What is an HOA? The Basics Every Homebuyer Should Know

Different types of HOAs

Depending on the type of property you own, there are different scopes of responsibility for an HOA. HOAs fall into three subtypes:

Condominiums

An HOA for a condo owns the building where your condo is located and all of the exterior spaces outside of your condo.

Condo HOAs tend to have strict regulations, and you’ll generally have to get approval for anything in your condo that affects the building visually, such as window treatments, door color, and external decorations. And, of course, if you’re planning to do any sort of construction on your condo, you will need HOA approval.

Townhomes

Townhomes, which are single-family residences with at least two floors, share at least one of their walls with another residence in the division. Generally, you’ll see these homes in rows of three or four.

Townhome HOAs function similarly to condo HOAs, but they are usually more flexible because you own the outside of your home as well as the inside. These HOAs typically have rules about what you can do with the outside of your home, like landscaping, but will leave you alone when it comes to holiday decorations or window treatments.

Single-family homes

HOAs increasingly do exist for some traditional single-family homes, and these homes are usually in multi-unit or planned unit developments (PUDs).

The homes in these neighborhoods are all built in the same architectural style, so the neighborhood’s aesthetic has a cohesive feel. These HOAs are typically the most flexible, but they do have restrictions so that the neighborhood maintains its uniform look.

Why buy into an HOA?

While this post aims to answer the question, “What is an HOA?” the better question you may be asking is, “Why buy into an HOA?”

HOAs have many benefits, including keeping neighborhoods looking nice, maintaining and increasing property values, and providing consistency to the lifestyle you expected when you purchased the home. If you purchase a home with a community pool and clubhouse, for instance, the HOA maintains that pool and clubhouse and keeps it updated and functioning for the whole neighborhood.

The HOA can also prevent your neighbor from installing a chain-link fence when the whole neighborhood has wood fencing. Basically, they deal with the overarching issues of the neighborhood so the residents don’t have to fight among themselves.

How to review an HOA as a buyer

When looking at a property that has an HOA, the first thing you should consider is what’s included. Amenities, such as access to a pool, gym, golf course, or lounge, are often included with HOA dues, and part of the funds are allocated toward the upkeep of those facilities.

Do some research to educate yourself on what your prospective HOA does and does not cover.

CC&Rs (covenants, conditions, and restrictions)

Now you might be asking yourself, “What the heck is CC&R?” This acronym stands for covenants, conditions, and restrictions — basically, the rules of the road for your HOA. While HOAs are in charge of amenities, they also set rules for what residents can’t do — and in some cases, there are a lot of restrictions.

“If I have a homebuyer who wants to be able to work on their car on weekends, or they own a small business and have a business vehicle with the company logo on it, or if they have people who come over all the time, I recommend that we really, really pay attention to HOAs, because most of them will not allow those things,” says Kim Trouten, a top-selling Charlotte area real estate agent.

Storing boats or RVs on your property is also often restricted in HOA guidelines. If you’re looking at a condo, HOAs have a lot of restrictions about not only renovations, but external decor and even window dressings.

Pets are another area the HOA can govern. “I worked with a couple that takes in foster dogs, and they really wanted to create a fenced section of their yard to put puppies,” says Trouten, “And I told them: ‘We’ll need to make sure the HOA will allow that.’” Fences, as well as the use of a home for fostering animals, are both things HOAs can restrict.

With the recent popularity of vacation rental sites such as Airbnb, VRBO, and HomeAway, HOAs are also increasingly placing restrictions on the use of properties as rentals. While HOAs in some popular vacation spots have more flexible rules for rentals, if you plan on renting out a spare room in your home to pick up some extra cash, your HOA could put a stop to that.

“I own an investment property in a community with a very strict HOA, and they will only allow a rental of six months or longer,” comments Trouten. “They’re preventing me from running it as an Airbnb.”

Fees and finances

HOA fees can vary greatly from neighborhood to neighborhood, and they also depend on geography. These fees are assessed either monthly, quarterly, or annually. The average monthly HOA fee in the U.S. is $390, or about $4,700 annually, but a general rule of thumb is: the more amenities you have available, the higher the HOA fees. In some communities, the HOA will charge an upfront fee for the HOA reserve, an emergency fund that the HOA keeps in case something large needs to be repaired.

Keep in mind that if you’re looking at a home with an HOA, lenders will include the HOA fees in their assessment of how much they think you can afford. Make sure you include the fees in your calculation of your debt-to-income and potential mortgage payment.

Dispute history

If you’ve ever talked to someone with an HOA, you’ve probably heard a story about a person in their neighborhood fighting with the HOA. HOAs are run by a board of residents, and personalities do not always mesh well. If you do some research and find that your potential HOA has a long history of fighting with residents, that’s something to take into consideration as a buyer.

Does the HOA tangle with residents every time they want to put up holiday decorations? Are they unreasonable? Make sure to research the HOA thoroughly before making your decision to purchase the property. Follow the steps below to research your prospective HOA:

1. Set up a PACER account and search for the HOA’s official name. It’s not necessary to pay for printouts of any cases that involve the HOA, but if you see that the HOA has been sued several times, that could be an indication of a big problem.

2. Do a court records search for your county or city. These are usually sites with a .gov name, and you can search for cases by names of plaintiffs or defendants (in this case, the HOA’s official name) and see the details for each case, if there are any.

3. Search newspaper records in your area. If a case with an HOA was big enough to make a newspaper, that’s worth some consideration and further research.

4. Ask friends or colleagues if they know anyone in the HOA who will speak candidly with you. Try to stay away from talking to someone on the HOA board, as they might not be as open as an ordinary resident.

5. Talk to the seller. You may be able to get a read on what the HOA is like simply from their reaction to the question.

Rulebreakers

So what if someone doesn’t feel like following the HOA rules? The HOA hits where it hurts — monetarily. If someone breaks the rules or doesn’t pay their dues, the HOA fines them, and can even place a lien on their property.

Should you buy a house with an HOA? It depends on your situation; but as long as you’ve done your research, you can feel like you’re making the best decision for your household.

Header Image Source: (M I N E I A M A R T I N S/ Pexels)