Let’s talk about what is an HOA?
An HOA is an abbreviation for homeowner’s association. HOAs are governing organizations over neighborhoods and communities. These can include single-family homes, townhomes, condominiums and other groups of homes in planned communities.
Since the 1970s, American neighborhoods have been increasingly governed by these associations. There are very few newly constructed neighborhoods without them.
Most HOAs are formed by real estate developers that then turn them over to an association board when construction nears completion. The board members are typically volunteers who live in the community and have one or more community managers.
Some HOAs have an on site presence while others hire a third party company to manage and run the HOA.
HOAs are very prominent here in Scottsdale and the greater Phoenix metro area. According to ipropertymanage.com, Arizona ranked 10th in the Unites States for the highest number of community associations in 2018.
Let’s take a look at the current homes for sale and see how many are in an HOA vs. no HOA. At the time of recording this video, there are only 8260 active homes for sale in the MLS. Out of those, only 2886 homes are marked as not belonging to an HOA. That comes to roughly 35% of the total homes for sale that don’t belong to an HOA. As you can see, there is a good chance that you next home you buy will belong to an HOA.
Before I break down the negatives and positives of an HOA, have you seen the latest GEICO commercial starring Cynthia from the HOA?
You can view the commercial on YouTube here.
What did you think of the video? Leave me a comment below about what you thought.
That commercial, while maybe extreme, does reflect some of the fear people have living within a HOA. So let’s talk about the negatives of living in an HOA.
- HOAs have a list of rules that must be followed. These rules are called covenants, conditions, and restrictions or CC&Rs which explain what homeowner’s can and cannot do. CC&Rs will differ from one community to another, but here are some things you can expect to see:
- Permissible colors for exterior house paint
- Minimum property and landscaping standards
- Types of fencing allowed
- Types of window treatments allowed
- Limitations on the type of security lights you can attach to the house
- Restrictions that limit vehicle storage, recreational vehicle parking or on street parking
- Restrictions on property use that generate noise or smell
Be aware that when you purchase a home in an HOA, you are legally entitled to receive and review the community’s CC&Rs. This is done during your due diligence period. If you find something that you can’t live with, you can always back out of contract.
- HOAs can be overbearing. I would say that Cynthia is a little overbearing in policing the CC&Rs. As mentioned previously, some HOAs are managed on site while others are managed by an off-site third party. You may also have zealous board members or neighbors like a Cynthia letting you know everything little thing wrong.
- Living in an HOA may limit the amount of personalization you can bring to your home. This may include limiting your color selection for the exterior of your home to supporting your favorite Pro or College team by flying a team flag during the season.
- HOAs cost homeowner’s money.
- First off, a homeowner is required to pay monthly/quarterly/annual fees or dues. Depending on the HOA and what it covers, the cost may be $20-30 a month or it could range over $1000.
- In addition, there may be a transfer fee included at the time the house is sold. Once again, this could be a small amount or I have seen it represented as a percentage of the home’s sale price.
- HOAs may levy fines for not following the CC&Rs. These fine may start small, but can grow large if you don’t fix the problem.
- For larger improvements, the HOA may assess homeowner’s an assessment to fix roads/public areas, etc. These assessments may come out of the dark and really put a damper on a family’s budget.
- Risk of Lien or Foreclosure. You are required to pay your regular fees and any fines that have been assessed by the HOA. If you can’t or don’t pay these, you run the risk of the HOA placing a lien on your property or potentially losing your home to foreclosure.
Now that we talked about the bad, what are some of the positives for living in an HOA?
- HOAs maintain common areas. Your community HOA will be responsible for handling all maintenance of common areas and repairs for the amenities outside of your home. This is perhaps the biggest perk of living in an HOA community.
- HOAs help keep uniformity. The HOA’s CC&Rs make sure that the community retains the look and feel of the way it was built. A neighbor is going to be able to paint their house a bright purple unless it is within the approved paint palette.
- HOAs help homes sell for more. According to University of California at Irvine researchers Wyatt Clarke and Matthew Freedman, single family homes under HOAs sell for an average of 4% more – roughly $13500 more – than similar homes outside of HOAs. This tends to be higher for larger homes and homes in smaller subdivisions.
- HOAs mediate problems on your behalf. Are you a person that hates conflict with your neighbor? An HOA can help. If you neighbor is violating rules like playing loud music, not maintaining their property, etc, then you can talk to the HOA and let them take care of it for you.
- Recreation and Social Activites – Some HOAs include swimming pools, tennis courts, golf courses, playgrounds, gyms and clubhouses in their communities – none of which you have to maintain personally. Some also host social gatherings such as block parties, community yard sales, spring cookouts, pool parties, etc.
Personally, I like living in an HOA. I like it that I don’t have to worry about people parking cars on their lawns and that the neighborhood looks neat and well maintained unlike that house pictured above. However, I know other people that don’t want to live in an HOA because they don’t want to be told what they can or cannot do at their home.
What about you? Do you have a preference? Let me know by leaving a comment below.