What You Need to Know About HOAs

Get the lowdown on how a community is managed before you buy an HOA-governed home.

By Shannon Petrie, | Published: 6/19/2008

Talk to anyone who owns a condo or a home in a planned unit development (PUD), and they'll warn you about the homeowners' association (HOA). Not that the group is scary or anything. But it does wield a lot of power in the community it governs, so before you buy a home in a particular neighborhood, research the HOA.

When a developer builds a condo building or townhome complex, it creates a legal entity known as the HOA, which allows the developer to transfer ownership and management of the community to the homeowners after it has sold a predetermined number of units or lots.

Do the Research

The HOA manages the common areas and amenities and enforces what are called covenants, conditions and restrictions (CC&Rs), which all homeowners in the development must adhere to. Review each of these documents before buying in the community:

·                        CC&Rs -- These rules can limit anything from what kind of improvements or alterations you can make to your home to how many pets you can have.

·                        Homeowners-association bylaws -- These dictate in fine detail how the association should operate.

·                        HOA budget and financial statements -- The budget should cover day-to-day operating expenses, such as maintenance costs, staff salaries and utilities. At least 3 percent to 5 percent of its gross operating budget should go into a reserve for occasional repairs, such as paint jobs or new roofs. If the budget is unrealistically low, you're at risk for increased dues or special assessments. Study operating budgets and financial statements for the past several years to look for signs of poor monetary management.

·                        HOA meeting minutes -- Get up to speed on what the HOA is working on.

See What You Get

When you buy a unit or lot in the development, you become a member of the HOA and must pay monthly dues. A portion goes toward upkeep of common areas, and the rest goes into a reserve for potential repairs. Dues typically range from $150 a month to $600 a month, depending on the amenities you get.

One of the most appealing reasons for buying an HOA-governed home is the access to amenities. Oftentimes, you get luxuries you wouldn't be able to afford on your own, such as swimming pools, tennis courts and fitness centers. Another advantage over single-family homes is the potential savings in home-related expenses. Condos, for instance, are less expensive to maintain, as the cost of upkeep and repairs is split among the homeowners. And since maintenance is handled by the HOA, not having to clean the pool or fix broken exercise equipment is another perk.

Know Your Restrictions

You've probably already heard the biggest complaint about HOAs -- the CC&Rs. These rules are meant for the good of the community, but for some, they may seem too restrictive. CC&Rs and bylaws are extremely difficult to get around, so be sure to review these documents carefully before you buy a home in the community. Also be prepared for special assessments, especially in older buildings. If the roof needs to be replaced, the HOA will collect money from each homeowner to cover the cost.