Updated Sept. 2016 – This updates our 2009 article on Home Owner Associations, the introductory piece of a 3 part series about these important, but controversial organizations (often called Community Associations). The 2nd in the series features an insightful interview with Joe West, CEO of the Community Associations Network about the issues buyers should know about Home Owners Associations before they sign on the dotted line. Part 3 focuses on the transition from developer-run HOA to one controlled by the HOA. There are even more HOA articles listed at the bottom.
Here at Topretirements we see plenty of concerns expressed about Home Owners Associations. Usually the commenters say that they would never live in an HOA community, or that the fees are too high. While there are certainly problems at some HOAs, on the whole we believe they are necessary – if you want to live in a community that shares amenities and community assets like roads and infrastructure. Here in Part 1 we will try to lay out some of the broader issues that you should be aware of when moving into a community governed by a Home Owners Association.
If you have been living in the suburbs in a single family house for the last 30-some years, you might not be prepared for the authority that your new Home Owners Associations has in many areas you take for granted. To name just a few such rules:
– Weight limits, number of, breed, and type of pets restrictions
– Use of common areas like pools, picnic areas, and trails – including when, how, and who can use them
– Renters must rent for at least (1, 3, ?) months (or no renting at all)
– Renters cannot use certain facilities on same terms as owners
– Parking restrictions apply by location or type of vehicle
– Guest restrictions
– Minimum age of residents (in 55+ communities one member of household usually must be 55 or older, children sometimes not permitted as residents)
– Dress code in public areas (joggers must wear shirts, cover-ups in common areas, etc.) or other types of restrictions.
We believe they are an important component to successfully living in a 55+, active adult, or condominium development that has shared facilities. These organizations are essential to the effective operation of any community: they set the rules, enforce compliance, manage the assets, and look out for the financial and legal well being of their communities. The people that volunteer for these boards tend to be unsung heroes – they work hard and they spend a lot of time unraveling really thorny questions. Far too often their only reward is to be interrupted and criticized everywhere they go by someone whose narrow self-interest was affected by a policy or rule.
Some folks have a constitutional inability to live around rules. Those people might want to think twice before moving into a community with an HOA, because the association is going to have a lot to say about what goes on (or doesn’t go on) in their new community. As extreme examples, if they want to have junk cars or funny lawn ornaments in their yards, paint their homes funny colors, or have a pen full of barking dogs, an organization with an HOA is a bad fit.
If you do buy into an HOA governed community
Regardless of whether you go into your new community positively or negatively disposed towards HOA’s, here are some considerations you should keep in mind.
1. Due diligence. Before you buy your new home find out as much as you can about your HOA. Read the rules, check out the minutes, and understand the financial condition of the HOA. You have a right to see all this information, and this step is crucially important so you are not surprised later on.
2. Be aware of the law. Some states, notably Florida and California, have extensive laws regulating Home Owners Associations, while other states have almost no law on the subject. You should be sure that your association is following both the regulations and best practice. For example, you generally have a right to prompt and accurate minutes of official HOA meetings. Buyers have a right to examine financial documents.
3. Learn about the problems your community might be facing. Some issues to be concerned about: foreclosures or delinquent dues; excessive litigation with neighbors, former owners, or tenants; overdue major maintenance items (and funding thereof), unexpected assessments.
4. Who are the people on the board? It is always wise to meet with at least some of the current board members. Ask them about the big issues facing the community and get a sense for their qualifications and ability to handle them. The quality and expertise of the board is extremely important if they are to handle the significant issues they face.
5. How effective and how prepared is the HOA for handling troublesome issues? Until you move into a community you probably aren’t aware of all of the issues that need to be managed – it can be almost as complex as running a small town or a very large business. Some of these include:
– Major maintenance sinking funds (money put aside for future major projects like paving, roofs, elevators)
– Annual fee increases, assessments, and budgets. What is the history of increases? Look for an organization with steady, modest increases and an absence of unexpected assessments. Erratic fees and unpleasant surprises are usually a sign of ineffective management
– Insurance. Is the HOA adequately covered for legal and natural disasters? Are they paying too much or have the wrong policies in force?
– Pets. Few issues cause more trouble between sometimes oblivious owners and touchy non-owners. Sizes, breeds, numbers, access to facilities – the potential areas for conflict are legion
– Renters. How long (or how briefly) can they stay, do they have equal access to facilities?
– Visitors and family members. What are the rules about visitors, especially younger people in a 55+ age restricted community?
– Facilities. Go to just about any facility (swimming pool, exercise room, etc.) within an active adult community and look for the list of rules. Dollars to donuts the list of potential infractions will be long and onerous. That’s because someone, somewhere, was inconsiderate. Once someone annoys the wrong person, a rule will come out to try to control that issue.
– Water leaks. In many communities water leaks, particularly in unoccupied units, are a major issue. Are there policies and procedures for prevention and remediation?
– Environmental problems. Mold, asbestos, chinese dry wall, leaking oil tanks, natural disasters – all of these issues must be handled intelligently.
– Personnel. An HOA usually has employees – sometimes a facilities or property manager, a business manager, security guards, maintenance personnel, clubhouse and possibly restaurant workers. Does the HOA hire effective managers and monitor and review their performance?
– Rule making history and enforcement. An effective HOA has to be a bit like King Solomon. They must have specific and general rules in place to cover most contingencies, and be prepared to address problems that come up unexpectedly. Look out for long lists of petty rules that try to cover every narrow issue that ever emerged. On the other hand when truly troubling issues come up, like one we know of where a disturbed adult child continually harassed his neighbors, is the board up to the task of removing the source of trouble?
6. New communities often have a big challenge. A new development generally relies on the developer to perform the HOA management role. Then as the the community sells out the HOA is formed, although occasionally the developer maintains the management role over the long term. When the HOA is formed there are important matters to be addressed, like buying the amenities from the owner and setting critical policies and long term financial plans. Unfortunately this happens when the board is relatively inexperienced. Truly effective board members take a class or other study to learn how to be more effective. Relations with the developer can be tricky, particularly as the community sells out and the developer turns over assets and/or management. (See more on this in Part 3 of this series).
7. Costs. Many people complain about high HOA fees. You usually get what you pay for, although in a few communities perhaps they are too high vs. services provided. Regarding HOA fees, it is always important to know what is included. The link below gives average HOA fees for a $250,000 home in The Villages, which are slightly above $1000. However that includes $145 for amenities, plus real estate taxes, cable, garbage, gas/electric, water, development fees, telephone, and insurance. Most of the items in this HOA Fee Schedule have to be paid one way or the other – if you live in an HOA or not.
8. Be prepared to serve. Like we said earlier, there is no great reward for serving on a volunteer HOA board. But somebody has to do it to ensure the success of the community. Particularly if you have management, legal, or building related skills; and especially if you have common sense, volunteer to take your turn on the board. Someone has to run the place; you might as well know the person doing the job!
For further Reference:
Part 2: What You Should Know about Your New Home Owners Association
Part 3: What You Should Know When the Association Takes Over from the Developer
Home Owners Associations: Friend or Foe
Wikipedia article on Home Owners Associations (very good)
Community Associations Network
Community Associations Initiative