HOAs can be great. They keep everyone’s home exterior looking similar, lawns are mowed, driveways are clean, and all of this can keep your property value up.
And without an HOA, you have the possibility of your property value going down if you happen to live next door to someone who doesn’t take care of their exterior.
I remember showing a house where the next door neighbor had so much junk on their front lawn. The grass was overgrown (or I should say weeds) and it looked terrible.
The house I showed was great but my buyer decided to pass on it due to the neighbor. So the house for sale definitely suffered do to the neighborhood not having any aesthetic covenants.
HOAs can also be an easy, quick way to get to know your neighbors if you are new in town and looking to meet people. But there are some things about HOA’s that you really need to know before buying a house that is governed by an HOA. And don’t forget, if you are getting a loan, your lender needs to know the cost of the HOA before they can approve your loan.
So, lets go through some of the things you should be aware of before buying a house in an HOA.
1- Fees or HOA dues- The first thing to know about HOAs is how much are the monthly dues. What do they cover? Utilities ? Community amenities? Lawn maintenance?
Some HOA communities have pools, tennis courts, community centers. Do your dues include these amenities.
As for utilities, some HOAs include water or electricity or other utilities. Make sure you find out before you buy so you can include these items that are included the HOA dues in your budget for a house.
How often do they go up? Are there any future assessments that have already been approved? For example, maybe the HOA has approved a new fitness room and once you buy that house, you too will be paying for it.
Just know what you are getting into and what the cost is.
2- HOA’s can have Strict Rules- you are subject to their rules and regulations.
Some examples are:
- Cant paint your front door any color
- Height of grass
- No Boats
- Restricted size Pets
- Color/condition of Shutters
- Deck color
Recently, one family here in Maryland received a violation notice for their front yard after they had intentionally created an eco friendly oasis with a variety of plants. This is from WUSA9.
In this example, this family fought back, and won! They tried to resolve the dispute with their HOA but couldn’t so they had to hire an attorney which cost them around 60k and cost the HOA around 100k of community money.
It took 3 years to settle but they did win in the end and actually changed the law here in Maryland.
So, be prepared. You need to review your HOA docs to see if you are ok with those rules.
Here in MD, you have 5 days to review the docs and if you don’t like something in the HOA docs, you can void the contract within those 5 days.
Bottom line, make sure you understand the rules and regulations. How much are the fines if you break one of them? What are the restrictions if you want to renovate? Can you change the exterior (which usually you cant) and do they need to approve the interior renovations.
And ask questions if you have some concerns. As I always say to my clients, go to the source. Call and email them directly rather than wasting your review period time by asking your realtor.
3-Budget/Minutes-
In your HOA docs, they will show you their budget and reserves. It’s important to know if they have reserves. Take the example we just went over. I’m hoping that the 100k came from reserves and not from a new special assessment for the homeowners. Or at least a lot of it.
So look at the numbers. See how they are spending your money. Are they things you would agree on because these things will come up again in the future.
And when is the last time the dues went up and why.
Also make sure you understand who is responsible for what? Roof? Walls? You will need these answers when you start to get Insurance quotes.
As for the meeting minutes, see if there are things discussed that you would have a problem with. These are your future neighbors!
4-HOAs can Foreclose on you!
They can file a lien if you don’t pay your fines or your dues. This is no joke.
There was a story in the news in 2022 when an HOA foreclosed on 50 homes in Denver! https://news.yahoo.com/hoa-forecloses-more-50-green-021443381.html
Or how about this story where a woman in Altanta lost her home to an HOA for $3.24 after living there for 17 years! https://www.11alive.com/article/news/investigations/the-reveal/hoa-battles-metro-atlanta/85-c33d4c4e-b9c4-46cb-8042-394ef1121399
So you need to take the due and fees seriously.
5- Management company-
Most HOA’s are run by management companies. These are usually much bigger entities than the HOA itself. So make sure you look them up and see what people are saying. How often are people being fined? Have there been a lot of complaints against the management company? Any law suits past or present?
Just know who you are getting in bed with.
6- HOA board- who is on it? Personality? Difficult? I’ve heard stories of power hungry neighbors who became the HOA president and made homeowners he didn’t like lives miserable. So do your research. When you’re visiting the house, ask the neighbors about the HOA. How long did it take to get the docs?
7- Rental restrictions- can you rent out your home if you want to? How many homes can be rented out at one time?
This can protect you against institutional investors if only a certain amount of homes can be rented out. You don’t want them to be able to have a majority vote.
Will renters bring down the value. I have nothing against renters but homeowners tend to take better care of their homes. I say “tend to” because we know that is not always the case. But it makes sense. If you are renting, it is the landlord, or owners, responsibility to make sure the house is properly looked after.
8- You pay them forever. Unlike your mortgage which will continue go down after you pay it, your homeowners dues will last forever, and will most likely go up.