Your Primer on HOA Fees: What They Cover — And What They Don’t

You’ve probably heard the term “HOA” used in tandem with various real estate listings. But if you’ve never owned a home that has one, do you really know what it means — and what it covers?

First, the basics: The acronym HOA stands for homeowners association, which is the group that makes and enforces all the rules governing certain kinds of properties, such as a condo or subdivision. The monthly dues payable to such organizations can range from almost negligible to downright daunting — a major line item that becomes an important part of homebuying budget consideration. Some HOAs might charge as little as $100 per month, while others might ask homeowners to fork over more than $1,000 every month in addition to the mortgage. And the expenses covered under HOA fees similarly range massively.

Depending on many variables — including your own personality — you might find an HOA and its associated dues either a convenience or a hassle (or some measure of both). The association will offer some perks and handle some hassles, but it also regulates and enforces homeowners under the CC&Rs (covenants, conditions, and restrictions). And an HOA does come with a fee.

But you might not be clear on what those mandatory dues are actually doing for you. So, what do HOA fees cover — and what don’t they? Let our guide, with expert input, serve as your primer on what to expect from HOAs.

What do condo HOA fees cover?

Condo HOAs manage the buildings where the condo units are located, as well as common areas surrounding them — think lobbies, patios, hallways, swimming pools, elevators, and recreational areas. If your building has a gym, that’s the kind of thing you’d expect to see included in, and covered by, your HOA dues. The HOA also covers insurance for these areas, as well as staffing and property management.

Typically, condo HOA fees would also cover utilities, such as lighting. And the fees would cover city services that aren’t necessarily glamorous, but are certainly essential — think trash removal, water, and sewage.

As well, dues would cover services needed to maintain the condo’s expected standards, such as landscaping, gardening, and pest control.

You could also expect your condo HOA to cover major repairs that might be needed, such as a new roof or elevator. Your HOA may have a large cash reserve for such issues — and it may also call upon residents for a special assessment if a major need pops up whose cost exceeds the reserve funds.

What do neighborhood HOA fees cover?

These HOAs maintain neighborhood standards meant to keep home values high. For example, you might expect the organization to make rules surrounding which paint colors or types of landscaping are acceptable. And the HOA might make rules forbidding rental properties.

Neighborhood HOAs also cover common areas, like any parks, recreational facilities, clubhouses, tennis courts, and pools.

HOAs would handle services for a neighborhood, such as staff and property management. They might — but not necessarily — also cover city services like trash or snow removal.

The neighborhood HOA also stockpiles reserve funds.

Kendall Gigax, a top-selling agent in the Toledo, Ohio, area, notes that not all HOAs are active — and that can become an important matter to note when considering a home purchase.

“In my neighborhood, you still can view the rules and see what’s expected, but if somebody decided not to follow them, there’s no legal recourse,” she explains about her inactive association. “They have not kept up, there’s nobody in charge of it.”

(Word to the wise here: If you decide to paint your house purple with yellow polka dots, you may get away with it legally in such a situation, but you may face a lot of social pressure for the decision nevertheless. “It’s not a great way to make friends,” she notes.)

By contrast, she notes that the newer subdivisions in her region have active associations — and at a low cost of about $100 to $250 per year (not per month). But for such a low fee, those HOAs may just give very basic guidelines, and maintain only limited common areas, like the entrances and the signs.

What do your HOA dues not cover?

Your HOA will not cover your own mortgage or your own home; you need your own insurance policy for those.

And it won’t cover the costs associated with keeping up your own property, nor upgrading it. So your subdivision’s clubhouse roof is handled by HOA, but your own roof is your responsibility. Similarly, even if lawn care for common grounds is covered in your HOA dues, you’re still going to have to mow your own lawn. (And in fact, the maximum height of your grass might even be dictated by the HOA and its CC&Rs.)

Your HOA is meant to have a reserve fund that covers financial needs associated with major upgrades that may be necessary — say, a new clubhouse roof or elevator, or another emergency that could come up. But if that fund comes up short, all occupants could get a special assessment — meaning an ask for additional money to cover the costs. Yes, this money is in addition to and apart from your regular HOA dues (and it can be hard to plan for).

Before you make a home purchase, ask to take a look at the HOA’s financial reports. If your HOA doesn’t have a reserve fund — or doesn’t have one that seems it would be adequate for the age or state of the condo, neighborhood, or subdivision — that’s a red flag that a special assessment might likely be necessary at some stage.

Gigax explains that few clients come to her actively seeking an HOA as part of their home search — in fact, she says, it’s quite the opposite.

When clients come to her stipulating that they want to exclude properties with HOAs as part of their home search, she says she asks them to clarify their concerns so she can help debunk any myths. “I ask why, because sometimes there is misconception about what the homeowners association is going to do,” she says.

“Clients may be avoiding houses they might not need to. I make sure they understand the associations — especially if they’re from out of the area.”

And that’s because associations and their common practices and dues vary so widely from region to region.

Among the biggest misconceptions, she explains, is that people, “feel that HOAs are more interested in every little minute detail than they really are. I try to make them understand that the whole reason they’re established is so no crazy stuff goes on — you wouldn’t want your neighbor to pull up their RV on the lawn and leave it there for a month.”

In other words, the shared goal of everyone involved is to keep those property values up as high as possible.

To determine whether an HOA situation will be right — or even viable — for you, make sure you review the homeowners association’s records to examine how they’ve been spending occupants money. If it looks mismanaged, financially imprudent, or otherwise amiss to you, this may be a sign that occupants’ dues are being wasted, and it might be an HOA you want to avoid.

That said, if you like what you see in those documents, you can feel confident that this HOA may serve you and your dues well.

Also ask yourself some personalized questions about whether the HOA is going to suit your individual needs and preferences as an occupant: If you have a pet, you’ll want to know if there are pet restrictions. If there’s a pool and you like to have guests over for swimming — but the HOA forbids that — that’s another sign this place might not be right for you.

In the end, the key is to both make sure you fully understand the organization’s rules and goals — as well as its fee’s inclusions and exclusions — before making a home purchase decision.

Header Image Source: (Mark Winfrey / Shutterstock)