HOA or Non-HOA Community

What You Need to Know Before Buying in an HOA Community

There are many pros and cons of owning a house or a condo that is part of a homeowners association. Your relationship with your HOA can be reassuring, or you can have a very annoying, sometimes even risky relationship with your HOA.

When your home is under the umbrella of an HOA, often significant expenses such as roof repairs or replacement, landscaping, pool repairs, and painting is covered by the HOA. The money for those expenses comes from the dues you pay. Some reports indicate that homes in an HOA community sell at a premium compared to those that aren't.

On the flip side, you may not be allowed to paint your front door the color you would like, and you may be subject to many other restrictions that you might not like. In worst-case scenarios, volunteer boards run the HOA or a management company it hires to do so, mismanages the money collected from homeowners. There have been reported cases of outright fraud and embezzlement. In essence, when you buy into a homeowners association, you are going into business with a lot of other people you don’t know

There’s a lot at stake. Homeowners associations across the country have more than $88 billion on deposit, and about one in five U.S. homes belong to an HOA. HOAs became very popular in communities built during the 1960s. For instance, an HOA manager in San Mateo County, Calif., embezzled $2.8 million from 2007-2013, and a Charleston, S.C., property manager is accused of stealing $700,000 from dozens of homeowners associations.

If you’re thinking about moving into an HOA community, you must do your homework and make sure you understand its bylaws and management practices.

You may not be able to detect any fraud that might be going on, but you can certainly try and gauge the financial health of the organization and whether residents are happy with how the community and their money are managed.

Here are some things to keep in mind about HOAs before you buy into one.

• Follow the Money

The national average HOA fee is about $331 a month, with New York City on the high end at $571 and Warren, Michigan on the low end at $218. For a typical single-family home in Florida, HOA fees can range from $200 to $300 a month, although they can be much lower or higher depending on the size of the home and the amenities offered.

The property’s MLS listing should indicate monthly or yearly HOA dues. The listing should also tell you what will be covered, such as garbage collection, amenities, etc., and you should also find out if any special assessments are coming up. Ask for copies of the HOA’s annual reports to obtain this information.

You’ll also want to know how much the HOA has in reserve funds to cover anything unexpected or catastrophic. This is particularly important if you're in the market for a condo versus a single-family home because there are more expenses the HOA must cover if it's a condo. For example, if all of the stucco goes bad on all of the condo buildings, that's a considerable expense for the entire community. But, in a development of single-family homes, one person's lousy roof isn't everyone's economic expense.

• Get to Know the Board or Property Manager

Ask the seller and even future neighbors you might encounter about the board members and the property management company if there is one. If the HOA is managed by a property manager, do some online research into the company and speak to some of the residents about how long the company has been working for the HOA and how responsive it has been to issues that the residents raise.

If the HOA is managed by the people who live there, find and talk to some of them. You'll want to get a sense of their philosophy when it comes to reserve funds vs. assessments and when it comes to dealing with residents' grievances. Ask how often the board meets, and if you can see the minutes.

• Read the Rules

One of the most annoying things about HOAs for homeowners are the rules about what owners can and can’t do to their property. Covenants, Conditions & Restrictions (CC&Rs) are meant to protect property values by ensuring a universal, high-quality aesthetic.

Even so, you’ll want to know if you can build an addition, take out a tree, or even change the paint color before you purchase. You’ll want to know how often you’re expected to mow the lawn and the flowers you’re allowed to plant - or if you are even allowed to plant flowers.

After you move into your new home, if you don’t like the rules, know that they are not set in stone. Get to know the board and attend board meetings, then make a motion to change a rule.

• Get Involved

Again, the only way to protect your investment and make sure the HOA and property managers are doing their jobs is to get involved.