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When you’re house hunting, there’s a good chance you encounter several properties governed by homeowners associations (HOAs). Today, HOAs govern nearly 60% of recently built single-family homes and 80% of houses in new subdivisions.
You may have heard horror stories about HOAs — fights over too-tall mailboxes, painted shutters, and the like — or seen them satirized on TV. Yes, sometimes HOAs are ridiculous and bring out the worst in everyone. But they do have their benefits, especially for buyers who aren’t ready to sacrifice the lower-maintenance lifestyle of renting.
Here, we’ll explain what an HOA is, and what it does, before exploring the pros and cons of these communities. Then you can decide if one might be right for you.
What is an HOA?
An HOA is a governing structure for a planned community — like a development of single-family homes, condos, or townhouses — composed of the community’s residents. Like a landlord or property manager, it’s an entity that takes care of certain items to maintain the community’s quality in exchange for a fee. In other ways, an HOA is more like a government, setting rules for the community, hiring vendors, paving roads, repairing roofs and fences, and handling disputes.
As of 2018, roughly one-quarter of Americans live under some type of community association, spread across 347,000 associations nationwide. Florida, California, Texas, Illinois, and North Carolina have the most, while Alaska, Arkansas, Mississippi, North Dakota, South Dakota, West Virginia, and Wyoming have the fewest.
By region, HOAs govern about 33% of homes in the Northeast, about 50% in the Midwest, and more than 75% of homes in the West and the South. Did you know how common they are?
What does an HOA do?
In planned communities governed by an HOA, the land developer outlines rules and restrictions concerning the use of a planned community. Then, once the development is completed, the developer turns over the operation and governance of the HOA to an elected board of volunteer homeowners who run the community and maintain its budget.
Many HOA boards hire a management company and lawyer to assist them, but they’re not required to.
What an HOA does, however, varies between communities and is outlined in the agreement buyers sign upon purchase of a home in that community. They may cover some utility costs as a part of your HOA fee, handle trash pickup, remove snow from your driveway, or a number of other services. It just depends on the community, so it’s important to read the agreement before you buy into an HOA community.
Pros of HOAs
According to the Community Associations Institute (CAI), 89% of residents are satisfied living under a community association, with 70% rating their experience as positive and 19% as neutral. This bears noting before we break down the specific pros of living in an HOA community.
1. Exterior upkeep
Most HOAs handle a lot of the exterior upkeep of your home so you don’t have to. Some things an HOA may do include:
- Mowing the lawn and landscaping
- Pest control
- Maintaining heating and air-conditioning systems, electrical system, plumbing, lighting, elevators, and security systems in common areas
- Repairing roads, roofs, walls, and building components
- Trash pickup
- Snow removal
- Cleaning and painting building exteriors
- Painting and cleaning common interiors in condo complexes
2. Home value
A June 2019 UC-Irvine study found that single-family homes under HOAs sell for an average of 4% more than similar homes outside of HOAs. The sale price tends to be higher for larger houses and homes in smaller subdivisions.
Why? Part of the reason is because of conformity. Rarely do homes or amenities in HOA communities fall into complete disrepair, so home values tend to rise together as the overall market does. Likewise, in a functioning community, all homes are well-maintained by the HOA and rules ensure that no one home is such an outlier as to harm other homes’ values.
Many HOAs offer amenities like swimming pools, tennis courts, golf courses, playgrounds, and gyms in the communities. They’re semi-private in the sense that only community members have access, but you don’t have to maintain them personally. Some HOAs host social gatherings like block parties, community yard sales, cookouts, or pool parties, too. If you’re a social creature, you might enjoy an HOA community.
4. Lower bills
HOA fees cover different things but one commonly included cost is utilities. An HOA often takes responsibility for basic water and gas, as well as city services like sewer, trash, and recycling. While you pay for those services through your HOA fees, the flat fee you pay to the organization should be lower (and more convenient) than what you’d pay for each bill separately.
5. Conflict resolution
Put aside the horror stories for a moment. Sometimes, HOAs resolve conflict rather than incite it. If your neighbor plays loud music in the middle of the night or they fail to pick up after their dog who just so happens to love your front lawn, an HOA can step in. Talk to your HOA about the problem you’re facing and they’ll advocate for you with the power to enact consequences on your neighbor if they fail to comply.
An HOA is a community, and the board wants people to get along.
Cons of HOAs
While HOAs offer a number of benefits, those benefits come at a cost — and not always a small one. HOA fees (sometimes called dues) are mandatory and range based on what they cover. According to recent research, HOA fees average $2,800 per year. However, that same research found that each dollar in fees brought about $1.19 worth of benefits.
In addition to maintenance and upkeep, these fees pay for employees who work for the HOA and a reserve fund that covers unexpected expenses and emergencies like a flood, hurricane, or fire.
How much you pay also depends on where you live. A 1,000 square foot condo in Charlotte will charge lower HOA fees than a 1,000 square-foot condo in New York City.
While you do get something for HOA fees, you’ll have to perform your own cost-benefit analysis. Are the fees worth it for what you get in your HOA agreement? Will the fees impact your ability to pay the mortgage? It’s one extra thing to consider when buying a home.
2. Risk of lien or foreclosure
HOA fees are cost on top of your mortgage, property tax, and homeowners’ insurance and you’re required to pay them even if you don’t use all the amenities.
As part of your agreement, if you break a rule you could be assessed a fine. If you can’t or don’t pay those fine assessments or your regular HOA fees — even if you’re up to date on your mortgage — the association can place a lien on your property. You could even lose your home to foreclosure.
HOAs tend to use a lien or foreclosure as a last resort on homeowners who refuse to pay their assessments, but the risk is there. If you’re somebody who will not appreciate fines for breaking rules, an HOA might not be for you.
3. Lack of choice
Since HOAs handle so much of the community upkeep, it follows that they often have meticulous guidelines for individual homes. Some of the common violations of deed restrictions include:
- Unapproved exterior home paint color
- A garbage can in view of the public or neighbor
- “Unkempt conditions” such as mildew or peeling paint
- A hose left out in the driveway after washing your car
- Unapproved shutter styles
You can’t make changes to the exterior of your home without consulting your HOA agreement first.
4. Rules, rules, rules
In addition to not being able to personalize your home the way you’d like, HOAs often come with a litany of rules. Abiding by a list of paint colors or only parking two vehicles in your driveway isn’t exactly draconian, but other homeowners association rules may regulate:
- Fencing dimensions
- How tall your grass can grow
- Why type of fertilizer or sprinkler system you can use
- The size and composition of a garden
- The number of pets you can have, as well as breed or weight restrictions
- The dimensions for a “For Sale” or “For Rent” sign
Seventeen percent of HOA residents say restrictions on exterior home improvements are the worst aspect of living in a community association, while 8% say “the rules.”
5. Potential for corruption and incompetence
HOAs are made up of volunteers in the community. They’re human. A good board can be efficient and professional, a bad one can mismanage the community, misspend money, or abuse their power. The number one reason HOAs face lawsuits is a failure to maintain the basic upkeep of the community, which happens for reasons of corruption or incompetence.
Likewise, if your HOA lacks money in a reserve fund, the whole community is in trouble in the event of a disaster. Even if there is no disaster, the HOA can authorize special assessments to pay for certain projects or increase monthly dues based on no other reason but the board’s mismanagement.
Is An HOA Right For You?
Most people who live in HOA communities don’t regret the decision. They’re happy and feel taken care of. But how many of those people ever doubted the HOA life in the first place?
There are pros and cons of living in an HOA, but much of the decision comes down to personal preference and the nature of a specific HOA. If a home in a planned community catches your interest, make sure you ask for the HOA’s declaration or master deed and get answers to questions like the HOA’s financial status and whether the home you’re interested in has any outstanding debt to the association. (You as the new buyer will be responsible for that debt!) Disclosures will indicate how often the HOA has increased dues and assessments and how often it’s allowed to do so.
Talk to residents to see how they feel about management. And, finally, review your budget and lifestyle. Do the benefits outweigh the costs? Only you can say.