Your Financial Guide to Buying an HOA Property
Approximately 35.5 million Americans move each year — and the COVID-19 pandemic certainly hasn’t slowed anyone down. In fact, the U.S. real estate market is scorching hot. That means that competition is fierce. In order to secure the home of your dreams, you might have to make certain concessions or consider properties you might have otherwise dismissed. You may even want to think about buying a property that’s part of an HOA, as these properties are becoming more plentiful with each passing year. But before you agree to live in a home that’s governed by an HOA, you’ll want to know exactly what you’re in for and how it might affect your finances.
What is an HOA?
First, let’s discuss what a homeowners association (known as an HOA) is. It’s essentially an organization or group of homeowners who live in the same neighborhood or building. Instead of each homeowner bearing the burden of their own maintenance and repairs, the presence of an HOA means that all of the homeowners work together to share the costs of upkeep. What’s more, HOAs will typically determine certain rules of the neighborhood and curb appeal. The organization will also pay for and make decisions pertaining to extra neighborhood amenities, like swimming pools and community centers. The HOA board typically works together to make these choices — and since you have a one in five chance of buying a home that’s part of an HOA, it’s important to understand the ramifications of what it might mean for your daily life.
Why Buy Property in an HOA-Governed Neighborhood?
There are actually a number of perks associated with buying an HOA property. HOAs can reduce the amount of maintenance that you personally have to perform on your property. Responsibilities like mowing the lawn or removing heavy snow would typically be taken care of by a company the HOA pays. In addition, the HOA is usually responsible for taking care of roof and road repair, trash pickup, security systems, HVAC maintenance, and painting both interiors and exteriors of buildings. The HOA may also take care of expenditures like water and gas delivery, which means you won’t be as burdened with separate monthly bills.
Another reason to consider homes in HOA neighborhoods is the amenities that may accompany them. Swimming pools, tennis courts, golf courses, fitness centers, and other perks are common in HOA neighborhoods. This can help your family stay active and cut down on separate fees you might already be paying — all without having to maintain anything yourself.
One overlooked benefit of HOAs is that they can sometimes support you in neighborhood disputes. Outside of an HOA community, you may be on your own when dealing with lousy neighbors. Short of filing a non-emergency police report, you may be limited in the options available to you. But HOAs do demand that residents adhere to certain rules — which means that they may be able to intervene on your behalf if you find yourself in an uncomfortable situation with a neighbor. While there’s no guarantee that it will be settled in your favor, there could be an extra layer of protection if the neighbor is behaving badly.
What Are the Drawbacks of HOAs?
It’s worth noting that HOAs can be a bit of a headache for many homeowners. Although a property within an HOA may be sold at a higher value in the future, that also means it may be more expensive to buy. The median sales price of a non-distressed home is around $216,000, but single-family homes in HOA neighborhoods sell at around $13,500 more than homes located outside of HOA communities. Not only might you have to pay more for your property upfront, but you’ll also face additional fees associated with your HOA dues. These dues are mandatory and can be quite expensive, costing hundreds per month and possibly several thousand per year. While there may actually be some value saved there when you price out maintenance and amenities in the long-term, some people might not have the financial security to purchase in an HOA neighborhood — and if you learn that the hard way, you could face fines, liens, or even foreclosure.
Although this isn’t exactly a financial concern, HOAs are also notorious for imposing some pretty ridiculous rules. They impose rules and regulations on a property that you actually own, which is enough to ruffle the feathers of many homeowners. Although you’ll always need to follow certain guidelines laid out by your municipality, HOAs take things to a whole new level. You could be cited for leaving sports equipment on your lawn at night or choosing the wrong curtains in your street-facing windows. That’s a lot of control for an organization to have over your private residence — and you might be forced to spend even more money just to adhere to certain regulations.
What Else Should You Consider Before Buying an HOA Property?
Of course, not all HOAs are created equal. While some do great work, others make things a nightmare for homeowners. What’s more, HOAs can easily mismanage the community or even make major financial mistakes. An HOA can increase homeowners’ dues without much warning, which can make the property wholly unaffordable for a family over time. And if an HOA has mismanaged funds in the past, they may be able to authorize emergency increases without much recourse for homeowners.
Therefore, it’s important that you evaluate the financial state of an HOA before you agree to buy a home in a community like this. Take a look at their reserve fund, assess how dues have been raised over time, and read over the HOA’s master deed and contracts carefully. You should also note that unpaid fees or violations from a previous owner may actually be transferred over to you when you take possession of the home, so you’ll want to request an HOA certificate before you close on a home. And it should go without saying that you’ll want to thoroughly examine the HOA rules and the services covered prior to making an offer. If you feel you can’t abide by their regulations or the fees already don’t seem feasible or even worth considering, you should continue your search.
For some, an HOA can provide added protection and overall value. But for others, HOA rules can be too stringent and represent financial hardship. It’s crucial that you explore all of the pros and cons before you buy a home within an HOA community to ensure you really know what to expect.
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