What is an HOA?
If you purchase a condominium, townhouse, or property in a gated community or subdivision (anything considered a PUD, or a “Planned Unit Development”), you will likely be obligated to join that community’s Homeowners’ Association (HOA).
HOAs help protect property values and keep common areas/interests functioning properly. HOAs collect dues for the upkeep and management of common areas/interests such as insurance, security, landscaping, parks, parking lots, pools, security gates, pest control, etc. It’s important to note that “common areas”, at least for condominiums, often include anything not within the walls of your own unit, so HOA fees also cover the costs of maintaining (or replacing) roofs, exterior walls, stairwells, etc.
HOAs also set forth rules which may prohibit certain actions or activities such as painting your house neon green (thus lowering the value of not only your home, but the homes nearby); having a big, loud dog; parking in certain locations; or starting a garage band and playing at midnight. Typically the HOA can levy fines against individuals who break the rules and in some cases can even foreclose on your home.
Benefits of an HOA
The major benefit is from economies of scale. Because everyone is pitching in and the HOAs are buying these services in bulk, 50+ HOA members can negotiate better rates (per unit) than the individual homeowner. The overall cost is usually much cheaper for everyone involved. For example, the insurance that you would normally have to pay to protect your home from flooding, fires, or natural disasters –which normally cost you $40 – now costs $10 through the HOA.
These are typically things that a homeowner would naturally have to pay for anyway, so it is a major benefit to not only pay a bit less, but not have to worry about securing these services for yourself. (I.e. you don’t have to set-up trash pickup: it’s already available through the HOA.)
What to look for
It is important to read through the rules of the HOA (called the CC&Rs) to understand its responsibilities and what actions they are able to take in fulfilling those. Finding an HOA that lines up with your values is a must. Is garbage pickup included? What are the smoking restrictions? Are pets allowed (if you’re a big dog person, it might not be the best idea to jump into a community that forbids pet ownership)? What kind of insurance does the HOA have against flooding, fires, or other natural disasters? Is the HOA managed by professionals or by a few members? And finally, how much are the fees, and have they risen substantially in the last few years (and if so, why did they rise)?
Research what kind of reserves the HOA keeps. What sort of things do they spend it on: new roofs for homes or carnivals? Have they saved enough for upcoming maintenance or are they going to have to raise the dues? Try to find out if the HOA is spending their reserves on things that are truly important to you or things that you don’t really care about.
Finding out these key pieces of information can be a huge breath of relief – or a warning signal to stay away. Think seriously about whether or not you want to buy a home with the current HOA.
Conclusion:
All-in-all the benefits outweigh the costs. If you have a good HOA you can rest easy knowing that the neighborhood you bought property in will not only have its property value protected, but that the standards are clearly outlined for you to see up front. HOAs can save you a lot of time, money, and stress if managed properly.
