What is an HOA and How Do They Work?
What is an HOA? What does an HOA mean? HOA stands for a homeowners association. If you are new to buying a home, you might not really understand what an HOA is, what it means, or how it will affect you. The HOA meaning adds some value but also some restrictions too.
Lots of first time home buyers wonder what are HOAs and if living in one will be beneficial.
Will living in this type of community be suitable for you? Let’s take a deep dive into the definition of an HOA so you can decide for yourself if you’ll want to live where one exists.
HOAs will certainly not be for everyone. The information provided will help you make an informed decision.
HOA simply means homeowners association and is an organization that manages a community. This could be a housing unit development, a subdivision, a condominium, or a townhouse that a board of directors will oversee. These are residents of the community that the other homeowners have elected.
The idea of the association is to maintain and improve the area. This is achieved through bylaws and maintenance work on the communal areas. This doesn’t come without costs, however, and the residents have to foot the bill.
To meet the goals of not allowing the area to worsen, the residents’ rules can sometimes appear highly restrictive, though they should ultimately make the neighborhood a more excellent place to live.
Generally, the oversight provided by HOAs creates a better area that increases the value of homes. If you are happy with the rules and the fees involved with living in a community like this, you could find that the advantages are worth the possible negatives you will face. As a buyer doing your due diligence, it is essential to know the standard homeowners association rules.
Let’s take a closer look at HOAs and what it will mean to you if you buy a home in such a development.
The Inner Workings of HOAs
The HOAs’ meaning puts them in a position to set the rules that residents have to follow. However, the set-up is fairly straightforward, with the developer of the lots creating the association and the initial set of rules. When some or all of the lots have been sold to homebuyers, the homeowners association’s responsibility will be handed over to the residents.
Whenever anyone purchases a home, either from the developer directly or later on, they will have to agree to the homeowners association’s governing documents.
On top of this, people buying a home in the development covered by the HOA will have to agree to pay fees monthly or annually. These fees are then used to make improvements in the community.
The board of the HOA decides how the money from fees is used. The committee comprises residents who want to have a say in how the community is managed. The members can then vote on the board’s decisions, hopefully moving the community forward and making it a better place to live for everyone.
It is possible to have an owner’s association managed by a group of owners or one where management tasks fall on an outside organization. This would be the role of an HOA property management company.
Why are Homeowners Associations Created?
The developer of the project has the responsibility initially, and it is in their best interests to make sure the community is an excellent place to live. If the development looks good, it will be easier for them to sell their newly built homes. This allows the developer to continue keeping a presence in the community while still constructing properties.
Additionally, if a real estate developer provides common amenities, it might allow them to build a greater density if the local city or town encourages such results. Also, by relieving a city or town’s burden of road and utility maintenance costs, they may receive more favorable approvals.
In some instances, developments with HOAs have given local governments costs saving in multiple ways. As part of the approval process, cities and towns have required builders to make public improvements such as parks or playgrounds, passing costs along to the common-interest owners.
Second, HOA developments would be responsible for the expense of maintaining infrastructures that would normally be passed onto the city or town.
History of HOAs
The first HOAs in the United States were established in the early 1900s in Los Angeles. Two of the first homeowner’s associations were the Arroyo Seco Improvement Association in Pasadena, founded around 1905, and the Los Felix Improvement Association, founded in 1916.
These were planned neighborhoods that established a legal precedent for zoning districts set up for luxury single-family residences.
Restrictions often included antiquated and clearly discriminatory provisions such as excluding all non-Caucasians, and often non-Christians as well, from occupancy unless they were servants. There was usually a minimum required cost of construction – something considered upscale at the time.
Deed restrictions and covenants were established to discriminate against people who could purchase in a neighborhood. Early after World War II, many excluded African Americans, sometimes Jews, and Asians as well. The Fair Housing Act of 1968 changed how HOAs could be run.
A Community Association or A Home Ownership Association?
The majority of HOAs are incorporated, which makes them subject to state laws. Some states, however, consider condominium-based HOAs, within condominium communities to be distinct entities from HOAs.
HOAs can sometimes be known as a home ownership association, but you might also hear the term community association though this isn’t necessarily the same. Community associations can sometimes refer to a general term for an HOA and other community ownership organizations.
Other types of community associations can sometimes operate in the same manner as homeowners associations, but they can be different. There can be varying designations under state and local laws, with some permitting membership to people with some interest in the area rather than actually living there.
It should be noted that a homeowners association is different than a property owners association. The most significant difference between an HOA and POA is that POAs may include anyone in the community that has an interest in the real estate. In other words, POAs could include those who are not homeowners.
This all makes it very important to find out what the situation is with the association for the development you plan to move into. All HOAs will be slightly different, without any hard and fast rules for how they are operated. You should carefully consider whether buying a home within the home ownership association area is beneficial or not.
The Advantages of Owning a Property in an HOA
There are certainly going to be pros and cons of living where an HOA exists. One of the most significant advantages of an HOA is that it can increase your home’s value.
These communities may have access to more amenities and be better maintained than homes that are not within such an organization. This will lead to each household having more curb appeal when it comes time to sell the property, ensuring that values stay strong.
One of the factors that go into real estate appraisals is curb appeal and exterior condition. One of the pros of living within an HOA is that all the properties are uniformly maintained.
When you sell your home, potential buyers will be looking at your home’s neighborhood and your house directly. The HOA rules and governance should ensure that the area is well maintained, making it easier to sell your home. Quite often, homes that come up for sale in popular neighborhoods with HOAs will sell fast.
When you consider the purchase of a property within a homeowners association, you need to consider the difference in price between homes within the association and those outside. The association can impact the listing prices, and only when comparing similar properties will you understand what this impact is.
Rules and bylaws that the association operates can be a big plus for residents. This can make sure people in the community act more responsibly and have more consideration for their neighbors.
The rules could include parking restrictions, a common area of neighbor disputes, or speed limits to improve the area’s safety.
But it isn’t all positive. There are downsides to living within a homeowners association as well.
The Disadvantages of Buying Homes Within an HOA
There can be some cons to living in an HOA as well. One of the most obvious problems with an association is the fees you have to pay for. Owning a home is expensive enough without hundreds of dollars in homeowners association fees to pay each month.
The cost you have to pay to the association needs to be factored into your calculations when you are financing a property. This could mean that you have less to spend when buying a home or leave you with less disposable income each month after your outgoings.
Many people buying into an HOA also may find they don’t like the rules imposed on them. It can often be difficult going from a single-family home without an HOA into one that does.
If the HOAs rules are overbearing, it can create an uncomfortable living environment. It is a chief reason why many real estate agents express the need to understand the meaning of an HOA and how it will affect your day to day living. There are many considerations for living in a homeowners association that all buyers should be familiar with.
If the thought of someone else being able to tell you what you can and cannot do, an HOA might not be suitable for you. There are homeowners association meetings you will want to attend if overbearing rules could be presented.
Typical Homeowners Association Rules
When you move into a community like this, you will be obliged to sign a contract stating that you understand the rules and agree to follow them. These are often known as covenants, conditions, and restrictions’ or CC&Rs.
The association rules are administered and added to by the association. The HOA has the responsibility to make sure all the homeowners stick to these rules as well.
The rules that these associations create will vary depending on the location and the priorities which have been established in the past. Generally, though, you can expect the following different types of rules:
- Maintenance requirements: homeowners will be expected to maintain a certain standard of their home. This will include outside spaces like the lawn or the driveway, as well as the house itself. There could be restrictions on what you can do to your home and the color you can paint it.
- Rental policy: will you be able to rent your home or condo if you need to? Having this right will probably be an essential consideration on your part when living within an HOA.
- Design changes: are you able to make modifications to your property? Sometimes you cannot, which could be a huge purchase mistake if you planned on making an addition or improvement.
- Pet rules: you could find that your HOA restricts the number of pets residents are allowed to keep or even the type of pets. There could also be rules about cleaning up after your pets, barking dogs, and keeping pets on a leash.
- Noise levels: the association could have rules concerning noise and the hours which you can make it. This could prevent you from doing DIY late into the evening or prevent you from holding a noisy house party, but the same will be valid for your neighbors as well.
- Community respect: associations often want to create a family-friendly community. This means making sure the development is safe and people are respectful of one another.
- Clutter: to help maintain the neighborhood, there might be restrictions on the things you can keep in your yard. This might mean a limit on the patio furniture and other items you leave around your yard. You could be restricted for something as simple as having a PODS moving and storage unit for your move.
- Homeowners Association fees: they will have rules to make sure you pay for the area’s maintenance.
Looking over existing homeowners association documents is a typical real estate contingency that is always wise to have in a purchase and sale agreement. It would be best if you made sure due diligence is done not only on the home itself but also on the HOA.
If you are thinking of buying into a condominium homeowners association, there are even more questions you should be asking.
How Much are HOA Fees?
The HOA fees or dues will need to be paid either monthly or annually. The exact amounts will vary greatly depending on the development, but typical costs can be expected to be between $200 and $500 each month. The larger the home you are looking to move to, the greater the fees will likely be. In some luxury communities, HOA fees could be into the thousands per month.
Another factor is the type and amount of amenities maintained through the association. If you share the use of a swimming pool, clubhouse, and other valuable amenities, you can expect to have to pay more for the privilege.
The money the association gets through these fees will be distributed and used as set out in the covenants, conditions, and restrictions documentation. This should set out the allocation of funds to maintain the various amenities and communal areas.
There could be extra money beyond maintenance to pay for projects in the community or contribute to a reserve fund. The reserve fund will be set aside in case of emergency repairs or for capital improvements needed for the neighborhood to continue to function normally.
The board of the association will decide on the use of these funds. So if you want some improvements to the development that directly affect your home, joining the board can look attractive.
The fees asked for by the association can be increased if there is a need for some extra maintenance or repair work. So your HOA fees may not always remain the same. In fact, more often than not, HOA fees rise over time as things become more expensive to maintain.
Buyers purchasing into an HOA should always ask if there are any upcoming special assessments to ensure they will not be hit with a hefty bill when moving in.When buying into a neighborhood where an HOA exists, it is critical for buyers to be aware of any upcoming special assessments.Click To Tweet
Who are Members of the HOA?
Anyone who has purchased a home within the association’s area will have to be a member. It will be a condition of purchase for the properties within the development.
Do Renters Pay HOA Fees?
Even if you don’t own the home and are only renting, you could still be expected to pay the association’s fees. You will also be expected to follow all of their rules, but whether you pay the costs will depend on your landlord. You should check the terms of your lease contract to see what the situation is in your case.
It is the landlord’s responsibility to provide their tenants with a copy of the covenants, conditions, and restrictions. If you have any problems with the rules or the HOA, you might be required to go through your landlord rather than directly to the association.
Most of the time, landlords cover HOA fees, but this would be an essential consideration when renting a home.
Can HOA Fees Be Raised?
The rules of the association should state by what means the fees can be raised. This should explain how often increases can be implemented and for what reasons. There might be an increase to keep up with inflation and the rising cost of services the association pays for.
Homeowners will often have some protection through state legislation to ensure HOAs can’t increase their fees by extreme amounts. When buying into a retirement community and living with a fixed income, this could be more problematic.
Can You Avoid Paying Fees to the HOA?
If you own a home within an association area, you aren’t likely to avoid paying fees. However, you might be able to reduce the amount you pay in some circumstances.
Your first step could be to get a copy of the budget for the association. This will tell you what they are doing with the funds they receive and how they’re allocating their spending. You might find that they aren’t using their funds very effectively, and improvements can be made.
If it appears that the association is paying more for certain services than it should be, you could suggest that they renegotiate their contract or use another contractor. You can do this by contacting one of the board members, but you also have the opportunity to become a board member yourself.
If you are on the board, you can push for more efficient use of the funds to reduce the fees that everyone pays. Better value maintenance contracts could be available or lower insurance premiums, and if you are on the board, you can push these changes.
If you remain a member, you might still be able to vote on changes that reduce or altogether remove some of the expenses involved in running the association.
When Things Go Wrong With an HOA
Most board members may not have experience of being part of this type of association and are therefore more likely to make mistakes and wrong choices. One common problem that can occur within associations leading to more significant issues is failing to collect fees consistently.
There might be some members of the community that tries to avoid paying when fees are due. If the board doesn’t follow up on this, they will have less money to cover the association’s expenses. This can lead to other members thinking they can avoid paying their fees as well, gradually resulting in the deterioration of the services provided by the association.
The poor management of HOAs can reduce the homes’ desirability in the community, and consequently, their value. Another example of things going wrong with an HOA includes people joining the board that have nothing better to do than make your life miserable.
You’ve probably met people like this in your day to day life. They are mean-spirited, have bad attitudes, and live for putting their own pain in others’ lives. If a few of these characters get on the boards, you could find living in the HOA you once loved becomes a daily nightmare.
You can do some things to combat an unruly homeowners association, but they are not always effective. Unfortunately, you may find yourself in a position where you need to move on.
How to Dissolve an HOA
If things have gone wrong with your homeowner’s association and the neighborhood isn’t being taken care of as expected, it is possible to dissolve the association. HOAs aren’t considered permanent organizations, and they can be concluded if certain things happen.
Once again, if you consider the association’s dissolution, you should check what it says in the official documentation. The covenants, conditions, and restrictions should have information about dissolving the organization.
There could also be state laws that mean homeowners associations will be dissolved if they are not renewed. If this law exists in your state and your association is poorly managed, the important task of officially restoring the association might have been forgotten. You will be fortunate if this is the case, as it will make dissolving the association all the more straightforward.
If other community members share their concerns with the homeowners association, it will be easier to resolve the situation. Since it will typically take 80% of the members voting for the association’s dissolution, you will need to make sure many members feel the same way you do.
You will also need help from a lawyer to get rid of the organization, which is never cheap. If you know that many other people in the community want the change, the costs involved to conclude the association won’t be such a burden legally. When deciding to embark on this process by yourself, you will need to have the funds available to cover the expense of hiring a lawyer yourself.
If the homeowners association is in the middle of a community improvement project, this will need to be accounted for. Without the HOA to manage the project, who will deal with the contractors?
Dissolving the association should be a last resort, and you might find that you can improve the community by becoming a board member yourself. It may be the case that better leadership in the organization will remove the problems and make the homeowners association more effective and reliable.
Frequently Asked Questions About HOAs
1. Is an HOA the same thing as a homeowners association?
Yes. HOA is just an abbreviation for a homeowners association.
2. What does an HOA cover?
HOA fees typically cover all of the maintenance that comes up while living in the neighborhood. An HOA fee would usually cover any common areas, elevators, lobbies, landscaping, patios, decks, tennis courts, and swimming pools.
3. Are HOA fees tax deductible?
If your home is your primary residence, HOA fees are not tax-deductible. If the property is used as a rental home, you can deduct the HOA fees.
4. Is it worth it to be in an HOA?
Whether it is worth living in an HOA or not really comes down to personal choice. If you use many of the HOA amenities, you will probably benefit from it financially.
5. Why are the HOA fees so high?
When you are buying into a homeowner association with high HOA fees, it is probably due to extra perks and amenities such as the maintenance of swimming pools, tennis courts, gyms, and other such perks for living in the community. High fees could also be due to recent capital improvements as well.
6. What happens when you don’t pay HOA fees?
When you don’t pay HOA dues, the association can charge you penalty fees and interest on the amount you have not paid. The HOA could also sue and take you to court for timely payment.
Once a judgment is issued in favor of the HOA, it’s possible the judge could rule to garnish your wages or take money from your bank account to pay back dues.
7. Can HOAs raise your dues without a vote to do so?
Yes. It is possible to raise fees without a vote. There are, however, rules by state governing how much an HOA fee can be increased.
8. Can a homeowners association fine you?
Yes, if the bylaws established by the HOA allow them to do so.
9. Does an HOA increase your property value?
A well-run homeowners association often does increase property values. Studies suggest that homes with a solid HOA could sell on average by 5-6% more than a neighborhood without one.
10. How much is HOA insurance?
The average cost for a general liability insurance policy with $1,000,000 to $2,000,000 in coverage will cost an association on average from $55 to $80 per month based on the number of homes, location, land acreage, claims, features, and others.
11. Can an HOA force you to sell your home?
No, they cannot. HOAs, however, can and will enforce the rules if they are being violated. As previously mentioned, you could receive fines and eventually be taken to court under an enforcement order.
12. How to find neighborhoods with an HOA?
Do you prefer living in a neighborhood that has a homeowners association? There are a few ways you can locate areas with HOAs. Two of the best are asking a local real estate agent and doing an online search. Search terms you can use include HOA near me, neighborhoods with an HOA near me, and homeowners association near me.
Final Thoughts on HOAs
Homeowners associations generally work to make housing developments better places to live, adding value to individual homes and making the community safer for everyone. But they aren’t completely without their problems.
Being part of an HOA means that you will face more restrictions on what you can do with your home, and there are, of course, more fees to pay. If you are looking to buy a home in an HOA development, you should compare it to similar properties not within an association to evaluate how much value it provides.
When someone says, “what does an HOA mean,” you should now be better armed to help someone understand. Hopefully, you have found this guide to HOAs to be helpful. Best of luck if you have decided an HOA is right for you!
About the author: The above Real Estate information about what is an HOA was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at [email protected] or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 34+ years.
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