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HOAs: How Homeowner Associations Work

HOAs enforce architectural guidelines, maintain common areas, and prohibit or allow certain activities. Their rules are binding and legally enforceable.
June 7, 2018
Home Ownership Costs, Mortgages
how homeowner associations work
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HOAs, or homeowner associations, can be an unexpected factor when considering the affordability of a home. They’re formed to enforce architectural guidelines, maintain common areas and amenities, and prohibit or authorize particular activities, uses and improvements of certain residential developments.

The fees — and authority — of an HOA can be significant.

What is an HOA and what does it do?

HOAs are governing bodies found within common-interest communities, such as planned or gated neighborhoods and apartment or condominium buildings. They’re run and funded by residents and have boards of directors. The boards organize regular meetings, establish and maintain budgets, and enforce rules and regulations. Those rules are binding and legally enforceable.

When they work well, HOAs can increase property values by ensuring that their communities stay visually appealing — no rusting cars on front lawns, for example. When they don’t work well, whether because of high fees or poor management, they can make owning a home a bureaucratic pain.

» MORE: 25 tips for first-time home buyers

How much are HOA fees?

HOA members are required to pay monthly, quarterly or yearly dues. These fees pay for the upkeep of community common areas, such as walkways, parks, lighting, elevators, pools and clubhouses.

Fees vary depending on the living situation. A resident of a New York high-rise with a movie theater and a gym might pay higher fees than a resident of a tract house in Portland, Oregon. And owners of a two-bedroom condo will pay more than owners of a one-bedroom. Fees can range from $50 or $100 to thousands of dollars per month.

Can an HOA raise its fees?

Yes. Based on a community’s maintenance needs and the number of residents, an HOA can raise its fees. And if there isn’t enough money in a reserve fund, homeowners might be charged a special assessment — sometimes without a majority vote, depending on how the HOA is structured.

Despite their ability to collect dues, 70% of HOAs are underfunded, according to the National Association of Realtors. Keep this in mind when you’re looking at properties. You might want to ask your real estate agent for a copy of the HOA’s most recent financial report.

Before you buy a home in a neighborhood with an HOA, find out:

  • How much the fees cost
  • How often fees are due
  • What the fees cover
  • If there’s a reserve fund for emergencies or special projects

Check in with yourself, too: Are you going to use the amenities that the fees cover? Do the fees fit your budget? Find out the real cost of owning a home.

» MORE: Calculate your cost of homeownership

How do HOA rules work?

HOA rules are known as covenants, conditions and restrictions, or CC&Rs. HOA covenants can apply to single-family houses, condos or townhouses, from a cul-de-sac cottage to a Park Avenue penthouse.

Wherever you’re thinking of buying, if the neighborhood is governed by the rules of an HOA, get all the details before making a final decision by obtaining its CC&Rs.

If you want to install solar panels, paint your front door neon pink or throw late-night parties, you might run into trouble with your HOA.

When it comes to houses, most HOA rules center on exteriors. For example, members might be required to keep their lawns green, even in a drought. For apartment or condominium owners, they might dictate the types of pets you are allowed to have or whether residents can smoke inside.

You might welcome these rules if you’re concerned about noisy or sloppy neighbors. But if you want to install solar panels, paint your front door neon pink or throw late-night parties, you might run into trouble with your HOA.

Are HOA rules legally enforceable?

Absolutely. If you ignore the rules — say, by adopting a Great Dane when residents are limited to dogs 50 pounds or less — the HOA will request that you reverse your actions. Further repercussions could include fines and even a lawsuit.

Before you buy a home in a neighborhood with an HOA, find out:

  • The rules
  • How the rules are implemented
  • What happens when rules aren’t followed

And ask yourself: Can I abide by these rules?

What to know about an HOA before buying

If you encounter an HOA when shopping for a home, ask your real estate agent whether you can attend an HOA meeting or if the minutes of recent meetings are available. This will give you a sense of the community dynamics. Successful HOAs are democratic, with board members acting in the best interests of residents.

Also, find out about:

The HOA’s financial condition

Look for ample cash in a reserve fund in the HOA budget. When maintenance and repairs of common areas, property and equipment are performed, the costs are shared by homeowners. If the dues and revenue generated by the HOA and placed in a reserve are sufficient to cover these costs, you’re all good. But if not, the HOA will order a “special assessment.” That’s an unexpected bill you and your fellow homeowners have to pay.

Ongoing disputes

Issues among homeowners and the HOA can reveal property matters that you might not be aware of. These disputes could be simple — say, something involving repeated disturbances, noise or parking issues. Or the issue could be something even bigger — construction quality, major inconveniences or even financial malfeasance. For example, a Florida condo association resolved a matter in which a board member illegally paid himself hundreds of thousands of dollars in funds from an HOA, an issue that dragged on for over 10 years.

Difficult restrictions

Rules that don’t fit your vision for your neighborhood or your yard — such as those regarding pets, exterior paint colors, children’s play structures or garden tool sheds — won’t likely go away, so make sure you’re comfortable with compromising. An HOA can even forbid owners from renting out their property.

» MORE: How much house can you afford?

Are HOA fees negotiable?

Not typically. If you are buying in a soft real estate market where there is little demand for housing, you might be able to have your HOA fees waived for a particular period of time, say six months, as an incentive for you to buy.

What do HOA fees include?

Fees generally pay for the maintenance and improvements of common areas and amenities — such as pools, exercise rooms and clubhouses — and sometimes for things like social events, security and insurance.

What to know about an HOA as a homeowner

Can an HOA evict you or foreclose on your home?

HOA boards can take action against those who don’t pay, including issuing a warning, putting a lien on the home, or forcing the owner to foreclose. However, what an HOA can do varies by state law.

What can you do about high HOA fees?

Lenders will usually consider HOA fees as a part of your additional financial responsibilities (like insurance and taxes) when you buy a home. But if you hit a rough spot financially and are having difficulty paying your fees, arrange a meeting with the HOA board. You may be able to work something out to see you through tight-money times.

What can you do if the HOA won’t OK your home improvement?

Often not very much. Court battles can be expensive, and HOAs frequently prevail.

» MORE: Find out how much your home is really worth

About 20% of the U.S. population lives in some type of common-interest community, and more than half of them are part of an HOA, according to the Community Associations Institute.

There are going to be rules to follow and bills to pay no matter where you live. Living somewhere with an HOA, especially one that works well, can provide tangible lifestyle benefits — if you’re willing to give up some autonomy and pay more.