What You Need to Know About Your HOA: 5 Things
Category: Active adult communities
January 4, 2020 — When people hear about Home Owners Associations (HOA) there is generally one of two reactions. Either they loathe them, citing high costs and restrictive rules, or they tolerate them as a necessary evil. They have no super fans. Also called Community Associations, HOAs govern critical aspects of life in condominiums and active adult communities. It is essential that retirees know something about their HOA before they move in. As Joe West, CEO of the Community Associations Network, told Topretirements many years ago, the most important thing to consider when buying into a community is: “Don’t fall in love with the house before you check out the association”.
In any 55+, active adult, or condominium development that has shared facilities the Community Association is the top dog. It establishes the rules, enforces compliance, manages the assets, and insures the financial and legal well-being of their communities. Even in the most successful community plenty can go wrong. When serious problems happen, as did in last year’s condo collapse in Surfside, Florida, the consequences can even become tragic.
5 things to know about your HOA before you buy:
Before you buy you retirement dream home some due diligence is required to help eliminate the risk of serious disappointments down the road. Here are some things you need to know.
How effective is your new HOA?
The people running your HOA and the structure that governs it are critical. Are board members forthcoming with information? Do they seem engaged and receptive, and do new members join the board from time to time? You have a right to know what you are getting into. Are there regular board meetings, and do things get done? Is member input permitted and acknowledged? Were you able to secure copies of the minutes? Do the financial documents look up to date, and have they been audited?
How strong are the finances?
The condo building that collapsed in Surfside had an overwhelmingly negative financial situation – although millions were needed for urgent repairs, there were almost no reserves to pay for them. Does your new community have reserves salted away for future projects like streets, elevators, roofs, painting, and other repairs? Is there a recent reserve study? Has there been a history of unplanned assessments to pay for projects, instead of carefully salting away money to pay for them? When a board continually underfunds the budget and hopes nothing goes wrong, that should be a warning flag. If there is a significant number of homeowners who are in arrears on their dues or assessments that is also cause for alarm.
Are there serious problems coming up?
There are always building and infrastructure issues that will come up – stuff wears out and systems fail. Are these projects being talked about at board meetings, and is there a plan to fund them? Buying into a community that faces imminent huge assessments could be a costly mistake.
Has the transition from developer to HOA been completed?
Perhaps the most perilous time in any community’s life cycle comes when the developer exits the sales phase and control moves to the association. Communal assets and amenities are often sold to the homeowners, or perhaps retained by the developer. If that is the case, how much, and how, will they be paid for or managed? Does the new HOA have good bylaws and a qualified board in place to run things?
Are there HOA rules you don’t know about or appreciate?
Moving into your new active adult community and discovering that you have too many, or the wrong kind, of pets can be a horrible discovery. You might not realize that you cannot park boats or RVs on the property, change the color of your house, or construct a fence. Get a copy of the rules and regulations, and asked questions if you are unsure.
Finally, good to know
The laws governing the nation’s estimated 270,000 residential and commercial HOAs are confusing and sometimes non-existent. States like California and Florida have extensive laws, but many other states have just a condominium law or a poorly written, often amended, HOA law. The absence of clear legal guidance can be a problem. Having an effective board and reasonable bylaws is a good defense against that.
Everyone would like an HOA with low fees. Sometimes you get good value for these fees, and sometimes you don’t. HOAs are often viewed as some type of ogre by many homeowners. But in practice most people that volunteer for these boards deserve more credit– they work hard and they spend a lot of time unraveling tricky questions. As you get familiar with your community, consider running for the board and offering your experience and hard work.
For more on this topic see the 3 part series at Topretirements.com: “Meet Your New Boss, the HOA”.
Comments? Please share your thoughts about HOAs, including your personal experience, in the Comments section below.
Comments on "What You Need to Know About Your HOA: 5 Things"
Jan says:
I'm an oddity. I'm a super fan of my HOA.
We have involved, responsive and responsible Board members who are actively involved in the community (and the greater community), and most of us bought into an HOA because we didn't want cars/boats/trailers parked on empty lots, trash left out day and night, landscaping that wouldn't be maintained, and houses that could fall into disrepair.
Some people moved because they didn't like being told what they could/could not do, but had they read the rules and regulations, they would perhaps have realized it may not be something they want.
So, buyer beware!
I know they aren't for everyone. And, most of us don't mind the cost - we knew what we were getting into, and feel it's worth every penny. We've been in our community for more than 14 years.
Jem says:
I agree with Jan, I too like our HOA. Our development is small and gated with only 42 homes and our monthly fee is high, but we have a healthy reserve. I love our landscaping and gardens, and in the winter the street is plowed and sidewalks shoveled before daylight. Our monthly fee also includes our water use and trash collection. We too knew what we were getting into and asked to see the financial statements and minutes from the last few board meetings before we bought. We are just a pocket neighborhood (all ages) of a large master-planned golf course community, but have our own small board with good communication. We do pay another annual fee (which is not an option) for the swimming pool and fitness center of the master-plan, but we use those amenities which is a short walk for us. The golf courses here are public and so we have no membership fee for those. We've been here 8 years with no complaints.
TJ says:
Having lived for many years in a "real" city/town/community without HOAs, but zoning laws and real respectable citizens, who took care of their property and everyone had manners what a concept! - then came the new fad of HOAs in the 1980's even in areas of previously well established homes where owners kept up properties - really did not need a " nanny " organiztion to ensure the neighbor nextdoor cut his lawn or took out his trash. Seriously what are you paying for in your HOA? - I will never again consider any property to purchase or live in which has any additional counter party risk to your own property - due to being in a "HOA" development. I've witnessed HOAs force homeowners to pay excessive fines, force loss of their home - No thanks - No counter party risks affiliated with my property that's not city/town or county ordinance. The Miami condo collapse - many more like that, keep watch.
Kathleen says:
Buyers should carefully read their HOA documents before buying. In Arizona, around half of Valley (Metro Phoenix) residents live in HOA governed communities and an individual who doesn't like the rules will likely lose in court if they sue the HOA. Low HOA monthlies are desired by all, but often that means expensive assessments are levied. Reserve studies should be done regularly so residents can understand how costs add up. Expect big increases in monthlies as HOA boards see pricing increases to keep the community in good shape. Arizona Governor Ducey promoted statewide short term rentals and now, unless you live in an HOA community, you have little recourse when the neighborhood shifts dramatically to Airbnb's and VRBO properties. Sedona is a global tourist destination and short term rentals have resulted in the town population dipping below 10,000 which triggered a different interaction with local community agencies - promoting even more tourism at the expense of residents. Also, the short term rentals have reduced the long term rental market supply so much that "locals" can't find affordable housing. There are towns within an easy commute but wasn't the dream some had to walk to work in Shangri-La. We own properties in HOA and non HOA communities. There are plusses and minuses to both. You probably have more say in the direction of your HOA community by getting involved with board and committees than you do in a non HOA property where you must rely on local codes and ordinances which are updated and adjusted to Town Council which above all, wants more tax revenue. Your SFH neighborhood in a non HOA community might become multifamily and you can't do a thing about it (like short term rentals in all of Arizona).
Daryl says:
Ok, question from the clueless, since I’ve never had experience with an HOA, but are there agencies that will research a community for you for a fee? Perhaps score the HOA on the points mentioned in the article and alert you to any red flags? We were kids when we found a house, bought it, fixed it up ourselves and loved it for 45 years. Sounds like so much work now to make sure you aren’t going to end up a miserable prisoner. I wanted to ask why aren’t the state laws more strict, but remembered that life is always buyer beware.
Clyde says:
Florida, as well as many other states, has a law that requires an HOA board to give a copy of the bylaws and related polices to someone who has a contract to buy a condo in the association. The buyer then has a certain number of days (I believe it’s 3-5) to review the documents. Until that timeframe ends, the buyer can back out of the contract based on anything they don’t like about the bylaws. I expect most people don’t read much of these documents. The real estate agent usually doesn’t do it for you. This law is designed to protect both the buyer and HOA. If you don’t read them, you’re, of course, still bound by them as long as you own the condo.
If you don’t want to read them, or can’t understand them, it’s best to hire an attorney to go over them during the short time period. But get your attorney lined up early, since they’ll have only a limited time to review them.
Claudia says:
No way! Before I relocated to another state during my search I briefly considered a home in a HOA. Adding $300 a month (more or less) to my payment was not worth all the rules and regulations. Finding information on how financially sound they were and expectations was difficult.
Staci says:
There are lots of HOA communities that allow short term rentals expecially in tourist destinations. If that’s a concern for you, read the documents carefully.
HEF says:
For Daryl, Like Clyde said - When house hunting, your Realtor should know, and the listing should tell you, that the neighborhood has an HOA. (I'm pretty sure every Condo community has a COA). You MUST insist on seeing the HOA agreement or rules before you buy - it is not always a given, that you get them. We had a heck of a time getting them, in one instance, and had to keep insisting to see them before we made an offer. They turned out to be pretty benign and the cost was about $150 a year! We bought in the neighborhood anyway and never had a problem. You are right to be cautious. No two neighborhoods are the same - read it carefully.