Nearly half of all homeowners in the U.S. live in a community with a homeowners association, also known as an HOA. While HOAs come with a number of benefits, they also come with fees and guidelines residents need to follow.

The percentage of people living by the rules of an HOA continues to grow. So if you’re in the market for a new home, chances are you’ll consider homes in a community association-governed neighborhood.

“In 1973, there were 10,000 community associations across the U.S. Today there are 350,000 across the United States. This is a rapidly growing market with 20 to 25% of Americans living in a community governed by an association of some kind,” explains Thomas Skiba, chief executive officer of Community Associations Institute (CAI). The organization began in 1973 to provide resources to the growing condo and HOA market, including a community association living guide detailing essential questions to ask.

HOAs can be confusing, so HomeLight consulted with experts to compile this guide to explain what you should know about HOAs and help you decide if they’re the right choice for your lifestyle and budget.

A board meeting that might discuss average HOA fees.
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What is an HOA?

An HOA is a private organization run by volunteer board members with covenants and bylaws that govern the association and the community. HOAs create and enforce the rules for the community, and handle administrative duties such as collecting fees, fines, and managing vendors. In some cases, an HOA hires a private management company to handle those tasks.

HOAs are one category of community associations. Other common community associations include condominium associations and housing cooperatives.

HOA rules and documents

Rules and restrictions can help preserve property values and enhance your quality of life. They can also become a source of contention if you violate them. Experts advise taking the time to read the HOA covenants, conditions and restrictions, and other governing documents thoroughly before buying a home that’s part of an HOA.

Agent Matt Willis has 16 years of experience as a top seller of single-family homes in and around Auburn, Alabama, many of which are in HOA communities. “I’ve noticed many homebuyers get into neighborhoods without understanding what they can and can’t do within the HOAs.”

To make sure you’re in the know, ask your real estate agent for a copy of the covenants and restrictions and to help you read through them. “There are many rules that the typical homebuyer may not be aware of, such as paint colors or even how long your grass can grow. If you break those rules, the HOA can levy liens and assessments,” Willis says.

HOA rules can vary widely. While paint colors are an example of one potential restriction, HOAs also may set rules for parking, fences, landscaping, solar power panels, the use of your home, and more.

“Make sure you want to live in a community with certain restrictions,” says Bradley Pomp, president of Sentry Management, Inc., one of the country’s largest community management firms.

“Understand the architectural guidelines and restrictions and think about whether they align with how you want your community to look and feel,” Pomp advises. “It’s important to ask how you can use your home within the community, especially if you are thinking about renting it.”

Rental rules

As Pomp mentions, if you have plans to rent out your home either now or in the future, you’d better check with your HOA first. Many communities are making and amending rules about long- and short-term rentals. “Can you rent out your property as an Airbnb? That is a real topic of conversation because it does create a lot of wear and tear in communities. People in short-term rentals don’t understand the rules and regulations, nor do they have the same respect for the property as a long-term tenant,” Skiba explains. “More communities are making rules that restrict the short-term rentals in a community. We’ve even seen governments such as New York City doing this.”

A neighborhood that might have HOA fees.
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HOA enforcement of rules

Once you read and understand the community’s guidelines and rules, take a drive around the neighborhood to see if the HOA enforces them. Are there visible violations? Does the HOA appear to enforce the rules fairly and consistently?

For example, if the HOA prohibits storing boats in driveways, do you see boats in driveways? “I would tell folks, use the eyeball test. Check to see if the HOA maintains the community, the landscaping, common areas, and buildings,” Pomp says.

HOA fee structure

HOAs dues differ among communities. According to iPropertyManagement.com, 58% of homeowners nationwide live in an HOA community and pay an average of $250 in monthly HOA fees for a single-family home.

However, Willis says homeowners pay average HOA fees of $350 a year in his region, with rates varying based on the type of HOA. “Condos are usually on a monthly fee, roughly around $150 to $200 per month in our area, which can include water, trash, landscape maintenance, and amenities including the pool, workout facility, tennis courts, and insurance for the complex.” He notes that HOA fees typically include common area maintenance, landscaping, signage, and insurance for the neighborhood amenities, such as a pool, clubhouse, tennis courts, or nature trails.

HOA association fees can cover a range of amenities and services so take the time to read and understand what your regular assessments do and don’t fund.

“Typically, HOAs have a regular assessment that lumps all maintenance together, including the cost of insurance, landscaping, utilities, and the maintenance of the common areas,” Pomp explains. “HOAs can charge annual, monthly, or quarterly assessments. The higher the assessment, the more likely an HOA is to break it up into multiple, more frequent payments.”

It’s also important to note that HOA boards in most states have the authority to adjust regular assessments as needed to pay bills. Some communities have limits on annual HOA assessment increases. While you don’t want to see considerable increases in HOA fees year to year, flat assessments may not be realistic for managing an association.

“The red flag for me is if the community hasn’t raised HOA dues in the past several years. What maintenance issue have they deferred or chosen not to pay? Operating costs are going to rise with inflation, an annual average of 3% or 4% more, so it’s reasonable to expect a regular increase in your HOA fees,” Skiba says.

What assessments fund

Factor in regular and special assessments when deciding if living in a community association is an affordable option. “What is not covered is an important question to ask, too,” Skiba says.

Also, understand how the HOA handles a special assessment, typically a one-time additional payment for something the HOA didn’t plan for. Examples include roof, building, or road repairs from storm damage not budgeted in the association’s reserve fund. Ask if there is a history of special assessments. Frequent special assessments may signal problems in the way an HOA is managing a community.

Penalties for rule violations

As you read through the covenants and bylaws, pay close attention to penalties for rule violations. Conflict often arises because a homeowner does not understand the rules of the HOA.

“Look at what those fines may be. If you break the rules, the fines can impact a budget,” Willis explains. “If you don’t pay the fine or you can’t come to an agreement with an HOA, they can put a lien on your property, which can affect the sale of your property.”

Additionally, ask how the community association handles conflict resolution. One mistake homeowners can make is doing something to their property without the proper approvals. Don’t assume the HOA board will approve it after the fact or that nobody will care that you broke a rule. The governing board of an association has a legal and fiduciary duty to apply the rules consistently and fairly.

“The good news is for owners; there is always a process to change the rules. If most owners agree, there is a process within the bylaws to change rules by a vote. Owners need to understand, they have to be compliant with the rules, but at the same time, they can change them. The best communities evolve and have a rule structure that evolves with changing needs,” Skiba says.

Experts caution that many associations do not have a specified conflict resolution process. “We try to guide our communities to have a neighborly approach. Be kind and help homeowners through the process. Invite them to board/committee meetings so that they can feel heard and also understand the process. We encourage boards to adopt a code of conduct, and have it in place for all meetings so that they have guidelines for differences to be discussed civilly,” Pomp explains.

People discussing HOA fees.
Source: (Leon / Unsplash)

Financial health of the community

A healthy HOA has sufficient financial reserves. Ask about the HOA’s reserve fund for long-term and unexpected maintenance and repairs. Underfunded communities can levy special assessments, which are unbudgeted extra fees to make up for budget shortfalls or unexpected expenses. Experts recommend asking two key questions: Does the community get a reserve study completed by an outside expert regularly (minimum once every five years)? Does the community follow the reserve funding plan prepared by the outside expert?

An adequate reserve fund depends on the type of community, its age, and infrastructure. It should take into account the usable life for each amenity/asset. A reserve fund with finances on hand to pay for 70% or higher of the property’s calculated deterioration is a healthy amount.

“If there is no money in the reserve fund, that is a red flag. If there is a substantial reserve fund, you can be confident the HOA is preparing for future costs in a responsible way,” says Skiba.

“The challenge in determining adequate financial reserves is that finances are a picture of a moment in time. If the HOA spent a lot of reserves on replacing roofs, the reserve funds might appear low; however, that large roofing expense won’t happen for another 20 years. Look at the history of fees in that community to identify year-to-year trends,” says Pomp. He recommends reviewing the association’s financial history, including financial statements, asking about future expenditures, and consulting with your real estate agent.

HOA fee increases

Homeowners can expect annual increases in HOA fees if the association is proactive in budgeting. Pomp suggests that HOA governing boards re-evaluate their assessment structure yearly, factoring in cost increases based on market and community conditions. “A reasonable expectation is an increase of 2% to 5% annually in HOA fees. Right now, there is more inflationary pressure. Some communities take a lot of pride in not raising assessments; however, that could create future financial challenges,” Pomp says.

If over time, the income from assessments stays flat while inflation increases the cost of maintaining the community, the community will have to stretch its money to get the same work done.

HOAs have limited options to make up the budget shortfall. An HOA can reduce regular maintenance either by not doing all the work or finding less expensive vendors, which potentially may not do as good a job. An HOA can pay less to the reserve fund, which may create the need for a special assessment in the future.

For example, if insurance costs rise and the income does not go up to cover the increases, an HOA may have to divert money that pays for landscaping to support the higher insurance premiums. Over time, that may mean a less appealing entrance or common grounds, impacting property values.

“We recommend that our clients look at the HOA budget to see if there are past assessments or planned future assessments. So if there is an assessment coming up, you can budget for it. Sometimes, a future assessment can be a dealbreaker because it may not be budget-friendly for you,” Willis says.

What an HOA insures

Most HOA-governed communities carry property insurance and liability insurance to cover incidents that happen on common property. It’s also common for HOAs to have standard liability insurance to protect board members and acts of errors or omissions. Ask what your HOA covers and if it requires certain levels or types of insurance as the owner of a detached home. Also, consult your local and state laws to understand HOA insurance requirements, including fire, flooding, and natural disaster coverage.

How an HOA governs

Understand the responsibilities of the community association that will govern your home and enforce the rules. An elected board governs the HOA and is responsible for upholding the rules, settling homeowner disputes, creating a budget, collecting dues, and amending the covenants and bylaws if needed. Some HOA boards hire private management companies to handle select responsibilities. 

HOAs should establish lines of communication with homeowners. Social media platforms such as Nextdoor often connect residents with their communities and serve as a communication tool for associations. Newsletters, emails, and HOA websites also keep residents informed on HOA meetings, actions, and activities. Residents can stay up to date on HOA rules, policies, procedures, events, and issues by attending regular meetings, and keeping up with HOA communications.

The HOA’s reputation

Before committing to an HOA, take time to research its reputation to help identify any red flags.

“Check with your real estate agent to see if there are any past complaints against the HOA. You can go online and look at the reviews and comments. Check with homeowners who live in the communities,” Willis recommends.

You can also check online. Although many HOAs have a password-protected website for residents, you can check out Google reviews and social media postings. “We encourage homeowners to gather information from multiple touchpoints to get a better picture. Go online and talk to people who live in the community and your real estate agent,” Pomp says.

CAI provides training and certification for property managers who can serve as a reference point. “Several states have an ombudsman office that can serve as a resource for homeowners to ask questions and understand state laws,” Skiba says.

A person researching online about average HOA fees.
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HOA fees and mortgage approval

If you plan to finance your home, factor in HOA fees as part of your budget. Lenders will include your HOA fees as part of their review of your monthly expenses.

“Check with your mortgage broker or lender to make sure you stay within your monthly payments and budgets. The lender will look at the HOA as part of your affordability,” Willis says.

A typical homeowner mistake is underestimating the total cost of living in an HOA community. “A lot of folks will stretch their budget to move into the home without factoring in the additional costs to live in the community and potential cost increases in HOA fees,” Pomp says.

Setting the record straight

Let’s separate fact from fiction when it comes to the role of an HOA. Experts clarify the following common sources of confusion.

Management companies don’t run HOAs

Pomp says there is often uncertainty about the role of private property management companies. An HOA can hire a management company to run the community, collect dues and fines, and enforce the decisions for the community. “We operate at the direction of the board and local and state laws. Ultimately it’s the board that makes the decisions, and we carry out those decisions. We don’t make them,” he says.

Management companies often handle the accounting, collect HOA assessments and payments, and prepare financial reports. They work with various vendors that service the community to ensure they perform the work as contracted. Management companies also may enforce rules such as notifying homeowners of violations or levying late payment fees.

An HOA is a corporation

Most HOAs are not-for-profit corporations and the fees pay for operating costs. HOAs don’t collect fees to make a profit. Experts recommend that if an HOA has a surplus, the association should first determine any statutory or regulatory guidelines governing using the money. Some community governing documents have specific rules to follow regarding surpluses and deficits. “In most instances, communities don’t have such guidelines and need to follow generally accepted accounting principles (GAAP) for not-for-profit organizations,” Pomp says.

If following the not-for-profit accounting principles, typically an HOA would apply the excess income to “prior year surplus” on the balance sheet. The cash could remain in the operating account. If enough money carries over from the prior year, it may allow for a reduction in assessments when budgeting for the following year. The association also could place the funds into reserves. “In very rare cases, we have even seen the community pay the excess back to homeowners,” Pomp says.

It’s tough to compare HOA fees

HOA fees vary widely and are dependent on many factors — including location, amenities, and more — so it’s hard to pin down a standard HOA fee. “HOAs, in broad strokes, have lower assessments than condominiums because the homeowner handles individual property maintenance versus the cost of a condominium’s common maintenance. When you start talking average HOA fees, there is no reliable statistic,” Pomp explains.

“HOA fees depend on the level of amenities and service in the community,” says Skiba. “Ninety-five percent of HOA assessments are designed to keep the community functional. That number doesn’t vary that much region to region, so the differences are marginal.”

A well-run community association can help protect property values and enhance your quality of life, which is why you should ask the right questions before purchasing your home or property. The end goal is to be comfortable and compliant with the community, board, rules, budget, reserve fund, and assessments. Consult with a HomeLight agent to find the ideal community and home for your lifestyle and budget.

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