As someone who is a few years off from being able to buy a home, I would consider myself to be a part of the Zillow club.™ I fall into the category of folks who browse Zillow every day, not because we’re shopping, but because we like to get a better idea of how the market is shaping up and what we’re up against!
Whether you’re browsing homes like me, or actively shopping for your new home, chances are you’ve come across properties with HOAs. While they often boast exciting amenities, the fees can be significant, leaving you wondering if they are worth the hype. Today we’re going to break down the pros and cons of HOAs, and how to decide whether or not buying a property overseen by an HOA is right for you.
What is an HOA?
An HOA, or a Homeowners Association, is an entity that creates and enforces rules for a living community. Essentially, HOAs govern the homes, condos or townhomes within a determined area. They also typically provide services and amenities such as maintenance, landscaping, gym facilities, playgrounds, or pools, and charge owners HOA fees to cover the cost of maintaining them.
If you purchase a home within an HOA’s jurisdiction, you will have to pay their fees. Unfortunately, if you find your dream home, you can’t just not use their amenities and opt out of the HOA fees. Participation is mandatory.
Despite the fees and restrictions set in place by HOAs, they remain increasingly popular. In fact, 60% of recently built single-family homes have HOAs, and they house 1 in 5 Americans. This means you’re more than likely to encounter them as you search for your new home. So it’s crucial to know what you’re getting into.
What is the purpose of an HOA?
The purpose of an HOA is generally to ensure that your neighborhood continues to be a nice place to live. This in turn protects the property values within that area. They do this by enforcing rules regarding home upkeep and resident behavior that you must abide by.
For example, to keep a community looking nice, they may impose restrictions about how often the grass must be cut, or what colors are allowed to paint the exterior of homes. While these can make HOA areas nicer places to live, some people find the rules annoying and restrictive.
The Pros and Cons of HOAs
Depending on your lifestyle, having an HOA may help simplify your life, decrease stress, and allow you to get the most out of your new community. However, if you value having the freedom to do whatever you want with your home, you may find that some of the rules feel arbitrary. Here are a few pros and cons to consider before purchasing a property governed by an HOA.
The pros of HOAs
Since 1 in 5 Americans live in an HOA community, it’s no surprise they have some major benefits that many consider worth the associated fees. Here are a few things that some people love about HOAs.
Higher community standards
Nobody wants to live in a run-down neighborhood. While HOA rules can feel overly restrictive, they’re designed to ensure that your neighborhood remains a desirable place to live.
They enforce rules about maintaining the appearance of your home, when you’re allowed to make noise, and where/what vehicles you can park, etc to ensure that the residential experience is as enjoyable as possible for everyone involved.
Having an HOA can even help to maintain your property values as it prevents neighborhood decline. This means you won’t have to worry about your neighbors’ dilapidated home driving down the value of your home. And, it seems to work. On average, homes that are part of an HOA sold for at least 4% more than similar homes not governed by an HOA.
Amenities
One of the main reasons that HOAs charge fees is because they offer shared amenities that their members can take advantage of. Imagine a gym, tennis courts, a pool, a clubhouse, and community events all within walking distance of your front steps. For people using these kinds of amenities regularly, paying HOA fees could be very well worth it!
While HOA benefits can vary depending on the location or subdivision, here are some amenities that many HOAs offer:
- Fitness Center
- Beach access
- Playgrounds/parks
- Tennis courts
- Clubhouses/community centers
- Community gardens
However, remember that you’ll pay for these amenities whether you use them or not. It’s important to avoid spending optimistically when it comes to purchasing a home with an HOA fee. If you’re the kind of person who goes to the gym once a year, don’t let a few fancy treadmills sway your decision-making.
If you’re unlikely to take advantage of these extra amenities, you might find that it’s worth it to buy a home elsewhere and seek out only the amenities you would regularly use elsewhere. For example, getting a gym membership for $40 a month might be a better option than paying $150 a month for a gym plus playgrounds, pools, and tennis courts you’re never going to use.
Conflict resolution
Unless you live under a rock or in the middle of the mountains, chances are your neighbors have gotten on your nerves before. Whether it’s blasting heavy metal at ungodly hours, stinking up the hallways with their “cooking,” or even just talking incessantly about the weather, sometimes even the nicest folks can get under our skin.
Another one of the benefits of HOAs is that they can assist you in conflict resolution. Instead of having to call your neighbor to complain about the super loud parties they’ve been throwing, your HOA can do the dirty work for you, saving you face and awkward vibes going forward.
Sense of community
Some folks might enjoy being part of an HOA because it gives them a sense of community. Because you’re held to a high standard of maintaining your home, you might take more pride in your neighborhood.
Even better, some HOAs host community-building events. For example, if they have a clubhouse, they might hold parties, events, and even classes for members. This could be a great way to get to know your neighbors and make friends who live close by.
Maintenance
Some people are handy, and others are not (🙋♀️). If the idea of handling repairs, doing your own landscaping, and shoveling 10 inches of snow off your driveway sends shivers down your spine, then an HOA might be a good fit.
While each HOA differs, many HOAs will help with exterior upkeep. This means the fees you pay might cover lawn care, landscaping, and pest control. If you live in a condo with an HOA, they will often be responsible for repairs in shared areas like hallways and amenity spaces. They might even be responsible for repairing any plumbing, electrical, and gas line issues. Essentially if it’s inside the walls, your HOA could be responsible for fixing it, leaving you with more time and mental space to live your life.
In addition to handling maintenance and repairs outside of your specific unit, some HOAs even provide services like trash pickup, cable, or other utilities! Plus, since they may have insurance to cover shared spaces, your own insurance costs might be lower.
The cons of HOAs
Even though there are some upsides to having an HOA, it’s not all sunshine and rainbows. HOAs can come with some pretty serious drawbacks, that for some people can affect their ability to enjoy the place they live. Here are a few downsides of HOAs to look out for before you buy your home.
HOA Fees
HOA fees are mandatory, and they can be expensive. Unfortunately, you can’t opt out of them.
Whether or not the fees will be worth it depends on how high they are, and what they offer in exchange. HOA fees can range from a few hundred dollars to thousands, depending on the location. So it’s crucial to decipher how much value you will get out of the services and amenities provided. The HOA decision is full of tradeoffs!
It’s also important to understand that your fees can increase over time. If HOA fees put you at the top of your housing budget, it might be a good idea to look elsewhere. Those fees will go up over time as maintenance costs increase.
Even if these fees are only a few hundred dollars a month, having to pay them could potentially impact your ability to save for other important goals, like retirement. For example, if you invested your $400 HOA fee each month, it could be worth over $563,000 in 30 years. That’s not chump change!
Special Assessment Fees
In addition to mandatory monthly fees, HOAs can also spring large, one-time surprise fees, called assessments on you without warning. This happens when unexpected expenses arise, and the HOA does not have the money on hand to cover them.
Assessments can be super expensive! And sometimes nobody can predict them coming, even if the HOA has been very diligent.
For example, let’s say extreme hot weather and a slowly shifting foundation has created big cracks in some of the roads and pavement in your community. Suddenly, a city inspector rules that these roads are unsafe, and imposes a mandatory fix within 90 days, paid for by the HOA. The bill comes in at a whopping $260,000 to repair and repave the roads. And since the HOA only has 50 homes in that subdivision, each member is hit up for a $5,200 payment.
Although assessments are typically a last resort, they’re way more common than you might think. Poorly run HOAs don’t do the best job of keeping emergency reserves or building sinking funds, so the members suffer when those unexpected expenses pop up. But like the example above, they can happen within well run HOAs too when disaster strikes.
Sometimes, the HOA might be able to split up large assessment fees for owners to pay over time. In any case, surprise fees are always painful. So it’s important to always keep your own emergency reserves, and never assume the HOA has an unlimited war chest.
Restrictions
Perhaps the biggest reason some folks steer clear of HOAs is because they can impose rules, covenants and restrictions that are overbearing.
HOAs are governed by a set of regulations known as bylaws. These bylaws outline the rules and responsibilities for homeowners residing within the community. They can be as simple as limiting what colors you can paint your home to keep the street looking cohesive, or as in-depth as to how much carpeting you must have in your home. If you dream of having the freedom to renovate and decorate the exterior of your home at your whim, it might be a good idea to avoid becoming a part of an HOA.
Plus, some of these restrictions go further than just how your home looks. Some HOAs will limit or eliminate the ability to rent out your home even though you own the property. That can be frustrating. This means that house hacking will be out of the question with this property, so you had better make sure those rules aren’t a dealbreaker!
Even further, some HOAs go as far as to limit what kinds of businesses you can run from your home. They could even impede your ability to launch a side hustle or start a business.
HOA Fines
So what’s to stop you from going rogue and just ignoring what the HOA tells you to do? Fines. And hefty ones at that.
Unfortunately, there can be some serious consequences for breaking the rules of an HOA. If you refuse to abide by their restrictions, they can slap you with fines, and potentially sue you for breaching your contract with them. They can even go as far as to place a lien on your home. So, buying a home with an HOA and choosing to ignore them isn’t really an option.
Risk of Foreclosure
What happens when you can no longer afford to pay your HOA fees? Nothing good…
Being late on a payment can result in late fees, or being charged interest. If you fail to pay your HOA for an extended time, they can take legal action. They can sue you for your unpaid dues, or your missed payments could go to collections. In many states, HOAs can even foreclose on your home if you fall behind on your HOA fees. This is why it’s so important to make sure that you can afford your HOA fees before getting involved in one.
HOAs are Run by Volunteers
Generally, elected HOA board members are volunteers who live within the community. This can be a good thing because it means they’re typically people who are passionate about making that community a great place to live.
But, sometimes they are too passionate.
It might sound cool to be on the board of an HOA and help make decisions about how the community is kept, but the truth is many volunteers aren’t experienced in finances or business. Sometimes getting voted in is a popularity contest, not about what’s best for representing or managing the community. A well-oiled HOA board can make your neighborhood an excellent place to live, while a poorly run HOA can be tough to stomach.
Tips Before Buying an HOA Property
OK, so you’ve weighed the pros and cons of HOAs and are considering purchasing a property. Before you sign any contracts, here are a few things to consider:
Read ALL the HOA Governing Documents
Yes, these will be long, boring documents, mostly written in legal jargon. But, it’s super important to know all the ins and outs of what you’re getting into before you buy!
Pay special attention to owner rules and regulations, and determine whether these are conditions you can live with long term. Getting a copy of all these docs is pretty easy – just ask your realtor, or contact the HOA directly.
Assess the HOA Financials
Remember that a healthy HOA will have ample cash reserves, and be spending their funds wisely to keep the neighborhood nice. Poorly run HOAs have a lot of delinquency and low cash reserves. There’s a higher likelihood of getting hit with surprise fees and poor maintenance if the HOA doesn’t have good finances.
If you can’t access specific financial documents, ask direct questions about how the HOA money is handled. You might even be able to speak to the financial director on the HOA board.
Understand the Fees
While HOA fees typically cover maintenance costs for common areas, they might not cover everything. Each HOA is set up differently. So you’ll want to know exactly what your fees cover (and what they don’t cover) before buying a property.
Maintenance and repairs inside a home are usually the responsibility of the homeowner. So is additional home insurance for disasters inside the home. Shared utilities like cable, phone, internet or even power may or may not be included in the HOA fee. It’s always best to check and never make assumptions!
Talk to the Neighbors
Rubbing shoulders with existing tenants who have lived there for a while is a great way to get a feel for what it would be like living in the community. Realtors who know the property well have good information, but actual owners have the best on-the-ground experience to share.
Consider Applying to the HOA Board
This is more of a tip for existing homeowners for already own a property with an HOA… If you don’t like the way things are being run within an HOA, you can apply to be a board member and be part of the change you want to see.
Just keep in mind, serving on a HOA board can be very time consuming – like a full time job! Plus, there’s a lot of politics to deal with, and potential sticky situations you may get into with neighbors. But if you can deal with that, and you have the skills to improve the HOA management, get involved. It might very well be worth the effort to repair or enhance the community.
Build Your Own Emergency Reserves
Remember that HOA’s can increase dues, as well as impose special assessments whenever they need to pay for unexpected projects. So building and keeping your own emergency fund is really important, to make sure surprise costs don’t derail your other financial goals. Homeownership, within an HOA or not, always requires an emergency fund!
The Bottom Line:
Buyers should carefully evaluate the pros and cons before purchasing a property governed by a homeowners association (HOA). The decision will boil down to homeownership goals and personal values. If you want less responsibility, more amenities, and are okay with having less control over your property, an HOA could work out incredibly well for you. Just make sure you can afford the fees without putting strain on your budget.
However, if you value having the freedom to maintain your home exactly the way you want it (hot pink exterior paint for the win!), are hoping to house hack, or run a business from your home, it’s probably best to avoid HOAs. At least make sure you know the rules before you pounce.
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