Homeowners’ Association (HOA) is a legal entity charged with the marketing and managing of single family homes, condominiums, or lots in a residential subdivision. Typically, buyers of residences in such a subdivision must join the HOA as a condition of purchase.
Some HOAs are operated by larger HOA management firms, with the association’s board of directors taking responsibility for selection and retention of these companies. Other HOAs are run by the property owners.
As most homeowners’ associations are incorporated, they are subject to state statutes governing non-profit corporations. They are also subject to state specific laws, such as the Davis-Stirling Common Interest Development Act in California. Homeowners’ associations play an increasing role in American real estate, and as of 2010 nearly 25 million homes were governed by HOAs.
Operations
HOAs’ means of operation and level of power can vary, but generally they are run by boards appointed by the membership. Officers are elected, by-laws agreed upon and committees created to oversee routine issues. Business meetings may be held monthly or quarterly for the board and the membership.
Each homeowner is issued a list of the association’s covenants, conditions and restrictions, known as a CC&Rs, to which they must adhere. Depending on their CC&Rs, HOAs may provide services, levy assessments, regulate building regulations, enforce deed restrictions and control activities within the development. When regulations are violated, HOAs may impose fines or.
Fees & Dues
HOA fees are assessed differently in various HOAs. Although the services provided may be similar to those provided by a legal township, they are not considered property taxes. Most HOA fees are based on members paying a portion of the common expenses, such as maintenance of building exteriors and grounds, and are based on per-unit or square footage assessment.
Funds are generally allotted to one of two funds: an operating fund and a reserve fund. The operating fund takes care of such routine expenses as pool maintenance, landscaping and security detail. The reserve fund is for major, more infrequent repairs. When the reserve fund is insufficient, a special one-time assessment may be levied to cover such an expense.
Common property maintained by a development’s HOA can vary significantly, from a small group of condominiums requiring only structural maintenance and grounds keeping, to sprawling subdivisions that resemble small towns with private roads, services, utilities and sometimes even schools.
Benefits
There are many benefits to membership in an HOA. Enforcement of uniform attention to property maintenance and consistent neighborhood values do much to preserve property values for every homeowner. Rules and restrictions may be placed on noise, commercial use of property or preservation of uniform exterior appearance. Many associations provide extensive recreational activities for members, including such amenities as pools, clubhouses, tennis courts, beaches and biking trails that may not be affordable to homeowners individually.
Making An Informed Decision
If you’ve never lived in a managed community, you may be wondering “what is an HOA?” and “is an HOA community right for me?” Before buying a property in an HOA-controlled development, it is wise to thoroughly understand the rules and restrictions of ownership. Potential buyers should read and understand all CC&Rs to ensure they will feel comfortable following the rules, which can range from fairly loose to highly restrictive. It is a good idea to know if there is a term limit for officers, as entrenchment of controlling members can cause problems.
Buyers should know what the current dues are, as failure to pay can in some cases result in eviction. The cost may range from as little as $20 a month to hundreds of dollars, and should be budgeted into a home purchase just as property taxes would be. It is a good idea to investigate by what means, how often and by how much dues have been raised in previous years, as well as checking on the health of the HOA’s reserves.
Investigating whether any legal action is pending against the HOA and speaking to current association home-owners will give a good picture of the amount of control exerted by the association, as well as whether promised maintenance is actually performed. It is also wise to investigate the HOA management company managing the association to ensure that they are properly licensed and providing the most efficient services possible. Many problems that make HOA-managed communities undesirable — maintenance issues, reporting problems, etc. — can be eliminated by simply changing HOA management companies. By making an informed decision, buyers can reap all the benefits of living within an HOA-controlled development, while avoiding many possible pitfalls.
Five Star Property Management specializes in cost-effective residential property management in the San Francisco area, and our priority is fast and responsive service to single-family & multi-family property owners and real estate investors.
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