The Basics Of Home Owners Associations
When purchasing a condo or townhome you will become part of a home owner's association
, also known as an HOA, by default. An HOA is originally created by the builder or developer to define the management of the community. After a majority of the units have been sold, the management of this association is transferred to the home owners.
Many HOA rules are pretty standard and will be found in almost any association. These primarily include the federal and state mandated covenants regarding discrimination. Other rules that are common concern the maintenance requirements for each unit owner, limitations on what can and cannot be attached to units, fences, painting, noise, parking, etc. While home owners cannot change or alter bylaws that are government mandated, most other rules can be amended by a majority vote of the members.
The Home Owners Association may be managed by either an outside management firm, or by the home owners themselves, after they elect a Board of Directors. Outside management companies will charge the association a fee for their services, which will increase the amount of the monthly assessment.
HOAs have popped up all over the country as municipalities, and many have found it economically advantageous to have housing developments assume responsibilities that previously had fallen under city jurisdictions. In some newer areas, the Home owner Association may find itself responsible for street, sidewalk and sewer maintenance. Often a builder is given a tax incentive to build developments with common areas, which shifts the creation and maintenance of storm water collection, run off and green areas (mini parks) to home owners as opposed to the municipalities. This means the homeowners become responsible for maintenance of the parks, which saves the cities money.
Homeowner Associations charge dues which can be assessed monthly, quarterly or annually. For condominium units that share walls, roofs, and common areas, the dues typically cover maintenance of the structures and common areas as well as what is known as "walls out" property insurance. Walls out insurance will cover the walls and roofs of the buildings, but does not insure against damage, in case of fire, water, or other elements inside the unit.
The HOA bylaws and insurance policies are subject to approval by lenders. Because of recent lender guideline revisions, many associations are finding themselves scrambling to comply with new lending rules so current unit owners are able to sell and new buyers are able to obtain financing to complete their purchases.
If you purchase a home which belongs to an HOA, you are taking part in all the advantages that the HOA offers, such as amenities, but you are also taking on the responsibility for maintaining all those amenities. When you make an offer on a home, you should be provided with the documents covering the bylaws and covenants for the community. Often, your real estate agent can discuss this documentation with you. This allows you time to review the rules, and become familiar with the amenities prior to making a final decision about the purchase.
Some things to consider prior to making your final purchase decision:
1. The financial soundness of the HOA
2. The amount of the monthly dues
3. The amenities included and the condition of those amenities
4. What the HOA insurance covers
5. Is the HOA being run by the home owners or a management company
6. Is there any outstanding litigation against the HOA? The developer? Any subcontractors?
7. HOA history regarding special assessments.
It is also recommended that you make some time to talk to other home owners in the development. Unfortunately, developments that are self managed can end up with "power hungry" home owners who appear to have nothing better to do than harass their neighbors. This is definitely something you would want to know, wouldn't you?
by: Stephen Daniels
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