How Buyers Can Review Homeowners Associations When Looking for a Home

Homebuyers are facing record costs this year amid rising interest rates and shrinking supply.

As home buying becomes increasingly competitive, potential buyers should consider one additional factor when weighing the pros and cons of a given property: the homeowners’ association, or HOA.

Homeowners associations are led by community residents who are elected board members, who govern the neighborhood through a set of rules and regulations. Homeowners pay HOA fees to maintain and repair common areas such as parks, roads, and community pools.

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Mandatory HOA membership can be very expensive for homeowners, with dues reaching $1,000 per month, according to the American National Bank of Texas.

If the board is short of money or hasn’t established an adequate budget, it can simply charge a special assessment, said Raelene Schifano, founder of the HOA Fightclub organization.

“Unless association members hold 51% of the majority vote, they cannot vote against a budget,” she added. “I’ve seen budgets go from $300 a month to $800 a month.”

Given that 84% of newly constructed single-family homes sold in 2022 were owned by HOAs, according to the U.S. Census Bureau, it will be important for potential buyers to ideally vet these organizations before signing the deed.

Different types of housing can be affiliated with an HOA, from single-family homes to cooperatives.

Single-family homes are separate units in which residents own both the land and the house, said Clare Trapasso, editor-in-chief of Realtor.com. They have their own entrances and street access and do not share utilities or other systems with other homes.

Townhouses and townhouses are somewhat similar; however, they share walls with neighboring units, although they are separated by a floor-to-roof wall, Trapasso added.

Meanwhile, condominiums, often called condos, and co-ops, or cooperatives, are units located in a shared building where the residences jointly own the common area, but their ownership structure is different.

In a condominium, residents own their individual home but co-own the land and common areas with other residents. The condos are managed by a board of directors made up of homeowners association members who make decisions for the community, said Jaime Moore, a principal agent with Redfin.

In a co-op, residents own shares in a company that owns the building and will have a board of directors made up of every member of every unit, creating a community where all parties have a say, he said. added.

“Co-ops are popular in places like New York and Boston, but condos are generally more common in the rest of the country,” Trapasso said.

A high percentage of new homes built nationwide today are part of HOA-managed developments because of the financial benefits to local governments, according to Thomas M. Skiba, CEO of the Community Associations Institute, an organization made up of homeowners and of condominium associations.

“They no longer have to plow the street (or) do all that maintenance and they still collect the full value of the property tax,” Skiba added, referring to local officials.

Homebuyers who want to avoid the added costs associated with HOAs can look for older homes on the outskirts of subdivisions, said Moore, the Redfin agent. If you have no choice but to buy in an HOA-affiliated area, here are some ways to evaluate the organization.

Although real estate agents are not required nationwide to disclose to buyers whether a property is tied to an HOA, buyers can take initiative and review the organization on their own.

Some states, like Nevada, require sellers to provide potential buyers with a disclosure of everything related to the homeowners association, including their financial status and meeting minutes, Redfin’s Moore said. However, research local and state laws to understand your rights as a potential buyer and owner.

These vetting tips may not apply to co-ops, and you may not have time to fully investigate a given HOA.

Here’s an expert checklist:

1. Request a copy of all HOA documents, such as covenants, bylaws, rules and regulations, which serve as the community’s constitution, said Schifano of HOA Fightclub. Also ask for the meeting minutes to see what repairs were made or discussed.
2. Ask about the monthly or annual fees, the HOA’s budget and the history of increasing assessments from year to year, Skiba said.
3. Check out community reserve funds, which provide for repairs and renovation. Check whether the community sets aside enough money for major expenses or whether they are properly funded. “Nobody likes surprises, and this is the kind of big financial surprise (that can) be really problematic for every homeowner,” Skiba said.
4. Search the HOA on the county website to see how many liens, judgments and foreclosures have been recorded over the life of the community, Schifano said.
5. Look at the financial data and see how many attorney fees are disclosed. This indicates whether they are having a lot of problems, Schifano said.
6. Check permits with the county for roof repairs, electrical and plumbing services for the community, she added.
7. Ask to attend at least one board or annual meeting if possible. A meeting helps buyers understand who controls the community’s finances and decisions, Schifano said. The annual meeting includes other owners. To check whether the board is doing a good job, note whether residents seem happy, combative or complacent.

“The most important thing a buyer can do is ask questions of their agent, the community association and neighbors,” Skiba said.

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