What is a homeowners association

List of Partners vendors. Many residential communities have a homeowner's association HOA structure to help maintain a clean and cohesive atmosphere in the neighborhood. Also, when you buy a condominium, townhouse, or single-family home within "a planned development" you may also encounter the HOA structure.

While the HOA will at times spare the homeowner from some responsibilities they can also come with some homeowner obligations. Before you buy a home that makes you part of an HOA, here's what you need to know, and the questions you should ask both the association and you and your family. Moving into a planned development often requires you to join the community's HOA and pay its fees to help cover the upkeep of common areas, shared structures, and exteriors.

Statistically speaking, Americans have a one in five chance of living in a home that's part of an HOA, according to a data analysis by applied microeconomist Wyatt G. Is life in a planned development a good option for you? And, if so, which ones have HOAs that may suit you best? The answers to those questions depend not only your finances but your enthusiasm for shared amenities, tolerance for rules and regulations, and comfort with self-government—since most HOAs are overseen by volunteers who live in the development.

Trulia found dues to be generally higher in older buildings and complexes with more units overall. Fees can differ even within a development, due to variations in square footage, location, and orientation, all of which can affect how much upkeep the property will require. You should also find out how often fees have increased over time, and by how much.

If you can, obtain a printed history of HOA dues by year for the past 10 years. Martinez says that the fees for an HOA are typically increased no more than annually. Since they're only estimates, Martinez suggests you also check the amount by which fees are permitted to increase every year under the HOA's bylaws.

In a new complex, that research can help determine whether initial HOA fees have been attractively, even artificially, underpriced in order to attract homeowners and are liable to increase significantly over time to cover the gap between revenue and costs.

The precise rights, services, and amenities for which the HOA is responsible may range as widely as the fees being charged. Look at what is included and not included that will affect your household finances.

Will you have to pay for garbage pickup, for example? Are utilities included? Which ones? Line up the fees—and their inclusions and exclusions—against those of other developments in the area, especially those that are already on your shortlist. An HOA may adopt one of several approaches to financial management. These choices especially affect how it funds unexpected expenses and such capital investments as replacing an HVAC system.

Here's how the assessment route works: When a major expense, such as replacing a roof or elevator, comes up—and the HOA's reserves lack the funds to pay for it—the association may charge each homeowner a special assessment.

These levies can run into thousands of dollars. Developments often draw up multiyear plans for repairs and capital investments, including their annual costs and the expected balance in the reserve fund at the time the outlays will be required.

Ask to see those documents, paying special attention to how well the needed expenditures line up with the balance of the reserve fund. Professional help can be valuable when poring over these spreadsheets. His company's, Manning says, is to "have the clients discuss the financial statements with a CPA [who is an] expert in analyzing [developments'] financials. The HOA should be able to provide such a list. Ask, too, if any special assessments are planned in the future.

Note that economies of scale may mean that special assessments for a certain capital expense may be smaller in HOAs that have many members and higher in smaller HOAs, where a similar expense will have fewer homeowners to fund it.

They also cover everyday utilities like garbage and snow removal, electricity, water, and sewage, as well as expenses like insurance, HOA management costs, and reserve contributions.

HOA fees vary and depend on the number of amenities, plus any scheduled enhancements, which at times drive up costs. Special assessments are extra fees for things like unexpected repairs. HOA boards draft a yearly budget to determine fees. If these fees are not paid on a timely basis, the HOA board or management companies can charge late fees or implement penalties like restricting use of the common areas.

While many management companies include HOA fees as part of their rent, sometimes tenants are required to pay dues to the association directly. Their expectations are clear. They make life richer. The amenities, facilities, and services facilitated by HOAs can boost your quality of life. Their rules are set in stone. It can also be expensive to live in an HOA community because of the fees you have to pay each month. Homeowners can also receive notice violations and fines for not following the rules and regulations.

Not all board members have the experience or expertise to run a community. As such, many associations decide to enlist the services of an HOA management company. The HOA manager handles the day-to-day operations of the community including accounting and bookkeeping, maintenance, collections, and budgeting. With essential but time-consuming tasks taken care of, the board can have more time to focus on urgent and more important community matters.

In exchange for joining a community, homeowners must pay HOA fees each month. The association uses these fees to pay for the upkeep and maintenance of shared common areas. It also uses the money to pay for common utilities such as garbage disposal, water and sewage, and electricity. The fees also cover other expenses such as insurance, HOA management fees, and reserve contributions. HOA fees will vary for different associations.

For example, a community with plenty of amenities will have higher upkeep costs, which will then result in higher fees.

The amount can also be higher if communities have large-scale projects in the pipeline or if the association is trying to replenish its reserve funds.

The Board prepares an annual budget to determine how much to collect in association fees. If homeowners do not pay their dues on time, the HOA Board or management company can collect late fees or penalties. A homeowner who continuously does not pay HOA fees can be declared delinquent. Homeowners must weigh the pros and cons of HOA living to determine whether paying monthly fees is worth it. However, if homeowners see that their community is not being managed properly, they may feel that the association fees are not worth it.

In these instances, homeowners must take action. They can speak to the board about low-quality service providers, or even run for a board position if they see that the current members are inefficient. Here are the most frequently asked questions about HOA living.

You might also be able to find this information online. Some HOAs, for example, restrict the number of plants you can have in your front yard or the height of playground equipment, or require you to get prior approval for home additions or a new roof.

Other rules might prohibit you from renting your home for a short period through Airbnb or another website, which can be problematic if the home is a rental property or you counted on that income to help pay the mortgage on a primary residence.

This is where some internet sleuthing comes into play. Check Facebook and Nextdoor community groups to see if people have posted about their experience with the HOA. Typically, HOAs are operated by a board consisting of homeowners who reside in the community, while others are run by a real estate developer or property manager. If the HOA has an upcoming meeting, it might be worth attending to get a feel for how things are run.

Inspecting the financials of an HOA is an important step. Look to see if the HOA has a sufficient reserve fund and insurance to make repairs if, say, a hurricane blows off the clubhouse roof or flooding damages the landscaping. Also, find out if any debt has accrued and whether the HOA has ever had legal judgments against it, and check how often annual assessments are raised, and by how much.

Trash pickup and landscaping of shared areas? A pool or clubhouse? Twenty-four hour security? Find out what rules or restrictions the HOA has in place for using those amenities, too.

If the HOA promises a new pool with a slide in your part of the neighborhood, ask when construction will begin and finish. You should also find out how many projects are scheduled and how that will impact your annual dues so you can budget for the increase in costs. Living in an HOA community comes with some trade-offs.