What is a HOA?

You’ve found a home in a great area, and it has everything: close-knit neighbors, manicured lawns, a place for kids to play and even a community swimming pool. But with all of these perks comes something else: a homeowners association (HOA).

What is a HOA?

In 2018, there were as many as 348,000 HOAs in the U.S., serving more than 70 million residents, according to the Community Associations Institute (CAI). “HOAs exist to manage the community resources and enforce community rules,” said James McGrath, financial analyst and co-founder of Yoreevo, a New York City-based real estate brokerage firm. A few more details about homeowners associations across the country:

• About 60% of new housing for sale belongs to HOAs.
• There are between 50,000 and 55,000 HOA managers.
• About 30% to 40% of HOAs are self-managed by the tenants or area resident members.
• There are roughly 2.4 million HOA board and committee members.

What are HOA fees for?

HOAs collect an average of $90 billion in annual assessments, according to CAI data, which could fund quite the block party. But HOA fees don’t just pay for community get-togethers; more frequently, they cover common area upkeep and expenses. “If your community has a clubhouse, for example, the HOA will make sure it’s maintained properly,” McGrath said, “and if your neighbor wants to park a monster truck on their lawn, you could complain to the HOA, provided there is a rule against that, of course.”

We’ll come back to the monster truck. In general, you can expect your mandatory HOA fees to fund some of the following expenses:

• Professional management services
• Community utilities, such as sprinkler systems and clubhouse electricity
• Security guards or systems
• Insurance coverage
• Landscaping and lawn upkeep
• Trash removal
• Improvement projects and repairs
• Weather care like snow removal and plowing during winter months
• Community amenities such as playground equipment, pools and basketball courts

The amount you’ll pay in HOA fees is difficult to predict. If you own a single-family home with only a few common areas, you might pay as little as $20 per month. On the other hand, condo owners in a high-rise building could pay well over $1,000 per month depending on the building’s needs and amenities. And don’t forget, your HOA can raise fees with few restrictions unless specifically stated in the bylaws or your state’s housing laws, according to Nolo, a legal aid website.

HOA pros and cons

The virtue of a neighborhood HOA depends on its unique qualities, and there are several things to consider.

HOA pros

The average homeowner likes an HOA presence. According to the CAI’s 2018 Homeowner Satisfaction Survey, 63% of Americans reported a positive experience while 22% were neutral, and 84% said their board members “absolutely” or “for the most part” served their community’s best interest.

“One of the largest advantages [of HOAs] is that it removes the need for the owner to budget for, plan, and schedule maintenance and repairs,” said John O’Donnell, a real estate agent with Legacy Real Estate & Associates in Fremont, California. “This can also be great for people who are looking to rent their home out later because being in the HOA will cut down on property management costs.”

In addition to convenience, your neighborhood HOA could boast a few benefits:

Financial reserves. If something breaks in the community, your collective HOA fees help cover surprise expenses.

Entertainment and amenities. A community clubhouse, pool or playground increases the neighborhood’s appeal.

Increased property value. While results vary, housing studies in the past decade have noted increased values for properties belonging to HOAs.

Insurance coverage. Don’t worry if someone trips near the mailbox. “[HOAs] will hold all of the insurance on the common areas and hazard insurance on the community,” O’Donnell said.

Aesthetics. HOAs write regulations to keep the area in top shape, which might include approving home paint colors, types of exterior decor, holiday decorations and restricting monster truck parking in the neighborhood.

Connectivity. Need to borrow some sugar? If you value camaraderie, getting to know your neighbors can help you build a stronger sense of community.

HOA cons

Not every aspect of HOAs is positive. In less-than-ideal circumstances, HOAs can have some undesirable effects:

Reduced financial and physical security. HOAs are designed to create a desirable place to call home, but unpaid dues can lead to conflicting consequences. “HOAs are among the most aggressive of all debt collectors,” said Clark Dray, a bankruptcy and foreclosure attorney in Broomfield, Colorado. “If you miss a payment, significant collection fees will quickly accrue, your access to amenities like the community pool can be cut off, and you can be sued over the debt.”

In addition to damaging your credit, unpaid HOA fees can threaten the roof over your head. “It’s not uncommon for HOAs to attempt to foreclose if you become seriously delinquent,” Dray said. “If you fall on hard times and have to choose between paying your HOA dues or a credit card bill, you should almost always pay the HOA.”

No control over aesthetics. Those regulations of neighborhood unity might feel stifling after a while. If you prefer a wacky home color and unconventional lawn ornaments, think carefully before signing on to an HOA.

Poor neighborhood morale. A power-hungry HOA board isn’t out of the question, and disagreements among the group can create disputes and tension.

HOAs are more common than not in growing communities, and understanding their value and risks can help guide you on the path to homeownership. If you’re shopping for property, don’t forget to ask for details about the HOAs you find along the way.