August 1, 2023
A homeowner association (HOA) is an organization that sets and enforces rules for a group of homes, and also maintains the grounds in some or all areas of the neighborhood or building. They are commonly associated with planned or private neighborhoods, subdivisions, gated communities, condominiums, and townhome developments. There is usually a fee associated with living in a neighborhood managed by an HOA, which can range in cost depending on the area and the amenities provided. While membership in most HOA communities is mandatory, there are also some that are voluntary. For example, a voluntary HOA community may choose to make certain amenities available only to members to incentivize membership. Ultimately, the decisions made by an HOA are decided by a board of directors, which is usually both made up of and elected by neighborhood residents.
HOA Legal Powers
HOAs are legal entities set up as businesses or non-profits to create covenants, conditions, and restrictions (CC&Rs) and enforce them. CC&Rs often apply to such things as siding and roof colors and materials, parking restrictions, fencing specifications, landscaping, etc. An HOA’s standing as a legal entity allows the organization to enforce rules and issue punishments when they are not followed. Penalties can be strict for those who choose not to abide by the rules, including fines, lawsuits, or even a lien placed on the home.
HOA Financial Management
There are several ways for an HOA to manage the money it receives from residents. Some HOA associations charge residents a little more so they can keep a large cash reserve to cover maintenance, repairs, and other expenses. Others might charge a smaller fee and then conduct special assessments when unexpected costs occur. There are pros and cons to each strategy. Residents will pay more each month when the HOA decides to keep a large cash reserve, but if the association chooses to keep a smaller cash reserve and a significant expense occurs, occupants could have to pay out a large sum of money at once.
HOA Pros and Cons
Living in an HOA community comes with many pros and cons. Ultimately, determining whether the good outweighs the bad depends on what matters most to you in a home and a neighborhood.
- Lawncare and other landscaping are typically handled by a third party hired by the HOA
- Some HOAs cover utility costs and allow you to simplify your bills
- Access to amenities such as a pool, clubhouse, gym, tennis court, etc.
- Social activities and potentially a stronger sense of community
- A resource to help solve neighborhood disputes
- Monthly fees can be expensive if you are not able to take full advantage of what is offered
- Limit how a home’s exterior can be personalized
- Depending on the covenants, conditions, and restrictions, you may not be able to rent your home to someone else
- Potential for poor management of maintenance and/or finances
Choosing an HOA Community
Purchasing a home is the biggest investment most people make in their lives. Adding a monthly HOA fee to that cost will increase your monthly expenses. However, the benefits of an HOA outweigh the costs for many individuals. Here are some tips to keep in mind as you explore different HOA communities.
- Research and compare communities based on their location, amenities, fees, rules, management, governance, and reputation
- Review the covenants, conditions, and restrictions (CC&Rs), bylaws, meeting minutes, and any other important documents and information you can find on the communities
- Visit the communities and talk to residents to get their thoughts and feelings about the neighborhood
- Talk to your real estate agent to gather insight into the communities you are interested in
- Think through the pros and cons of living in an HOA community, taking needs, personal preferences, and budget into account
HOA communities can feel like paradise for some individuals and a disappointment for others. Be honest with yourself about your needs and wants as you explore different options. For example, if the primary offerings of a neighborhood are its pool and tennis court, but you are someone who would never use either of those amenities, it may be difficult to justify the extra expense each month. Establishing what you want in a neighborhood before or at the beginning of the search process will help you make your decision with increased clarity.