Approximately 26% of Americans live in community associations. That amounts to roughly 73 million Americans as of 2018.
A significant portion of these community associations tends to be homeowners associations (HOAs). HOA members band together to control how their community develops and reap benefits accruing from such granular control.
Are you thinking of joining an HOA? Here’s a brief guide to answer the question, “What is the point of a homeowners association?” for you to make the best decision.
What’s a Homeowners Association?
A homeowner association (HOA) is an organization within a community that creates and enforces the rules touching on the property and residents in that community. Some of the communities where you can find an HOA include a subdivision, a planned development, condominium buildings, and gated neighborhoods.
What Does an HOA Do?
As the name might imply, an HOA consists of members from the community it operates within. When you buy a property within the area an HOA operates in, you automatically become a member and are expected to pay HOA fees. Typically, you can’t purchase property in such areas unless you plan to be a member.
Many HOA members are volunteers who run the organization. In some cases, the HOA members can decide to hire an HOA management company that can help run the day-to-day functions more professionally.
An HOA has a board of directors or governors who are elected. Their job is to oversee and execute the organization’s rules and regulations.
These rules are usually codified in a Declaration of Covenants, Conditions, and Restrictions (CC&Rs). The document sets conditions that owners and their properties have to meet to continue living in the community.
In case anyone violates the terms and conditions, the CC&Rs set the penalties such a one must incur. These penalties include fees, forced compliance, and in extreme cases, litigation.
How Much Do HOA Charge as Fees?
Evey HOA member is expected to pay fees every month, quarter, or year depending on the rules. The fees go towards maintaining the community’s common areas like parks, walkways, lighting, pools, and clubhouses.
How much you pay depends on your HOA’s living conditions. For example, condominium owners in New York will likely pay more in fees than those in tract houses in Oregon. The amount varies from as low as $50 to as high as several thousand dollars.
HOA fees are typically non-negotiable. If you are buying the property in a buyer’s market, there’s a chance you can have the fees waived for a period as an incentive.
Does an HOA Have the Right to Raise Fees?
In a word, yes. However, any raise has to be in line with the community’s maintenance needs. The number of residents the HOA is serving also informs whether raising the fees is necessary.
Traditionally speaking, every HOA should have a reserve fund. The fund is meant to cover special projects or emergencies. But not all HOAs have a reserve fund.
For those that do, if the fund isn’t large enough, you may be charged a special assessment to raise more money. That can occur even without a majority vote as long as the HOAs structure allows it.
Things to Consider Before Joining an HOA
Before you buy that house under an HOA, there are several factors you ought to weigh that can inform your investment.
1. The Dynamics
A well run HOA is one where democracy reigns and the board works for the good of the owners. To feel the HOA’s dynamics, ask the realtor if you can attend a meeting. You can also request for past minutes from recent meetings to get a feel of the dynamics the organization may have.
2. The Finances
Before you join an HOA, you should request the real estate agent to furnish you with a copy of its latest financial report. In this report, you’re looking for the budget. Specifically, you will want to look at how much the HOA’s reserve fund has in the budget.
If the fund is adequate, then maintenance issues or emergencies can be sufficiently taken care of. However, if the HOA’s reserved fund isn’t adequate, it’s a cause for concern. That’s because anytime an emergency or special project will crop up, you will have to pay extra for it.
Take a closer look at the revenue the HOA generates in light of its expenses to gauge the reserve fund’s health.
3. Disputes
Sometimes ongoing disputes between HOA members can signal matters that may impact you if you become a member. Therefore, you must pay attention to any ongoing conflicts within the HOA that give you more insight into areas of concern.
For example, if you’re planning to join an HOA and learn of an ongoing dispute over missing funds, that can be a point of concern. Could it be that you may be forced to continue making extra payments as a future member? What if these repeated contributions are sizable? These are some of the issues that surface through HOA disputes.
4. Degree of Restrictions
Every HOA has its standard of living that all members have to agree to. Do you like a certain exterior home decor idea the HOA disapproves of? Tough luck. You’ll have to abide by their rules.
Since these are standards that will likely not go away, you have to determine if you are comfortable abiding by them before signing up.
Are HOA Rules Legally Enforceable?
An HOA’s rules are legally enforceable as its operations are governed by state laws. If you violate an HOA rule, the organization will request you to comply. Failure to do so attracts not only fines but even a lawsuit.
For any member that doesn’t pay their HOA fees, the organization will issue a warning. If you continue not to pay the fees, the HOA can place a lien on your house or force you to foreclose.
What Is the Point of a Homeowners Association?
Particular benefits come from the degree of control an HOA executes. However, HOAs are not to be taken lightly. Before signing up, ask yourself, “What is the point of a homeowners association?” To get a clearer picture that can help you make the right decision.
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