There are many things that you must consider before purchasing a home. Where do you want to live? Is the home in a good school district? Will you be close to recreational activities or business districts? How much does the home cost? How many bedrooms do you need? The list of questions about a new home seems endless. A real estate agent can help you obtain the answers to those questions.
One question that you must make sure is on your list is whether the home is subject to a Homeowners Association (HOA). For some buyers, an HOA is a deal breaker because they have had bad experiences with HOAs in the past. For other buyers, they prefer an HOA to deal with certain issues, or they have no idea what an HOA does for a community.
Below are six things you must know about a Homeowners Association before you purchase a home.
What is a Homeowners Association?
A homeowners’ association (HOA) is an organization commonly formed in a planned community, such as a housing subdivision, condominium complex, or other planned community development (PUD). The Association enforces rules and restrictions, and it is also responsible for maintaining the public areas of the community. The HOA is a governing body formed by the community’s Restrictive Covenants or the Covenants, Conditions & Restrictions (CC&Rs).
A community’s Restrictive Covenants (restrictions) set forth rules for the community, in addition to providing for an HOA to enforce the rules and restrictions adopted by the community. Restrictions are typically established by the developer before any homes are sold. Each homeowner becomes subject to and is bound by the rules and covenants contained in the restrictions when he or she purchases a home in the community.
Homeowners can serve on the HOA board and campaign for changes to the restrictions if needed. In some HOAs, homeowner’s can volunteer to serve on the HOA board while other communities have elections. The restrictions or an ancillary document governing the HOA typically sets forth steps to resolve disputes among the board and homeowners. The document also sets forth the duties and responsibilities of the board.
Homeowners Association Management
There are two different management styles for an HOA — an overmanaged association and an undermanaged association. If you are a stickler for the rules and you want your neighbors to abide by every rule in the restrictions, you want an overmanaged association. You want a manager and board that aggressively enforce the rules. However, if you want to rent your home or you want to plant a cherry tree in the backyard, neither of which are allowed, an undermanaged association with a manager and board who only enforce “major” issues is perfect for you.
The restrictions or CC&Rs should set forth how the board is elected. In some cases, homeowners volunteer, but this is not always the case. In many communities, a private outside company manages the HOA. There are pros and cons to both situations. If a private company manages the HOA, investigate the company before you buy the home. You want to make sure there are no problems or complaints against the company that have not been resolved. Frequent complaints can be an issue too.
However, a board consisting of homeowners has its problems too. In some cases, homeowners take turns serving on the board. If you do not like to be involved in governing bodies, this might not be the best situation for you. Furthermore, petty politics and power trips can create unnecessary drama that makes it very difficult to make any meaningful progress in managing the community. If the HOA is comprised of close friends, this could be an issue if the “gang” does not approve of something. It could be difficult to get something passed if you are not best friends with the board members.
Before buying a home, ask about past and current conflicts in the HOA. How are conflicts resolved? What is the appeals process? Has the HOA every filed a lawsuit against anyone? If so, how was the lawsuit resolved? Your real estate agent can be a powerful source for obtaining information about the HOA, including copies of the minutes from past meetings. It is better to take the time now to research these issues than to discover after you have moved in that the HOA is a nightmare.
Common Homeowners Association Rules
The developers of the community set forth the initial restrictions and rules for the HOA and the community. However, those conditions may be changed pursuant to the HOA. In some cases, homeowners must wait several years before they are permitted to make certain changes if the developer places a limitation and expiration clause in the restrictions.
Common rules that an HOA might enforce as part of the restrictions include:
- Deed Restrictions — Restrictions placed upon properties within the community for use restrictions, such as single residential homes. Other deed restrictions might include architectural control, prohibitions for boats and junk cars, lighting rules, and trash collection. The HOA oversees enforcing these rules.
- Home Maintenance — Strict set of instructions and requirements regarding how each property must be maintained. For example, grass must not exceed a certain height, driveways must be cleaned periodically, and home exteriors cannot show wear and tear. Some restrictions may dictate the color you can use to paint the exterior of your home and the type of mailbox you can install. The type and height of fences and the type of window coverings are also common restrictions.
- HOA Fees — Collect maintenance fees established in the restrictions or by the HOA itself.
- Landscaping — The restrictions may set rules for landscaping throughout the community. The HOA maintains landscaping in the public areas and enforces individual landscaping rules for the community.
- Recreational Facilities — Many communities have pools, tennis courts, trails, and other recreational facilities for homeowners to enjoy. The HOA has the responsibility of maintaining the recreational facilities, including general maintenance and repairs. In addition, the HOA has the duty of setting rules for the use of the recreational facilities and enforcing those rules.
- Security — An HOA is also in charge of the security of the community. In some communities, security might include a gated entrance or a nighttime security guard. Lighting is another element of security. A community should have adequate lighting to deter crime.
- Street Maintenance — Homeowners do not want to dodge potholes or other problems. The HOA is also charged with maintaining the streets throughout the community and enforcing rules about parking set forth in the restrictions.
Other rules and restrictions might be enacted and enforced by the HOA. Examples might include, number of pets, type of pets, parking on streets, erection of flagpoles or basketball hoops, or the storage of RVs and boats. If you are interested in a house, talk to your real estate agent about the Restrictive Covenants for the neighborhood, so you are not surprised after closing.
Can a Homeowners Association Fine You?
Yes, the HOA can fine you if such action is allowed in the Restrictive Covenants (restrictions) for the community. Most restrictions set forth the process by which the HOA can impose a fine on a homeowner. In many cases, the fines are for violations of the terms of the community’s restrictions.
Examples include fines for failing to maintain the home, planting landscaping that is not permitted, having too many animals or animals that are not permitted, parking on the street, installing an illegal flagpole, or parking an RV in the yard.
Before purchasing a home, you should review the restrictions and any ancillary documents that limit your freedom to do whatever you desire for your property and inside your home. Your real estate agent or the closing attorney can provide you with a copy of the restrictions for the neighborhood. As mentioned above, it is best to consult with your real estate agent about any potential restrictions for a home you are interested in purchasing before you sign a purchase agreement.
Average Homeowners Association Fees or Dues
The average Homeowners Association fees vary from community to community. The fees are used to maintain public areas, including parking garages, roofing (condominiums and townhomes), clubhouses, sidewalks, recreational facilities, swimming pools, fitness rooms, security, and other areas of common interest to the homeowners. The HOA fees allow the community to maintain a quality of life for the residents of the community. Therefore, the fees in a community that has many luxury amenities will be higher than a community that does not have many amenities.
The average HOA fees are typically $200 to $400 per year; however, this fee can be substantially higher depending on where you live and the value of your home. You need to make sure that you understand the penalties for non-payment of fees. Some HOA questions that you need to ask before purchasing a home include:
- How are HOA fees calculated and increased?
- How often to increases occur in HOA fees? If there is not a set schedule for increases, what has been the average based on past increases?
- What is the amount of the HOA’s reserve fund (a fund established for emergency repairs or large-scale maintenance or renovation projects)? Has a financial expert been retained to conduct a “reserve study” to determine if the HOA is holding too much money in reserves?
- Can you obtain a record of the HOA fees paid for the past 10 years and a record of special assessments that have been charged in the past 10 years? A special assessment is a fee to cover a specific repair or project. Assessments can total hundreds or thousands of dollars. In many cases, a special assessment is many times the regular month HOA fee.
- Is there a separate amount for monthly dues? If so, what is the amount of monthly dues and what services does that monthly amount cover (i.e. garbage pickup, pool membership, cable, etc.).
One thing you must be clear about before purchasing the home is whether the HOA can file a lien against your home for unpaid HOA fees and dues. Most HOAs have the right to file a lien against the home for unpaid fees and dues. If so, a recorded lien could prevent you from selling your home or refinancing your home without paying the lien in full, including interest and other fees.
In addition, if your home is foreclosed, the HOA fees and dues accrued through the date of the foreclosure sale may remain your debt even though you no longer own the home. This is an important question to have answered before you purchase a home. You never want to think about losing your home, but in case you do, you do not want a debt that could total thousands of dollars following you after you move out of the home.
Can I Be Forced to Join a Homeowners Association?
When you purchase a home that is subject to restrictions and an HOA, you cannot opt out of joining the Association. Purchasing the home automatically binds you to the term and conditions of any restrictions, including the HOA. Before you purchase a home, rental property, or vacation home, you need to consider all factors related to an HOA. For example, what impact with the HOA fees and dues have on your finances in the next five, ten, or 20 years. You need to add in the cost of the HOA fees, dues, and assessments into your monthly mortgage payment to ensure you are not purchasing more house than you can afford.
Furthermore, you need to consider whether you can live with the restrictions and covenants in place. If the rules are too restrictive, you might want to consider looking for another property. Your real estate agent is well-versed in the pros and cons of Homeowner Associations. Discuss HOAs with your real estate agent and work closely with the agent to review the restrictions or CC&Rs for every home you are interested in purchasing. In some cases, the restrictions and the HOA may make an attractive property much less appealing after you dig into the HOA and restrictions.
Call The Wright Choice Team today at 804-307-2589 to tour available homes for sale in the Chesterfield County area.