One of the biggest financial decisions you will make is buying property. However, there is one other factor you must consider to ensure it won’t affect your everyday life. This is the Homeowners Association (often referred to as HOA).
These are very common for planned communities, Condos, Townhomes & some Suburbs. They are set up to help look after communal areas, ensure everything runs smoothly and to ensure property values remain high. While some homeowners find HOAs helpful and a great way to bring a community together, others can feel restricted due to the rules and fees.
Before purchasing property in an HOA community it’s important to understand how the HOA works, how much it costs and the responsibilities. With a little research you can avoid unexpected costs and know whether it’s the right decision for your lifestyle.
What Is A Homeowners Association is an organisation that looks after your residential community. If you buy property in an area with an HOA you will automatically have become a member. This means you will have agreed to follow any rules within the HOA and pay the necessary fees.
Most HOAs have a board of directors. Usually this will be a group of people who are homeowners and have been elected by the community. They may employ several companies to ensure everything runs smoothly such as; property management, gardeners, maintenance, accountants and/or solicitors.
Depending on the community you live in, the HOA may look after external areas of a Condo such as the roof, lifts, hallways, car parks & communal utilities. Or in a single family area they may look after communal areas such as; entrance signs, private roads, walkways, pools, clubhouses, parks & gardens.
HOAs will have rules in place to ensure the community remains tidy and runs smoothly. This can include; colours for your external paint, fencing, parking, pets, noise, Christmas decorations, short term lets and/or extensions.
Benefits Of Living In An HOA
One of the biggest benefits of HOAs are that they look after communal areas. A well run HOA will ensure your entrances look nice, communal areas are repaired, gardens are well maintained and services are co-ordinated.
Many communities will have extra facilities such as pools, gyms, play areas, tennis courts, meeting areas and/or walkways. This can make your property more enjoyable and increase its appeal when you come to sell.
HOAs will have rules in place to ensure everything in the community looks the same. This can help your property value stay high as there may be rules in place to stop overgrown gardens, unapproved buildings and/or untidy external areas. Many buyers enjoy knowing that there are strict rules in place.
An HOA can help with some issues in the community. If there are any issues with your neighbour you can report any breaches.
However, the quality of the HOA will depend greatly on the management, budget and communication. A well run HOA can be a fantastic addition but if it’s not well run it can cause frustration, unexpected costs and conflict.
HOA Fees & Possible Costs
One of the most important things you should look into are the HOA fees. These can vary greatly depending on the location, facilities, property type and services offered. A Condo will likely have higher fees due to the amount of maintenance needed compared to a community with just basic gardening.
Ask what the regular fees cover. This can vary depending on the HOA but often includes; external maintenance, water, waste disposal, communal insurance, gardening, security, facilities and/or reserve funds. Usually your individual insurance, property tax, utilities & internal repairs won’t be included.
Ask how much the fees have increased recently. Even a small annual fee can add up over time. If the HOA regularly increase their fees then this could be an issue.
Sometimes there can be a special levy. This will be a one-off fee that is charged when the HOA has a large repair or unexpected cost. This can include; roof repairs, road repairs, storm damage, structural work &/or upgrading communal areas.
This can range from a small few hundred to thousands of pounds. Before putting in an offer ask what the current or planned special levies are. It’s also a good idea to check out their reserve fund. This will be money they have set aside for long term repairs/replacements. If they have a good reserve fund then you’re less likely to have large unexpected costs.
Understanding The Rules
Every HOA will have documentation to show what they can do, what their responsibilities are, what they charge and any rules. This can include; declaration of covenants, conditions & restrictions, bylaws, architectural guidelines & community rules.
Don’t just rely on what’s written in the property listing or what the seller says. Take time to look through the documentation. Take note of any rules that may affect you.
Some HOAs will have restrictions on how many/pet size. Some will have rules on parking RVs, boats, commercial vehicles or work vehicles in the driveway. If you work from home check there aren’t any rules on how much business you can do.
If you plan on using short term lets (Airbnb/Vrbo etc.) make sure to check what the rules are. Some HOAs will not allow any rentals whilst others will have minimum let times or require approval.
Check what rules there are on renovations. You may need approval from the architect to replace windows, put up solar panels, build a fence, paint outside, add a patio or change gardens. Some communities will have rules on how you can make small changes to the outside.
Ask what happens if you breach any rules. This can include written warnings, fines, loss of facility access & legal action. Knowing this can help you see whether the HOA is fair.
Researching The HOA
Just like you would check the property, you should take time to look at the HOA. Ask for recent budgets, financials, minutes from meetings, reserve studies, insurance info & any special levies.
The minutes can show you any regular issues. Check if they have mentioned any leaks, arguments, insurance claims, security issues, maintenance issues or disagreement between the board.
Ask if they are involved in any legal cases. This doesn’t necessarily mean it’s a bad investment but if they have major legal issues this could cause issues.
Find out what insurance they have. They will likely have insurance for the communal areas but you will still need to have your own insurance for your belongings, internal improvements, liability & more.
If possible talk to current residents. Ask if they have good communication with the board, are maintenance requests dealt with quickly and are the rules fair. Often residents will give you practical advice that isn’t in the documentation.
Your Estate Agent, Lender, Solicitor & Title Company may be able to help you get the documentation. In some areas you will have a limited amount of time to look through the HOA documentation. If it’s not to your liking you may be able to pull out of the purchase. Make sure you know the deadline.
Questions To Ask
Ask the following questions;
How much are the current fees? When are they paid?
What do they include? What facilities/services?
How often have they increased?
Are there any special levies?
How big is their reserve fund?
What are the most important rules?
Are there any rules on pets? Rentals? Home businesses? Renovations?
What happens if you breach any rules? Are there any fines?
Are they involved in any legal cases?
What insurance do they have?
Who manages the community?
How can homeowners get involved in meetings? Become part of the board?
This can help you decide whether the HOA will be too costly or if it’s a good option.
Should I Choose An HOA?
An HOA may be a good option if you enjoy having communal facilities, everything being well maintained, predictable rules and a community with clear rules. If you don’t want to worry about looking after the external areas or arguing with your neighbours about common issues then this can be a great option.
However, if you want full control over your property then an HOA may not be for you. If you plan on making lots of renovations, have lots of pets, rent your property often or don’t like rules then make sure to check the rules very carefully.
Try not to think of HOAs as being good or bad. They can vary greatly depending on the HOA. Two communities in the same area can have very different fees, management style, financial situation & enforcement.
Conclusion
Understanding an HOA can help you avoid any unexpected costs. Make sure to look through the documentation, check their financials, ask about special levies and know how the rules may affect your lifestyle.
A well run HOA can help increase your property value, communal facilities and make life easier. However, if it’s not well run it could cause financial stress.
Make sure you know what you’re getting into before signing on the dotted line. Knowing this will help you make an informed decision and find a property that suits your budget & lifestyle.
