Everything You Ever Wanted to Know About Homeowners Associations
When you finally buy your own home after years of renting, you might think you're done following someone else's rules (bye-bye, landlord!). But if you're considering a house or condo within a planned development, you may find yourself answering to a homeowners association, or HOA. In fact, nearly a quarter of homeowners in the US live under this type of community management. And while some of their restrictions may seem unnecessary (Is grass height really that important?), most HOA rules result in clean, orderly and well-maintained communities—not to mention higher property values. But these perks come with a price, from paying monthly dues to costly fines if you buck the rules. Here's what you need to know to decide if living under an HOA is right for you.
What exactly is an HOA?
When a land developer builds a planned community, they can create a legal entity known as a homeowners association, which essentially transfers the ownership and governance of that neighborhood to the homeowners. The HOA is usually run by a board of elected homeowners working alongside an appointed management company. Together, they set the rules and regulations of the community they govern, as well as oversee the maintenance of common areas. “All HOAs own and maintain common real estate and may own roads, parks and structures, which can vary from an entry monument to a high-rise condominium building, golf courses and marinas. The variations are endless," says Rich Thompson, owner of an HOA management consulting company and author of Trade HOA Stress for Success. The board holds regular meetings to determine the budget, deal with community issues, and address homeowner questions and concerns. You can request a copy of the meeting minutes to gain invaluable insight into how well the association is run, as well as what conflicts commonly pop up.
What are CC&Rs?
Every HOA comes with its own set of covenants, conditions and restrictions, or CC&Rs. These rules can dictate everything from whether you're allowed to rent out your property to what color you can paint the exterior. Any renovations you're considering might have to be approved as well. As an owner, you're required to understand and adhere to these conditions, so definitely ask your realtor if you can see this document before you buy. “Every buyer should read and understand the rules, regulations, governing documents and the approved budget, since they have a profound impact on the buyer's rights," Thompson says. If you need help deciphering what exactly you've read, it's worth talking to a real estate attorney, since a misunderstanding on your part can result in a hefty fine.
What do HOA fees pay for?
Every member of the homeowners association is required to pay fees or dues that contribute to the upkeep of common areas and may provide owners with access to amenities, such as a clubhouse, pool, private beach access or gated security. Depending on the community, these fees may also cover exterior home maintenance like landscaping, roof replacement or necessary repairs—especially in the case of apartments or townhomes where exterior facades are shared. “HOA fees should change every year to reflect the funds needed for both operations (utilities, maintenance, insurance, etc.) and reserves (long-term renovations and repairs like painting or replacing a fence). Inflation alone should adjust the budget 2 to 3 percent," Thompson says. In addition to these regular payments, HOAs also often have the right to charge residents special assessments—an additional one-time fee—for emergency situations, like in the event of a natural disaster or an outbreak of termites.
What happens if there's a dispute?
If you review all the rules and regulations before signing on the dotted line, you shouldn't run into any surprises. But changes to the CC&Rs do occur. As a resident of the HOA, you can and should attend the board's regular meetings to keep up with any revisions to the CC&Rs and have the chance to voice your opinion. “The most common disputes concern architectural design issues, where an owner wants to do something that contradicts either approved standards or tradition," Thompson says. If, for whatever reason, you do have an issue with one of the rules, another homeowner or a fine, file an appeal with your HOA board before taking legal action. Depending on the state, your HOA may be required to arrange arbitration or mediation so you can come to a compromise privately. If your dispute involves a more serious violation (say, the HOA is trying to enforce rules not listed in the CC&Rs), then you may need to file a lawsuit.
Is it right for you?
Everyone has heard horror stories about nitpicky HOAs that charge residents for planting the wrong type of flowers or putting up a fence that's one inch too tall. All the more reason to do your research before you buy. But most homeowners associations exist to benefit their residents, not torture them. Because of the design and maintenance rules, “a properly run HOA will protect owner property values," Thompson says. Before deciding if living within an HOA is right for you, consider the pros and cons. Is access to amenities like a pool, gym or gated security important to you? Then an HOA might be worth the restrictions. But if the freedom to landscape and maintain your home's exterior as you please is a priority, you may want to look elsewhere. “HOAs are not for people that want to do whatever they want to their property without control," Thompson says.
The Nest and ARAG® present Adulting 101, a sponsored series full of real-world advice for handling all the practicalities of homeownership. Visit ARAGlegal.com/thenest to download a free organizer with checklists and work sheets to help make owning a home less stressful.