Buying and Selling a Home

Homeowner Associations: Friend or Foe?


HOA Due Diligence is Key Prior to Buying a Home

We’ve all heard tales of woe about “homeowners associations from hell” that are so militant with enforcing their community’s bylaws, the quality of life for the homeowner is actually diminished. And a good number of homeowners need take note.

The Community Associations Institute estimates that nearly one out of every six Americans lives in a community association and that, in 2007, HOAs governed 23.8 million American homes and 58.8 million residents. And with significant economic impact, as the institute estimates the real estate value of all homes in community associations approaches $4 trillion, approximately 20% of the value of all U.S. residential real estate.

“These HOAs have full authority to enforce a development’s covenants, conditions, and restrictions (CC&Rs),” notes Robert Jenson, CEO of luxury Las Vegas real estate purveyor The Jenson Group. “Before purchasing a condo, townhome, or single-family home in a master-planned community, it’s imperative for prospective buyers to actually read those CC&Rs and understand exactly what they encompass to assure they mesh with the buyer’s lifestyle and to generally avoid future hassles.”

Below, Jenson offers some top HOA frequently asked questions and answers to help would-be homeowners assure mandates purported to serve the community’s best interests actually serve their personal best interests:

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What are some important questions to ask a HOA before you purchase a residence?

Before purchasing a condo, townhome, or other single-family residence, it's imperative to ask a homeowner's association about parking limitations/restrictions, pet limitations/restrictions with respect to quantity, size, and type, restrictions related to outdoor decor/furniture/grilling restrictions (for balcony/patio), and if there are any current outstanding assessments the new owner will be responsible for assuming (on top of normal HOA) and term of those special assessments (i.e., 1x or ongoing?). Also ask if there is any active litigation, as this may affect buyer financing, and also indicates possible red flags with property in general you will want your home inspector to do extra due diligence on.

How should you expect the HOA to respond?

HOA should respond to prospective buyer inquiries with full disclosure ­ meaning they should provide you with all answers you are seeking or, at the very least, the means for you to find those answers as many will merely direct the person inquiring to the CC&Rs.

What's important to know about published bylaws, covenants and restrictions?

It's important to understand that many aspects of the residence and community property are actually governed, as many vastly underestimate the power and “reach” of a HOA.  Of particular note are any and all bylaw entries related to HOA fees and fee increases, and the implications if any given rule is "broken."

Is it wise to ask a lawyer to read over the bylaws/restrictions before purchasing the property?

If you have an attorney available, then yes, but no need to hire just for this purpose unless the development has active litigation going on, in which case it would be a good idea to consult with the attorney about the situation at hand. The attorney could also review the "special assessments" to confirm they do or do not apply to you as a new buyer.

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If you don't agree with something in the bylaws/restrictions, do you have any recourse? Should you consider running for a post on the HOA board so you can change one or more of these rules?

If you don't agree with HOA bylaws/restrictions, the best recourse is to not buy the property. If you're flexible on the bylaw and willing to spend the time and energy required to run for a post on the board, you might be able to change things once you're a community resident. However, if it's something you feel strongly about at the onset, always go in with the expectation that "this is the way it is going to be."

Typically, what do monthly HOA assessments/fees cover, at minimum?

HOA fees typically cover common ground concerns such as landscaping, pest control, pool and fitness center maintenance, guard gate/security services, and common area taxes. They sometimes cover utilities such as trash, water, and sewer.

How often do HOA assessments/fees increase (and at what percentage), so you can be prepared for rising costs down the road?

As a rule of thumb, HOA fees can change as often as every 2 to 3 years, usually increasing at a 10% clip (at a minimum). Special assessments may occur annually but for different reasons (redoing roofs, new front gates, mailbox upgrades, painting the exteriors, etc.).

Some HOAs get bad publicity for being dictatorial and too restrictive. What can you do to research whether your future HOA has a bad reputation or not?

To find out if a given HOA has a bad reputation, it's always a good idea to speak with current residents...but don't stop there! Also speak with residents in neighboring communities who may have heard rumors and may be more apt to discuss since their community's home sales won't be affected.

Print Date: 9/20/2020
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