In the market for a condo or townhome in a planned development? If so, that likely means you're on your way to joining a homeowners' association (HOA).
A HOA is a board of elected members that oversees the aesthetics of a complex or development. This typically includes the appearance and maintenance of all shared spaces, such as:
HOAs also create and enforce rules and regulations all members must adhere to. They are designed to prevent disputes between members and protect property values.
That said, not all HOAs are equal. There are well-documented experiences in which HOAs:
- Abuse their power.
- Mismanage funds.
- Neglect enforcement.
That's why it's important to perform your due diligence. Let's take a closer look at the four things you should investigate before joing an HOA.
Know the dues
HOA members pay dues monthly, quarterly, or annually. This money goes to to:
- Trash collection.
- Snow removal.
- Operating common areas.
HOA dues add to the cost of owning a home. Once you close on a property within an HOA, you legally become a member. Therefore, you are required to pay association fees.
You should inquire about how often dues have increased in the past and by how much.
Ask if members have ever been assessed a fee to fund a special project, such as installing a new elevator. If so, ask if there is anything similar planned for the near future.
Know the rules
Ask for the most recent copy of the HOA’s rules before deciding whether or not to buy. Depending on your lifestyle, it may be too restrictive for your taste.
The most common HOA rules limit what you may do with the exterior of your property, such as:
- Paint color.
- Yard decorations.
- Satellite dishes.
- Holiday decorations.
- Structures such as gazebos or tool sheds.
- Owning a swimming pool.
- Treehouses, swing sets, and other children’s play structures.
- Solar panels.
This also includes expectations for the appearance of your property. For example, will you be reprimanded for grass that’s not mowed in time, weeds, bare spots, or leaves in your gutter?
It also may include restrictions on:
- Whether you can grill outside or not.
- Whether you can store a boat or RV on the property.
- What pets you can have and how many.
Understanding the rules now will also allow you to determine if the property you’re planning to buy is compliant with HOA regulations. If not, that means it will require work as soon as you close.
Know the consequences
Some HOAs are much more strict than others. When reviewing governing documents, understand what enforcement actions the HOA will take if you don't comply.
Often times, HOAs impose fines for rules violations or delinquent payments. In some cases, they may even sue members if fines are not an effective punishment. While we're on the topic of disagreements --- investigate how often and under what circumstances the HOA you’re considering has been in litigation. HOAs can even reserve the right to foreclose on your property for nonpayment of HOA dues or fines from violations. (But these are extreme circumstances.)
On the flip side, you may find that an HOA’s governing documents provide little enforcement power. In some cases, an HOA may enforce rules on a discretionary basis.
Know the management
Perhaps above all, get a sense of who runs the HOA and how well they do it. You can do this by:
Ask for the minutes of recent meetings. This will shed light on what kind of issues are being presented by membership, whether disputes are being settled and how decisions are ultimately made.
Review its financial statements and current budget. Look for whether the association has enough in reserve to make needed repairs. If not, there’s a chance it will require a special assessment from members to fund them.
Look for conflicts of interest. For example, say a board member has the contract for snow removal in the development. This could very easily influence their decisions.
Of course, digging up all this information may not fit into your busy schedule. Enlist your real estate agent to investigate on your behalf. Also, be wary if the HOA hesitates to provide any of this information. If the leadership is properly managing the association, there should be nothing to hide.
Joining an HOA is just like any other big financial decision --- it requires due diligence. Before signing on, it's important to:
- Know the dues.
- Know the rules
- Know the consequences.
- Know the management.
In doing so, you'll know exactly what to expect --- and what to avoid at all costs.