Are you considering purchasing a home or condo within a homeowners association? If so, one of the first things you should research is the HOA fees.
Homeowners Association (HOA) fees are more than just a monthly bill for those in specific communities. These dues are investments in the community’s upkeep and future.
Primarily, these fees ensure that common areas remain in top condition, amenities are available and well-maintained, and the community adheres to standards that protect property values.
The amount homeowners pay can vary dramatically, influenced by the community’s location, the amenities offered, and the cost of services in the area.
For example, a high-end community with a private gym, pool, and 24-hour security will have higher fees than a smaller community with fewer amenities.
Understanding the basis of these fees can help prospective buyers assess whether a particular HOA aligns with their values and lifestyle needs.
Working as a Realtor for nearly forty years and owning properties in multiple states with association dues, I am quite familiar with them. When buying into an association it is essential to get a handle on the fees and what they cover.
I would also highly advise finding out about the financial health of the community. You do this through research and due diligence. Your real estate attorney and buyer’s agent should help you perform this vital task.
Let’s examine everything to know about homeowners association fees.
Fun Facts and Statistics
1. HOA fees are monthly or annual charges a homeowners association imposes on its members.
2. These fees cover the costs of maintaining and managing common areas within a community or building complex.
3. HOA expenses can vary depending on the amenities provided, property size, and location.
4. Common expenses covered by HOA fees include landscaping, security services, trash collection, and maintenance of shared facilities like swimming pools and gyms.
5. Paying HOA dues is typically mandatory for residents within an HOA-governed community. Failure to pay can result in penalties or legal actions.
What is a Homeowners Association?
A homeowners association, also known as an HOA, is a group in a community that establishes and upholds property regulations within its authority. These regulations may encompass guidelines on house paint colors, limitations on the number and type of pets allowed, and other similar restrictions.
Whether you reside in a detached house, condo, or townhouse, if your neighborhood has communal areas or facilities such as a pool, tennis court, or security gates, these shared spaces are typically managed by a homeowners association or condo association.
The HOA is typically overseen by a board of property owners elected by their fellow property owners in the community. The fees paid to the HOA encompass the expenses associated with maintaining these services.
What is a Condo Association?
A condominium association is much like an HOA.
A condo association manages a condominium complex’s common areas and services. It enforces rules and collects fees from unit owners for maintenance and improvements.
It operates similarly to an HOA but focuses specifically on condominium communities. Condo associations ensure the property remains in good condition and enhance living standards for all residents.
When buying a condo, I would encourage you to research the association. There are many excellent questions to ask about condos before making a purchase.
What Are HOA Fees?
HOA fees are monthly or quarterly charges that homeowners pay to cover the maintenance of common areas and amenities in a community. These fees vary based on location, community size, and service range.
For example, dues often cover landscaping, security, and recreational facilities. They ensure communal spaces remain attractive and functional, directly impacting residents’ quality of life and property values.
Understanding these fees is crucial for potential homeowners to budget accurately and assess the value of living in a particular community.
Before you commit to buying, you must ask essential questions. The answers will help determine whether it is a wise buying decision.
What’s The Difference Between an HOA Fee and a Condo Fee?
HOA fees apply to planned communities and cover common area maintenance and amenities. Condo fees, however, often include building insurance and utility costs.
While both fees fund communal property upkeep, condo fees typically have a broader scope. They reflect the shared nature of condominium living, such as elevator maintenance and building repairs.
Understanding the distinction helps budget and assess the value of property amenities and services.
What do the HOA Fees Cover?
Before signing on the dotted line, clarifying what the HOA fees cover is crucial. Some associations offer comprehensive services, including lawn care, snow removal, utilities, and cable TV.
Others might focus solely on the essential maintenance of shared spaces. Knowing this breakdown allows you to evaluate if the fees are justified and how they might offset other household expenses.
Some communities may offer many services, such as a gym, community center, swimming pools, and tennis courts. The more amenities that are offered, the higher the fees typically become.
Additionally, understanding the coverage helps in comparing different properties and communities.
I would recommend buying where you get the most bang for your buck. It probably doesn’t make much sense to purchase in a neigborhood where the dues are high and you don’t take advantage of these perks. Do you want to pay for a swimming pool or gym you don’t use?
For some buyers, having a pool could be a significant perk they otherwise could not afford. What may be a significant perk for one person may be inconsequential to another.
How Often do HOA Fees Increase, and by How Much?
I recommend looking at the history of dues increases before buying a home or condo.
HOA fees are subject to change. They might increase annually or as needed to cover rising costs or fund significant projects. Historical data on fee increases can provide insight into the HOA’s financial management and planning.
If fees have spiked frequently or significantly in the past, it could signal financial instability or poor planning within the association. Such trends warrant deeper investigation and consideration.
You should speak to the association and find out exactly how much the fees increase and why. Finding where the board expects them to go will also be wise. Do they expect stability or continued increases?
What Are the HOA’s Financial Reserves?
Another crucial question to ask is the financial health of the HOA. Is the reserve fund healthy?
An HOA’s financial reserves are akin to a safety net, earmarked for emergency repairs or to cover unexpected costs without burdening homeowners with special assessments.
Inquiring about the reserve fund’s status gives you a sense of the HOA’s financial health and preparedness. A robust reserve fund indicates a well-managed association. On the other hand, a lack thereof suggests potential future economic challenges.
One of the first things I do for my clients when they are interested in buying where an association exists is to request financial documents. The current financial statement will be an excellent indicator of the community’s health.
My preferred real estate attorney will also review the documents on behalf of the clients. He does an excellent job of spotting any red flags with condos. I would encourage you to review the financials carefully.
If it does not look good, you may want to reconsider your purchase or understand if there is a plan for correcting the deficiency.
Has an HOA Reserve Study Been Completed?
Knowing if an expert has been hired to perform a reserve fund study is essential. An HOA reserve fund study assesses the community’s long-term repair and replacement needs. It estimates costs and funding requirements to maintain financial health.
This study helps ensure the HOA has adequate reserves to cover significant repairs without imposing sudden assessments on homeowners. It is part of promoting sustainable community management and financial planning.
Conducted by professionals, it guides the HOA in setting appropriate reserve levels and fee structures. It is another question you should inquire about when examining the reserves.
Are There Any Upcoming Assessments?
Special assessments are additional fees charged to homeowners for significant, unforeseen, or underfunded expenses. These can be substantial and impact your budget.
Assessments can consist of one-time charges or recurring fees in addition to your regular dues. HOA boards typically have significant discretion in implementing assessments and may not be required to seek input from or notify residents beforehand.
This is why it is one of the most vital questions to ask before buying. If you are a buyer marginally qualified to purchase, this could be a significant financial burden. Don’t make this mistake!
Knowing whether any assessments are anticipated allows you to plan financially and assess the community’s fiscal management. Special assessments relate to the financial health including funds in a reserve account to pay for unplanned expenses.
You should always ask upfront if there are any special assessments planned. If yes, you’ll need to find out how much and what for. It is also wise to check the community for anything that looks rundown.
For example, do all the decks look shabby and need replacing? If so, how will a project like this be funded? It very well could be through a special assessment.
Will Inflation Impact Fee Increases?
Your HOA fees encompass the expenses for services, which may be significantly influenced by inflation.
We have all experienced this over the last few years in almost everything, whether housing or not.
It is no different in a homeowners association.
For instance, if the company responsible for landscaping or cutting the grass raises its prices due to the increased cost of materials caused by inflation, your fees may also increase to accommodate the additional cost.
Any rise in costs that an HOA must manage due to inflation is expected to result in higher fees for homeowners. The U.S. Bureau of Labor Statistics Consumer Price Index reports that the annual inflation rate for the past 12 months is 3.1 percent.
The housing sector plays a crucial role in driving inflation, with the shelter index showing a 7.3 percent increase over the last year.
How Does the HOA Handle Delinquencies and Financial Shortfalls?
The approach to managing delinquencies and shortfalls can affect the HOA’s financial health and its residents. High delinquency rates may lead to increased fees for all members to cover the shortfall.
Understanding these policies and their enforcement helps gauge the community’s financial stability and potential risk exposure.
Can You Participate in the HOA’s Decision-Making Process?
Engagement in the HOA can vary. Some associations welcome homeowner participation in decision-making, while others may be more closed off.
Knowing how decisions are made, and how you can contribute, can influence your living experience and control over your investment.
Participation opportunities can range from voting rights to board positions. The established policies can affect everything from fee adjustments to community rules.
Attending meetings provides a platform to stay informed, voice opinions, and participate in governance. To raise concerns or suggestions, homeowners can submit them in writing before meetings, ensuring issues are added to the agenda for discussion.
This process provides transparency, encourages community involvement, and allows for collectively managing the community’s needs and priorities.
It is an essential question to get answered to your satisfaction.
Remember, when you buy into an association, you must live by majority rules. Knowing the rules aren’t so restrictive that your quality of life is destroyed becomes crucial. It’s part of learning the pros and cons of condos.
What Are The HOAs Long Term Goals and Funding Projects?
I recommend asking about the association’s long-term goals and projects funded by the fees. This reveals plans for enhancements or maintenance that could affect your lifestyle and property value.
Understanding these objectives helps gauge the community’s direction. You’ll understand better how your fees contribute to future improvements.
This will help determine whether it aligns with your community development and asset growth expectations.
How Are Late Fees Handled When You Don’t Pay Your Dues on Time?
HOAs typically impose late fees for overdue payments to encourage timely fee submission. Ask how they calculate late fees and the grace period length. Understanding the policy helps manage payments effectively and avoid unnecessary charges.
Knowing the consequences of late payments, including potential legal actions or liens against your property, is crucial, ensuring clear financial responsibilities.
Questions I Get as a Real Estate Agent About Dues
There are other FAQs that I will get from clients about HOA fees. Let’s review a couple of them.
Are HOA Fees Tax Deductible?
The answer is no, unless it’s a rental property. For your residence, you cannot deduct the fee from your taxes. HOA fees are not tax deductible for personal homes.
However, a portion may be deductible if you use your home for rental purposes. Always consult a tax professional to understand how this applies to your situation. Doing so will help to maximize your tax benefits according to current IRS guidelines.
Condo fees are also not tax deductible.
Can You Be Kicked Out of an HOA For Not Paying Your Dues?
Yes, but not right away. Failure to pay fees can lead to legal actions, including foreclosure on your property.
HOAs have the authority to enforce payment by placing a lien. They can ultimately force the sale of your home to recover unpaid dues. It’s essential to address payment issues promptly and communicate with the HOA to avoid severe consequences.
In most circumstances, an HOA cannot kick you out. For example, if you broke the rules.
Conclusion
Asking detailed questions about HOA fees before purchasing can illuminate a community’s cost of living and value proposition. It ensures that you are financially prepared and that the community meets your expectations for living standards and amenities.
Diligent inquiry into these fees is not just about budgeting; it’s about investing wisely in your future home and community life.
About the Author: Bill Gassett, a nationally recognized leader in his field, provided information on questions to ask about HOA fees before buying a home or condo. He is an expert in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. 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 the last 38+ 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.
