Advantages and Disadvantages of an HOA

Pros and Cons of an HOA

If you are in the market to buy a home, there is a strong chance that you will hear about homeowner associations.

Often referred to as HOA, a strong majority of homes belong to some type of homeowner association. If you are considering a home in a fairly new neighborhood, there is an 80% likelihood that the house is part of an HOA.

Like many situations in life, these organizations have their positives and their negatives. When one of these associations makes the local, or even national, news, it is typically for a bad reason.

We will briefly describe a basic association and then cover some of the top pros and cons of homeowner associations to give you info that will help you make a better buying decision.

Defining the Homeowner Association

In plain terms, the homeowner association is a governing body for a specific community. The community could be a neighborhood of single-family homes, or condominium development, or even a neighborhood of townhomes.

In one sense, the HOA is very similar to a landlord. Just as the landlord is required to keep particular features and portions of a home or building functioning, the HOA does a similar duty. And like the landlord, the HOA expects to be paid a fee for their work.

The Community Associations Institute collects information on condos and HOA all across the country. Their data shows (PDF) that in the year 2018, about 25% of American homeowners were part of some HOA.

The figures show that the region with the highest number of HOA is in the South and West, with over 70% of homes in those regions belonging to an HOA.

About half of the homes located in the Midwest are part of an HOA and just under 35% of the homes in the Northeast are in an HOA.

Benefits of an HOA

The aforementioned Community Associations Institute polled members and found that over 80% of homeowners enjoy living under the agreement of their local HOA.

Here are some of the most popular reasons that people appreciate a homeowner association.

Higher Overall Value

A home that is part of an HOA normally sells for about 3% to 4% more than a home that is not part of an HOA. This info comes from a research article from June 2019. In that article, the two researchers, Matthew Freedman and Wyatt Clarke analyzed 35 years of home sales, which covered over 30 million real estate contracts.

The average increase in home prices is even more noticeable for homes that are larger than typical homes

Lower Home Bills

While this is not the same for every HOA, it is common for the associations to pay some of the basic utility bills out of the collected fees.

Some of the utilities that may be paid by an HOA are

  • Monthly water service
  • Garbage and/or recycling service
  • Sewer fees
  • Natural gas

As stated, each HOA is different. You will need to contact the HOA for your proposed home and find out which utilities, if any, are covered by the association dues.

Handling Exterior Maintenance

One common advantage of an HOA, especially in a condo, is the basic lawn maintenance and general upkeep of the exterior of the building. But it is not uncommon for some of these items to also be covered in neighborhoods made of similar-sized townhomes.

Here are just a few examples of some of the items that HOA may handle

  • Trash removal
  • Snow cleanup in winter months
  • Road repair
  • Lawn maintenance which may also include shrub maintenance
  • Basic pest control
  • In common areas, i.e., a condo lobby or recreation room, there will be painting, carpet cleaning, along with cleaning the rooms regularly.

Some of these items can save the homeowner some money every month as well as freeing up their time to handle other things or participate in hobbies.

Recreation and Social Activities

If you enjoy meeting new people and engaging in various activities, the right HOA can be a real benefit to owning a home.

Some neighborhoods will have a small playground, complete with modern equipment, intended for the children of the community to use at their leisure. Other areas may include a swimming pool that is limited to just residents, along with a golf course.

It is also becoming more common for these planned neighborhoods to have a large recreation area, such as an exercise gym and a large room to host parties.

Available Mediator for Conflicts

Living close to other people can bring about problems. People have different opinions about how loud their music should be, from an acceptable number of guests for a party to a whole host of other items. When a difference of opinion arises, it is a simple matter to contact the HOA.

The fees are being paid by all the members; therefore, everyone is at least supposed to have an equal say in how the neighborhood is managed. By contacting the HOA to voice your concern, you have someone on your side that should, at the very least, listen to your complaint and look for a reasonable solution to the problem.

That covers the most significant advantages of belonging to an HOA. Next, we will cover some of the disadvantages of HOAs.

Disadvantages of an HOA

Just as there are good things about the HOA, there are also some things that members feel can be quite a negative to owning a home.

Potential for Foreclosure

The fees paid to an HOA are an additional cost on top of the monthly mortgage payment, plus the annual real estate taxes and the annual homeowner insurance policy.

All members of the neighborhood, or community, must pay the HOA fees.

If the fees are not paid, the HOA can legally place a lien against the home. And if the balance of the fees becomes too large, or too delinquent, then the HOA can foreclose on the home.

If you are not sure you want to pay the fees or feel that you will not use the added features, then buying a home within the confines of an HOA may not be for you.

Lots of Rules that Impact YOUR Home

As previously mentioned, each HOA is different. Some associations will have a large list of rules that must be followed, while others will be more relaxed.

Before buying a home, consider that the following rules could be enforced on you by the HOA

  • The shape, size, color, and material of any fence you would like to install in your yard
  • Location, size, and components of a flower garden in your yard
  • The number of pets you are allowed to have as well as their potential size. This assumes that the HOA will even allow pets
  • Allowable height of the grass in the yard
  • Window enhancements such as shutters, awnings, or other exterior adornments

Some of these rules may not bother you and may never be an issue, based on your preferences and lifestyle. However, other items may put a real dent in your life and should be considered strongly before buying a home.

The Fees

As mentioned previously, the HOA will require that fees are paid as a condition for living in a particular neighborhood.

In the extensive home research report we referenced earlier in the article, the overall average amount paid per year for HOA is $2,800. Some areas will be more expensive while others will be significantly lower.

Fees paid to live in a condo typically range a bit higher than fees for living in a single-family property.

The fees cover much more than just amenities and services. Employees for the HOA must be paid, and the HOA will need to provide money for their rainy day fund. This fund can be used to help offset costs for unexpected situations like a natural disaster.

The most common factor that determines the HOA fee will be the location of the property. For example, a condo located in a small town in Idaho will not be as expensive as the fees charged by a condo in downtown Los Angeles.

Potential buyers need to get accurate information about the HOA fees for the homes that they are considering. If the fees are too high, it can cancel the person’s mortgage pre-approval because they will not be able to afford the home.

The Exterior Appearance May Not Be Up to Your Choosing

One thing that some people like about HOA, and others hate, is the general appearance of the neighborhood. Most HOA will have a list of approved colors that homeowners can use to repaint or otherwise remodel their home. Only those colors are allowed, and none other.

There are also rules about the type of materials allowed for roofs, the shape and size of windows, and any type of improvements you may or may not make to the appearance of the front porch.

This kind of rule will also extend to other things such as the color, shape, and size of any exterior buildings like a tool shed or boat garage.

The rules may also dictate where you are allowed to store your outside garbage container.

And the rules may tell you IF you are allowed to park on the street, or IF you are allowed to park in the driveway, or IF all cars must be out of sight.

All of this is to say that the exterior appearance of your home will need to fit a certain vision, based on the HOA rules.

Who Controls the HOA?

Some organizations are run with military precision and do a solid job of providing rules as well as enforcing them.

Other organizations may be controlled by people that are not capable of properly managing money and struggle to handle confrontations.

It is a good idea to do some research on the HOA before buying to see if there are any known problems before buying a home. A good idea is to talk with several of your potential neighbors and let them fill you in on the gossip about not only the people in the community but also the management of the HOA.

Choosing an HOA

Now that we have reviewed some of the most common pros and cons of a homeowner association, you may be asking the question “how do I know if this is right for me?”

For starters, ask your real estate agent if they can get a copy of the HOA rules for you to review. This will let you know what you can and cannot do with the home and yard.

Next, you want to find out about the financial fitness of the HOA. Ask for their public financial records. Look for the rainy day fund and see if it seems adequate for the area and the homes in the neighborhood.

Third, you will need to find out if the home you are considering is up to date on the HOA fees. An unexpected bill of a few thousand dollars could prevent you from buying the home.

Fourth, compare the rules that were provided to you against the actual appearance of the neighborhood. Do the homes follow a common color pattern? Is the grass at the right height? Do you see any noticeable problems with outdoor buildings, the presence of cars, or any other item that stands out to you in the rules?

Finally, which of the rules are insignificant to you, and which ones raise a red flag to you? For the items that raise a red flag, is this something that you can compromise and live with, or is this a deal-breaker?

Summing Up the Good and Bad of Homeowners Associations

Each family and individual will have varying opinions about the home they wish to own. The only way to see if a home under the leadership of an HOA is right for you is to take the time to investigate the rules and see how they compare to how you wish to live your life.

About the author: This article on “Advantages and Disadvantages of an HOA” was written by Luke Skar of MadisonMortgageGuys.com. As the Social Media Strategist, his role is to provide original content for all of their social media profiles as well as generating new leads from his website.

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Filed under: Real Estate

Luke Skar

Luke Skar is the web developer and content strategist for MadisonMortgageGuys.com. Currently working for NRL Mortgage which serves 47 states including Wisconsin, Illinois, Minnesota, and Florida. Guided by his 20-plus years of various mortgage marketing experience, Luke provides top-quality SEO services, effective social media management, and web development and maintenance. Luke’s career in the mortgage industry began back in 2001, as a loan processor. After becoming a loan officer for a number of years, Luke now runs madisonmortgageguys.com. To ensure that all the information he posts is fresh, accurate, and up-to-date, Luke relies on the knowledge which his years of dedication to keeping up with the constant change that the mortgage industry provides.

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