residents.

For those who have never encountered this before, it may feel like a foreign concept.

You may be thinking, “An organization that makes rules about my property? And I have to follow them? Really?”

Yes, really.

While an HOA isn’t for everyone, it does offer benefits that are appealing and promotes self-governance in your community.

In this blog, we’ll discuss everything you need to know about an HOA.

Let’s get started.

1. What is an HOA?

An HOA is a homeowners association that is formed within a community or neighborhood of single-family homes or multiple-unit buildings.

This association is typically established to make and enforce rules about the properties within its jurisdiction.

The association itself is made up of community residents.

So, for example, you can join the board of your local HOA as long as you purchase a home in that jurisdiction.

In terms of a structure, an HOA is typically made up of a board of directors or governors.

Some have an HOA president instead.

These individuals are elected to enforce and oversee the rules and regulations that the HOA has set out in a governing document called the Declaration of Covenants, Conditions, and Restrictions (CC&Rs).

Rules may pertain to anything from types of fences or color of paint on the house.

The CCR may set out the penalties for violating the CC&R.

Often, these penalties range from fines to forced compliance to litigation.

2. Is an HOA optional?

There are both mandatory HOAs and optional HOAs.

If you move into a community with an existing homeowners association, chances are it’s mandatory.

Because you’ll know that there is a homeowner association before purchasing a property, you’ll have to weigh whether or not that’s something you want to take on.

You don’t have the ability to opt-in or out of the existing HOA.

It comes with the property.

An optional HOA comes into play when you’ve already lived at your property for years and your community decides to form an HOA.

Then, you may be given the chance to opt-in or out because you were there first.

3. What are the different types of homeowners associations?

 There are three different types of HOAs: condominium, townhouse, and single-family home HOAs.

bulletCondominium HOAs:

These apply to an apartment building.

While you may own the apartment inside, the condominium HOA would regulate all of the exterior and common areas.

When you purchase the condo, you would automatically become a member of this homeowners association.

You’ll also be able to vote on the individuals who serve on the condo board.

These board members will manage the finances and enforce the CC&R.

Condo HOAs often have the most restrictive rules.

They can regulate everything from what type of window treatments you have to how you display your holiday decorations.

They’ll also be in charge of managing any fitness facilities, pools, storage units, or parking garages.

bulletTownhouse HOAs:

These are similar to condo HOAs.

A townhouse is a single-family residence with at least two floors and at least one shared wall.

They’re common in urban areas where land is scarce and housing prices are high.

With a townhouse, you own both the exterior and interior of your home, and as such, this type of HOA has less of a say.

Townhouse HOA rules may include the type of landscaping and mailbox color you’re allowed to have.

That said, they may be more lenient about holiday decorations, and they’ll often still provide and maintain amenities like pools, clubhouses, fitness centers, etc.

bulletSingle-family home HOAs:

These are becoming increasingly more common.

Suburban HOAs typically cost less than townhouse or condo HOAs because they cover less.

However, if you live in an upscale neighborhood, they can still be restrictive about what you can and cannot do.

For example, they may restrict what you can plant in your yard or if you can park on the street. 

4. How much does an HOA cost?

HOAs are no small investment.

On average, HOA fees are typically between $200 to $400 per month.

However, these fees can vary.

So, you may find homeowners association fees are less than $100 per month or more than $10,000 per month in luxury communities.

Thus, the HOA itself has significant financial and legal power over property owners.

And you may be wondering what exactly those fees go toward.

While HOAs do provide certain additional services for those fees (think landscaping, parking lots, swimming pools, tennis courts, or property spaces), they also set aside a lot of that money for major renovation projects.

You’ll also find that the HOA has an emergency use fund.

That said, if your HOA isn’t run efficiently, then they may run into financial trouble and that could cause them to impose special assessments on homeowners for unexpected repairs for common areas (i.e. sidewalks, parking lots, etc.).

Another point of contention for many homeowners is HOA fines.

If you disobey certain rules or damage common areas, the homeowner association can slap fines on homeowners.

If you fail to pay fines or dues, then they can place a lien on your property, which would make it difficult to sell until you’ve paid these.

Maintaining up to date on your HOA payments is necessary, so don’t become a member of an HOA unless you intend to follow through on that commitment!

Finally, keep in mind that fees will also vary based on your location.

Locations with a higher cost of living often have higher fees.

Additionally, older builders and complexes with more units overall will often make homeowners pay more.

Gated neighborhoods, clubhouses, and golf courses also contribute to high rates.

Be on the lookout for these features if you don’t mind an HOA in general, but you’re not looking to spend an extra couple of hundred dollars a month.

5. What are the advantages of a homeowners association?

HOAs exist with the goal of preserving and enhancing the community’s property values.

Often, the guidelines are appearance-oriented, so they require owners to maintain the property in certain ways in order to ensure that no one owner can lower the property values for others.

An HOA’s guidelines will also ensure a uniform appearance from property to property within its boundaries.

Some of the top benefits are that homeowners association members receive additional services for their fees.

Some examples of amenities include landscaping, parking lots, swimming pools, tennis courts, or party spaces that are only available to HOA members.

HOAs are also symbolic of self-governance.

They stem from the idea that people who live in the community are best fit to manage it.

While a landlord may have many of the same rules or guidelines, they don’t live on the property and thus may be out of touch with how those in the community feel about those rules or guidelines.

An HOA typically has meetings and allows individuals to voice their opinions.

6. What are the disadvantages of an HOA?

HOAs are not without their disadvantages, and this may prompt people to pursue other options.

One of the biggest drawbacks is the high cost of the association fees.

While these fees normally go toward services, a reserve fund, amenities, and facilities, some property owners don’t like how the fees are allocated or don’t feel that they will use the services enough to justify paying for them.

Additionally, other property owners aren’t a fan of the restrictive regulations.

The regulations will sometimes seem unreasonable or arbitrary for homeowners who want to customize their properties without limitation.

Finally, HOAs can sometimes be managed inefficiently because HOA board members are normal homeowners from the neighborhood.

They may not be trained to manage real estate issues or unite neighbors around a common cause.

That said, as the leadership, they are still in charge of making decisions, and this may create conflict.

7. What’s the difference between an HOA and a property owner’s association?

You may have heard the term “property owner association” (POA) and wonder how it is different than an HOA.

A POA is a more general term that refers to a group of people who want to better the community and the real estate values in their community.

While an HOA often does this, an HOA is exclusive to those who are homeowners.

A POA is not exclusive.

A POA allows anyone who has an interest in those two points to assist in the process. 

8. What are common concerns with an HOA?

An HOA isn’t for everyone.

Make sure you read over the rules beforehand and clarify what will be expected of you.

Once you’ve moved in, you’re expected to follow all of the regulations.

Examples of restrictions include…

bulletHaving pets

bulletParking your car in your driveway

bulletInstalling a satellite dish

bulletHanging laundry outside

For many people, these are incredibly normal activities, and it would seem outrageous to regulate them.

If you know that you can’t live somewhere with certain restrictions, don’t move to an HOA that restricts it.

Do your due diligence!

9. How do I conduct due diligence with an HOA?

If you’re considering buying a home with an HOA, make sure you conduct your own independent due diligence.

You should ask for a walk-through of not only your property but also of any of the common areas.

Then, read the Covenants, Conditions, and Restrictions (CC&R) to ensure you know of any limitations or rules that you will be expected to comply with.

It is also wise to consult an attorney to make sure you understand all that is required of you.

Remember, this isn’t a one-time thing.

You’ll be required to follow all of these rules and pay the HOA dues continuously as a member of the association once you purchase the home.

Furthermore, one of the most important pieces of due diligence you can conduct is on your HOA’s reputation.

Your HOA will essentially serve as a hyper-local government for your neighborhood or community.

As such, it’s worth knowing who runs it and how well those individuals function as a unit.

Because these positions are typically volunteer, no one has to have professional experience.

Knowing who may be governing you is worth your time and research!

Overall, you should treat buying this home as a business decision.

For many people, it’s an emotional process, but when an HOA is involved, it can become a significant investment.

Make sure you have all the information you need to make a smart decision. 

10. How common are HOAs?

HOAs are becoming more and more common.

That said, your chances of moving into a home that is part of a community with an HOA is about 1 in 5.

If you’re interested in the planned development life, it’s definitely available to you.

But if the HOA isn’t the right fit, then you don’t have to settle.

There will be other homes without the restriction of an HOA!

11. What are the insurance responsibilities of an HOA?

Insurance responsibilities are often mandated by state laws with the HOA covering some perils while homeowners cover others.

In some states, HOAs must insure all common property while homeowners are responsible for insuring all personal property.

Check the state laws for where you’ll be living for these details.

You should also confirm that your HOA is properly adhering to these requirements.

One note for individuals living in states with natural disasters (floods, earthquakes, blizzards, wildfires, tornadoes, hurricanes), catastrophe insurance is particularly important.

Check to see if your HOA provides additional coverage as a perk for owning in their development.

Final thoughts

Are you interested in living in a community with an HOA?

Is this your worst nightmare?

Some people grew up in neighborhoods with homeowner associations while others see it as an entirely foreign concept.

Only you know what’s right for you and your property.

Make sure you do your research beforehand and consult an attorney if you’re unsure of provisions in an HOA’s CC&R.

For more information on buying, selling, or investing in vacant land, check out our other resources below.

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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.

 

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