What is an HOA: The Meaning and What They Do Explained

1K Shares

What is an HOA, and How Do They Work?

What is an HOA? HOA stands for Homeowners Association. If you are new to buying a home, you might not understand what an HOA is, what it means, or how it will affect you.

The HOA meaning adds some value but also some restrictions too.

Many first-time home buyers wonder what HOAs are and if living in one will be beneficial.

Will living in this type of community be suitable for you? Let’s take a deep dive into the definition of an HOA so you can decide if you want to live where one exists.

HOAs will certainly not be for everyone. The information provided will help you make an informed decision.

HOA Meaning

HOA means homeowners association and is an organization that manages a community. This could be a housing unit development, a subdivision, a condominium, or a townhouse that a board of directors will oversee. These are residents of the community that the other homeowners have elected.

The idea of the association is to maintain and improve the area. This is achieved through bylaws and maintenance work in the communal areas. However, this doesn’t come without costs; the residents must foot the bill.

Payments from the residents are made via an HOA fee to keep the community functioning correctly. We will cover this in-depth later.

There Are Rules With an HOA

To meet the goal of not allowing the area to worsen, the residents’ rules can sometimes appear highly restrictive, though they should ultimately make the neighborhood a better place to live.

Generally, the oversight provided by HOAs creates a better area that increases the value of homes. If you are happy with the rules and the fees involved with living in a community like this, you could find that the advantages outweigh the possible negatives you will face. Knowing the standard homeowners association rules is essential as a buyer doing your due diligence.

Let’s look closer at HOAs and what it will mean if you buy a home in such a development.

The Inner Workings of HOAs

The HOAs’ meaning puts them in a position to set the rules that residents must follow. However, the setup is pretty straightforward, with the developer of the lots creating the association and the initial set of rules. When some or all of the lots have been sold to homebuyers, the homeowners association’s responsibility will be handed over to the residents.

Anyone purchasing a home from the developer directly or later on must agree to the homeowners association’s governing documents.

On top of this, people buying a home in the development covered by the HOA will have to agree to pay fees monthly or annually. These fees are then used to make improvements in the community.

The board of the HOA decides how the money from fees is used. The committee comprises residents who want to have a say in managing the community. The members can then vote on the board’s decisions, hopefully moving the community forward and making it a better place to live for everyone.

It is possible to have an owner’s association managed by a group of owners or one where management tasks fall on an outside organization. This would be the role of an HOA property management company.

Why are Homeowners Associations Created?

The project developer is initially responsible, and it is in their best interests to ensure the community is an excellent place to live.

If the development looks good, it will be easier for them to sell their newly built homes. This allows the developer to keep a presence in the community while constructing properties.

Additionally, if a real estate developer provides standard amenities, it might allow them to build a greater density if the local city or town encourages such results.

Also, they may receive more approvals by relieving a city or town’s burden of road and utility maintenance costs.

In some instances, developments with HOAs have saved local governments’ costs in multiple ways. As part of the approval process, cities and towns have required builders to make public improvements such as parks or playgrounds, passing costs along to the joint interest owners.

Second, HOA developments would be responsible for the expense of maintaining infrastructures that would typically be passed onto the city or town.

History of HOAs

The first HOAs in the United States were established in Los Angeles in the early 1900s. Two of the first homeowner’s associations were the Arroyo Seco Improvement Association in Pasadena, founded around 1905, and the Los Felix Improvement Association, founded in 1916.

These planned neighborhoods established a legal precedent for zoning districts for luxury single-family residences.

Restrictions often included antiquated and discriminatory provisions, such as excluding all non-Caucasians, and often non-Christians as well, from occupancy unless they were servants. There was usually a minimum required cost of construction – something considered upscale at the time.

Deed restrictions and covenants were established to discriminate against people who could purchase in a neighborhood. Early after World War II, many excluded African Americans, sometimes Jews, and Asians. The Fair Housing Act of 1968 changed how HOAs could be run.

A Community Association or A Home Ownership Association?

Most HOAs are incorporated, making them subject to state laws. Some states, however, consider condominium-based HOAs within condominium communities to be distinct entities from HOAs.

HOAs can sometimes be known as homeowners associations, but you might also hear the term community association, though this isn’t necessarily the same. Community associations can sometimes refer to a general term for an HOA and other community ownership organizations.

Other types of community associations can sometimes operate in the same manner as homeowners associations, but they can be different. There can be varying designations under state and local laws, with some permitting membership to people interested in the area rather than living there.

It should be noted that a homeowners’ association is different than a property owners’ association. The most significant difference between an HOA and a POA is that POAs may include anyone in the community interested in real estate. In other words, POAs could consist of those who are not homeowners.

This all makes it very important to find out what the situation is with the association for the development you plan to move into. All HOAs will be slightly different, without any hard and fast rules for how they are operated.

It would be best to consider whether buying a home within the homeownership association area is beneficial.

The Advantages of Owning a Property in an HOA

There will undoubtedly be pros and cons of living where an HOA exists. One of the most significant advantages of an HOA is that it can increase your home’s value.

These communities may have access to more amenities and be better maintained than homes not within such an organization. This will give each household more curb appeal when it comes time to sell the property, ensuring that values stay strong.

One factor that goes into real estate appraisals is curb appeal and exterior condition. One of the pros of living within an HOA is that all the properties are uniformly maintained.

When you sell your home, potential buyers will look at your home’s neighborhood and house directly. The HOA rules and governance should ensure the area is well maintained, making it easier to sell your home. Homes that come up for sale in popular neighborhoods with HOAs will often sell fast.

When you consider purchasing a property within a homeowners association, you need to consider the difference in price between homes within the association and those outside.

The association can impact the listing prices, and only when comparing similar properties will you understand this impact.

Rules, bylaws, and restrictive covenants that the association operates can be a big plus for residents. This can ensure people in the community act more responsibly and have more consideration for their neighbors.

The rules could include parking restrictions, a common area of neighbor disputes, or speed limits to improve the area’s safety.

But it isn’t all positive. There are downsides to living within a homeowners association as well.

The Disadvantages of Buying Homes Within an HOA

There can be some cons to living in an HOA as well. One of the most obvious problems with an association is the fees you must pay. Owning a home is expensive enough without hundreds of dollars in homeowners association fees to pay each month.

The cost you must pay to the association must be factored into your calculations when financing a property. This could mean you have less to spend when buying a home or leave you with less disposable income each month after your outgoings.

Many people buying into an HOA also may find they don’t like the rules imposed on them. It can often be difficult to go from a single-family home without an HOA to one that does.

If the HOA rules are overbearing, it can create an uncomfortable living environment. It is a chief reason why many real estate agents express the need to understand the meaning of an HOA and how it will affect your day-to-day living.

All buyers should know many considerations for living in a homeowners association.

If the thought of someone else being able to tell you what you can and cannot do, an HOA might not be suitable for you. There are homeowners association meetings you will want to attend if authoritarian rules could be presented.

Typical Homeowners Association Rules

When you move into a community like this, you must sign a contract stating that you understand and agree to follow the rules. These are often known as covenants, conditions, and restrictions or CC&Rs.

The association rules are administered and added to by the association. The HOA is also responsible for ensuring all the homeowners stick to these rules.

The rules these associations create will vary depending on the location and the priorities established in the past.

Generally, though, you can expect the following different types of rules:

Maintenance Requirements

Homeowners will be expected to maintain a certain standard of their homes. This will include outside spaces like the lawn, driveway, and the house itself. There could be restrictions on what you can do to your home and the color you can paint it.

Rental Policy

Can you rent your home or condo if you need to? Having this right will probably be an essential consideration on your part when living within an HOA.

Design Changes

Are you able to make modifications to your property? Sometimes, you cannot, which could be a big purchase mistake if you plan on making an addition or improvement.

Pet Rules

You could find that your HOA restricts the number of pets residents are allowed to keep or even the type of pets. There could also be rules about cleaning up after your pets, barking dogs, and keeping pets on a leash.

Noise Levels

The association could have rules concerning noise and the hours you can make it. This could prevent you from doing DIY late into the evening or prevent you from holding a noisy house party, but the same will be valid for your neighbors as well.

Community Respect

Associations often want to create a family-friendly community. This means ensuring the development is safe and people respect one another.

Clutter

To help maintain the neighborhood, there might be restrictions on what you can keep in your yard. This might mean limiting the patio furniture and other items you leave around your yard. You could be restricted to something as simple as having a PODS moving and storage unit for your move.

Homeowners Association Fees

They will have rules to ensure you pay for the area’s maintenance.

Looking over existing homeowners association documents is a typical real estate contingency that is always wise to have in a purchase and sale agreement. It would be best if you made sure due diligence is done not only on the home itself but also on the HOA.

If you are thinking of buying into a condominium homeowners association, there are even more questions you should be asking.

How Much are HOA Fees?

The HOA fees or dues must be paid monthly or annually. The exact amounts will vary greatly depending on the development, but typical costs can be expected to be between $300 and $600 monthly. The larger the home you want to move to, the greater the fees will likely be. In some luxury communities, monthly HOA fees could be in the thousands.

Another factor is the type and amount of amenities maintained through the association. If you share the use of a swimming pool, clubhouse, and other valuable amenities, you can expect to pay more for the privilege.

The money the association gets through these fees will be distributed and used as set out in the covenants, conditions, and restrictions documentation. This should set out the allocation of funds to maintain the various amenities and communal areas.

There could be extra money beyond maintenance to pay for projects in the community or contribute to a reserve fund. The reserve fund will be set aside in case of emergency repairs or for capital improvements needed for the neighborhood to function normally.

The board of the association will decide on the use of these funds. So if you want some improvements to the development that directly affect your home, joining the board can look attractive.

The fees asked for by the association can be increased if there is a need for some extra maintenance or repair work. So, your HOA fees may not always remain the same. More often than not, HOA fees rise over time as things become more expensive.

Buyers purchasing into an HOA should always ask if there are any upcoming special assessments to ensure they will not be hit with a hefty bill when moving in.

When buying into a neighborhood where an HOA exists, buyers must be aware of any upcoming special assessments.Click To Tweet

Who are Members of the HOA?

Anyone who has purchased a home within the association’s area will have to be a member. It will be a condition of purchase for the properties within the development.

You will unlikely be able to refuse to join a homeowners association.

Do Renters Pay HOA Fees?

Even if you don’t own the home and are only renting, you could still be expected to pay the association’s fees.

You will also be expected to follow all of their rules, but whether you pay the costs will depend on your landlord. You should check the terms of your lease contract to see the situation in your case.

The landlord must provide their tenants with a copy of the covenants, conditions, and restrictions.

If you have problems with the rules or the HOA, you might be required to go through your landlord rather than directly to the association.

Landlords usually cover HOA fees, an essential consideration when renting a home.

Can HOA Fees Be Raised?

The association’s rules should state by what means the fees can be raised. This should explain how often increases can be implemented and for what reasons.

There might be an increase to keep up with inflation and the rising cost of services the association pays for.

Homeowners will often have some protection through state legislation to ensure HOAs can’t increase their fees by extreme amounts.

Buying into a retirement community and living with a fixed income could be more problematic.

Can You Avoid Paying Fees to the HOA?

If you own a home within an association area, you aren’t likely to avoid paying fees. However, you might be able to reduce the amount you pay in some circumstances.

Your first step could be to get a copy of the budget for the association. This will tell you what they are doing with the funds they receive and how they’re allocating their spending. You might find that they aren’t using their funds effectively, and improvements can be made.

If the association is paying more for certain services than it should be, you could suggest they renegotiate their contract or use another contractor. You can do this by contacting one of the board members, but you also have the opportunity to become a board member yourself.

If you are on the board, you can push for more efficient use of the funds to reduce the fees that everyone pays. Better value maintenance contracts could be available or lower insurance premiums, and if you are on the board, you can push these changes.

If you remain a member, you might still be able to vote on changes that reduce or remove some expenses in running the association.

When Things Go Wrong With an HOA

Most board members may not have experience being part of this association and are, therefore, more likely to make mistakes and make wrong choices. One common problem within associations, leading to more significant issues, is failing to collect fees consistently.

Some community members might try to avoid paying when fees are due. If the board doesn’t follow up on this, they will have less money to cover the association’s expenses. This can lead to other members thinking they can avoid paying their fees as well, gradually resulting in the deterioration of the services provided by the association.

Poor management of HOAs can reduce the homes’ desirability and value in the community. Another example of things going wrong with an HOA includes people joining the board who have nothing better to do than make their lives miserable.

You’ve probably met people like this in your day-to-day life. They are mean-spirited, have bad attitudes, and live to put their pain in others’ lives. If a few of these characters get on the boards, you could find living in the HOA you once loved becomes a daily nightmare.

You can do some things to combat an unruly homeowners association, but they are not always practical. Unfortunately, you may be in a position where you need to move on.

How to Dissolve an HOA

If things have gone wrong with your homeowner’s association and the neighborhood isn’t being taken care of as expected, it is possible to dissolve the association. HOAs aren’t considered permanent organizations and can be concluded if certain things happen.

Once again, if you consider the association’s dissolution, you should check what it says in the official documentation. The covenants, conditions, and restrictions should have information about dissolving the organization.

There could also be state laws that mean homeowners associations will be dissolved if they are not renewed.

If this law exists in your state and your association is poorly managed, the critical task of officially restoring the association might have been forgotten. You will be fortunate if this is the case, as it will make dissolving the association all the more straightforward.

If other community members share their concerns with the homeowners association, it will be easier to resolve the situation. Since it will typically take 80% of the members to vote for the association’s dissolution, you must ensure many members feel the same way you do.

Consulting With a Real Estate Attorney is Essential With Dissolving an HOA

You will also need help from a lawyer to get rid of the organization, which is never cheap. If you know that many other people in the community want the change, the costs involved in concluding the association won’t be such a legal burden.

When deciding to embark on this process yourself, you must have the funds available to cover the expense of hiring a real estate lawyer.

This must be accounted for if the homeowners association is in the middle of a community improvement project. Who will deal with the contractors without the HOA to manage the project?

Dissolving the association should be a last resort, and you might find that you can improve the community by becoming a board member yourself. Better organizational leadership may remove the problems and make the homeowners association more effective and reliable.

Frequently Asked Questions About HOAs

1. Is an HOA the same thing as a homeowners association?

Yes. HOA is just an abbreviation for a homeowners association.

2. What does an HOA cover?

HOA fees typically cover all of the maintenance while living in the neighborhood. An HOA fee usually covers common areas, elevators, lobbies, landscaping, patios, decks, tennis courts, and swimming pools.

3. Are HOA fees tax deductible?

If your home is your primary residence, HOA fees are not tax-deductible. You can deduct the HOA fees if the property is used as a rental home.

Consult with a tax professional.

4. Is it worth it to be in an HOA?

Whether it is worth living in an HOA or not comes down to personal choice. If you use many of the HOA amenities, you will probably benefit from it financially.

5. Why are the HOA fees so high?

Buying into a homeowner association with high HOA fees is probably due to extra perks and amenities such as the maintenance of swimming pools, tennis courts, gyms, and other such perks for living in the community. High fees could also be due to recent capital improvements as well.

6. What happens when you don’t pay HOA fees?

When you don’t pay HOA dues, the association can charge you penalty fees and interest on the amount you have not paid. The HOA could also sue and take you to court for timely payment.

Once a judgment is issued in favor of the HOA, the judge could rule to garnish your wages or take money from your bank account to pay back dues.

7. Can HOAs raise your dues without a vote to do so?

Yes. It is possible to raise fees without a vote. There are, however, rules by state governing how much an HOA fee can be increased.

8. Can a homeowners association fine you?

Yes, if the bylaws established by the HOA allow them to do so.

9. Does an HOA increase your property value?

A well-run homeowners association often does increase property values. Studies suggest homes with a solid HOA could sell 5-6% more on average than in a neighborhood without one.

10. How much is HOA insurance?

The average cost for a general liability insurance policy with $1,000,000 to $2,000,000 in coverage will cost an association on average from $55 to $80 per month based on the number of homes, location, land acreage, claims, features, and others.

11. Can an HOA force you to sell your home?

No, they cannot. HOAs, however, can and will enforce the rules if they are being violated. As mentioned, you could receive fines and be taken to court under an enforcement order.

12. How to find neighborhoods with an HOA?

Do you prefer living in a neighborhood that has a homeowners association? There are a few ways you can locate areas with HOAs. Two of the best are asking a local real estate agent and doing an online search. Search terms you can use include HOA near me, neighborhoods with an HOA near me, and homeowners association near me.

Final Thoughts on HOAs Meaning

Homeowners associations generally work to make housing developments better places to live, adding value to individual homes and making the community safer for everyone. But they aren’t entirely without their problems.

Being part of an HOA means you will face more restrictions on what you can do with your home and more fees to pay. If you want to buy a home in an HOA development, you should compare it to similar properties, not within an association, to evaluate how much value it provides.

When someone says, “What does an HOA mean,” you should now be better armed to help someone understand. Hopefully, you have found this guide to HOAs to be helpful. Best of luck if you have decided an HOA is right for you!

About the author: The above Real Estate information about what an HOA is was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for 37+ years.

Are you thinking of selling your home? I am passionate about Real Estate and love sharing my marketing expertise!

I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.

Summary

Article Name