What is a Homeowner's Association?
A homeowners association (HOA) is an organization in a subdivision, planned community or condominium that makes and enforces rules for the properties within its jurisdiction. Those who purchase property within an HOA's jurisdiction automatically become members and are required to pay dues, known as HOA fees. Some associations can be very restrictive about what members can do with their properties.
BREAKING DOWN: Homeowners Association - HOA
Homeowners associations (HOAs) are formed by planned communities with single-family homes or multiple units, such as condominiums. Membership in an HOA is usually a requirement for the purchase of certain properties. An HOA is typically established to make and enforce rules regarding the properties within the jurisdiction. Most HOAs are incorporated and thus subject to state laws. Some states consider condominium-based HOAs, often called "condominium communities," and organizations governing cooperatives to be separate from HOAs because the property interests differ. "Community association" is a broader term that encompasses all such organizations. The Community Associations Institute, a trade organization that lobbies state legislatures on behalf of HOAs, estimates that at the end of 2017, there were about 345,000 community associations across the United States with upwards of 69 million residents.
Homeowners associations can also have significant legal power over the property owners in their jurisdiction. An HOA has a board of directors that is elected to enforce and oversee the HOA's governing documents. An HOA will typically describe its rules in a document called the Declaration of Covenants, Conditions and Restrictions (CC&Rs), which set certain conditions on owners and their properties. The conditions may include structural restrictions such as the type of fences or landscape allowed, or minor selections such as the color of paint on a house. This document should also outline the penalties for violating the CC&Rs, which may include fees, forced compliance or in some cases, litigation.
Cost of an HOA
HOAs also collect monthly association fees or annual dues to pay for upkeep of common areas like parks, tennis courts, elevators and swimming pools. Typical HOA fees are between $200 to $400 per month but could range anywhere from less than $100 to upwards of $10,000 for high-end communities. HOA fees often contribute to the association's reserve fund, which is set aside for major renovation projects or emergency use. An HOA's board of governors is usually responsible for the organization's finances, including the management of funds.
HOAs can also impose special assessments on homeowners when the association lacks sufficient reserves to pay for unexpected repairs on common areas such as sidewalks or parking lots. Aside from imposing penalties on homeowners for breaking the rules, HOAs can also place a lien on a property if a homeowner falls behind on his dues.
Benefits of an HOA
HOA members generally aim to maintain a standard of appearance for the property, and the HOA provides the regulations and guidelines for the community. The HOA management services may provide amenities such as landscaping, pools and tennis courts that are available for all the HOA members. The community standards should support stable property values. There are architectural standards that are designed to keep a uniform appearance to the property. Some HOA fees cover the cost of trash collection and snow removal.
Disadvantages of an HOA
The negative side of belonging to an HOA includes issues such as the high cost of the association fees, which could act as a deterrent for future homeowners. HOAs have also been deemed too restrictive for some homeowners, who may want the freedom to customize their properties. Because HOAs must reach a consensus regarding common property decisions such as maintenance and upgrades, there can sometimes be conflicts to resolve among HOA members.
Source: Chen, James. ""Homeowner's Association - HOA." Investopedia. 3 February 2018. https://www.investopedia.com/terms/h/hoa.asp