Homeowners Associations (HOAs) are a common thing here in the metro Atlanta area, and homebuyers should do their due diligence about the HOA (in addition to their due diligence on the home itself) when considering purchasing a home in a community with a Homeowners Association.
What is an HOA?
An HOA is an organization -- usually a non-profit -- made up of members with one thing in common: ownership of a piece of property (a home, a townhome, a condo, a lot, etc.) within a specific neighborhood, subdivision, complex, or similarly-defined area. Typically, the HOA is created by the property developer or builder and is intended to control and maintain the common areas and amenities that serve the neighborhood (such as the property main entrance, the pool and tennis courts, community-shared greenspace, etc.), to enforce the neighborhood governing rules (known commonly as the Covenants, Conditions, and Restrictions, or CCRs), and collect and manage the monthly or annual dues, fees, and/or assessments, which are used for the running and maintaining of the neighborhood. Decisions regarding the neighborhood, such as upgrades, maintenance, and other major changes, are either decided by a vote of the Board of Directors or by a vote of the entire membership.
Who Runs the HOA?
The HOA can be self-managed by the residents of the neighborhood, or it can be managed by a HOA management company that the residents of the neighborhood hire (and pay a fee to) to manage the Association. The management company may complete such tasks as collect HOA dues and fees, assist during the closing process when the real estate attorney or title company needs documents or information in order for a property to be sold and change owners, and be in charge of maintenance of the common areas (such as an entrance gate or amenities like a pool or tennis courts), but ultimately, the most of the decisions about the neighborhood are still in the hands of the residents and/or an elected or appointed Board of Directors.
I've Heard That HOAs Are A Bad Thing. Should I Avoid Purchasing A Home In An HOA?
There is no one right answer to this question; every homeowner will have a different opinion. If you are looking for a home in a community that offers shared amenities, you will likely not be able to avoid living in an HOA, as monthly or annual dues paid by all property owners will be necessary to maintain the quality and upkeep of those amenities. Additionally, a well-run HOA can help to preserve property values by making sure that homes and lots are kept to a minimum standard -- yards are mowed, exterior paint isn't allowed to become worn and faded, mailboxes won't be falling over, trash cans won't be left by the curb.
However, depending on the personalities in charge of the HOA and the severity of the restrictions, there is always a risk that some property owners may feel stifled by the rules imposed by an HOA. If you know that you want to be able to paint your home any color you want, erect any kind of fence or outbuilding, have a trampoline for your kids, or have the freedom to rent out your property at any time, a home in an HOA may not be the best choice for you. This should be something that you discuss with your REALTOR® at the beginning of your home search and, depending on how strongly you feel either way and the type of community and amenities you're seeking, should factor into your home search criteria.
What Types of Restrictions Can Be Imposed By An HOA?
Depending on the CCRs, the HOA can enforce rules for things such as the physical appearance of individual properties, such as the exterior colors homeowners are allowed to paint their homes, front doors, and shutters, the types of fence(s) homeowners are allowed to erect around their lot, whether or not a homeowner is allowed to build a shed or outbuilding, and what type of mailbox can be installed in front of a home. HOAs can also restrict things that you cannot see, such as whether or not a homeowner can rent out their property or whether they can run a business out of their home. The HOA can also set rules for times that amenities, such as the community pool, tennis court, gym facilities, or clubhouse, can be used.
Additionally, when the funds on-hand are not sufficient to complete a neighborhood project, such as resurfacing the community swimming pool, installing a new front entrance sign, or putting a new roof on the community clubhouse, the HOA may vote to add an assessment -- an additional amount of money due from every household, in addition to the regular monthly or annual dues -- in order to pay for those maintenance or improvement projects. Exactly who gets to vote on those items and how often those types of fees can be assessed are covered in the neighborhood By-Laws.
I'm Buying a Home -- How Do I Know If It Is In A Mandatory HOA?
It is your responsibility, when you are purchasing a home, to do your due diligence and find out as much about the property as possible, including whether or not the home is located in a neighborhood with a mandatory HOA. The first place to look is at the property listing: there should be a section on the MLS listing detailing whether the home is located in an HOA and giving information about the fees associated with the home. However, don't necessarily trust that the MLS is 100% accurate. Do more research during your due diligence period to make sure you know everything about the home and the HOA.
Further due diligence on the HOA should include your REALTOR® securing a copy of the Community Association Disclosure, which is filled out by the seller and will include much more detailed information about the HOA than the MLS will. (Click here to view a sample copy of the Georgia REALTORS Community Association Disclosure to see the type of information it will include.) Your REALTOR® should also request from the listing agent a copy of the HOA By-Laws, CCRs, any community rules and regulations, and when possible, a copy of the HOA's budget and financial statement, including reserves. You should thoroughly review these documents during your due diligence period to make sure you are aware of the types of restrictions you will have to follow once you are a property owner in this HOA. A look at the financials should help you to understand if the HOA is financially healthy and can accommodate future improvements without the need for additional assessments.
I Am Buying a Home To Rent Out In the Future -- How Could An HOA Affect This Goal?
Many HOAs do prohibit or restrict rental of properties; a common restriction involves limiting the total percentage of properties -- for example, 20% of homes within the HOA -- that can be rented out or given a "rental permit" at any one time. One important thing for homeowners and investor-owners to remember is that, just because the HOA allows rentals at the time of your purchase, there is no guarantee that rentals will be allowed for the entire length of your ownership. Depending on the By-Laws, the Board of Directors and/or the membership of property owners may propose changes to the CCRs at any time and, with an acceptable vote, change the governing rules of the neighborhood. If you purchase a home in an HOA, in addition to reviewing the By-Laws and CCRs before you own the property, make sure you also continue to read and review all communication from the HOA, in case important changes to the CCRs come up that could affect the way you use or intend to use your property. Being a responsible homeowner means staying alert and aware of the HOA and any proposed changes that come up.