What Is a Homeowners Association – HOA?

A homeowners association (HOA) is an organization in a subdivision, planned community or condominium that makes and enforces rules for the properties and their residents. Those who purchase property within an HOA's jurisdiction automatically become members and are required to pay dues, known as HOA fees. Some associations can be very restrictive about what members can do with their properties.

Understanding an HOA

Homeowners associations (HOAs) are formed by communities with single-family homes or multiple-unit buildings, such as condominiums. As the name implies, the HOA is comprised of, and run by, the community's residents. Membership in an HOA is usually a requirement to buy a home within the community. An HOA is typically established to make and enforce rules regarding the properties within the jurisdiction.

An HOA has a board of directors or governors, elected to enforce and oversee the HOA's rules and regulations. An HOA will typically describe its rules in a document called the Declaration of Covenants, Conditions and Restrictions (CC&Rs), which set certain conditions on owners and their properties. The conditions may include structural restrictions such as the type of fences or landscape allowed, or minor selections such as the color of paint on a house. This document usually also outlines the penalties for violating the CC&Rs, which may include fees, forced compliance or in some cases, litigation.

KEY TAKEAWAYS

  • A homeowners association (HOA) is an organization that makes and enforces rules and guidelines for a subdivision, planned community or condominium building.
  • The community's residents are members of the HOA and some require mandatory membership.
  • Run by a board of directors, HOAs collect monthly or annual fees to pay for common-area and facilities upkeep.
  • HOA's may impose fines and even liens on noncompliant homeowners.
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HOAs vs. Community Associations

Most HOAs are incorporated and thus subject to state laws. Some states consider condominium-based HOAs, often called "condominium communities," and organizations governing cooperatives—co-op boards—to be separate from HOAs because the property interests differ. "Community association" is a broader, umbrella term that encompasses all such organizations.

The Community Associations Institute, a trade organization that lobbies state legislatures on behalf of HOAs, estimates that in 2018, there were between 346,000 and 348.000 community associations across the United States with upwards of 70 million residents.

Homeowners Association Fees

Homeowners associations wield significant financial and legal power over the property owners in their jurisdiction. HOAs collect monthly association fees or annual dues to pay for the upkeep of common areas like parks, laundry rooms, elevators, and swimming pools. Typical HOA fees are between $200 to $400 per month, but they could range anywhere from less than $100 to upwards of $10,000 for high-end communities. HOA fees also often contribute to the association's reserve fund, which is set aside for major renovation projects or emergency use. In addition to regular fees or dues, HOAs can also impose special assessments on homeowners when the association lacks sufficient reserves to pay for unexpected repairs on common areas such as sidewalks or parking lots.

The HOA's board, which is usually responsible for the organization's finances, oversees the collection and management of funds. Along with setting dues and assessments, the board can slap fines on homeowners who break the rules or damage the common areas. In addition to imposing penalties, HOAs can also place a lien on a property if a homeowner falls seriously behind on his dues. Existing HOA liens can make it difficult to sell the home unless they are cleared.

Benefits of an HOA

The HOA provides the regulations and guidelines for the community. These standards are actions that must or should be done with the aim of preserving and enhancing the community's property values. Often, they are appearance-oriented, dealing with cleanliness, condition, and repair. Sometimes they are designed to keep a uniform appearance to the included properties or the community as a whole.

The HOA management services may provide amenities such as landscaping, parking lots, and facilities like swimming pools, tennis courts, or party spaces available for all the HOA members. Some HOA fees cover the cost of trash collection and snow removal.

On a more theoretical level, HOAs are symbols of self-governance and democracy. Who better to run a community that the people living in it—as opposed to some absentee landlord?

Pros

  • Set and enforce community rules

  • Protect property values

  • Provide services, amenities, and facilities

  • Offer self-governance

Cons

  • Set fees, dues, and assessments

  • Impose restrictive regulations

  • Operate inefficiently

  • Management amateurishly or ineptly

Disadvantages of an HOA

The negative side of an HOA starts with the high cost of the association fees, which could act as a deterrent for prospective buyers. Also, the HOA rules and regulations can seem unreasonable, arbitrary, or too restrictive for some homeowners, who may want the freedom to customize their properties.

While self-governance is a fine concept, in theory, it may not work out well in practice. The HOA board members, who are normally volunteers, may not be up to the job of managing real estate, dealing with complex financial issues, or working to unite disperse groups of people into a common cause. In many ways, a community association is like a small business or nonprofit institution. Because HOAs must reach a consensus regarding common-property decisions such as maintenance and upgrades, conflicts among HOA members can be rife.

Real World Example of an HOA

Sometimes, homeowners association tussles make the headlines—and a trip to the state legislature.

For three years—as of April 2019—an Indianapolis homeowner and his HOA have been locking horns over the solar panels on his roof. To fully capture the sun's energy, the $28,000 panels need to face south—a direction the HOA won't allow, saying they are too visible to the street and other neighbors.

The language in the HOA covenant allows panels but is vague on the subject of their positioning. So, the homeowner is trying, with the support of several state legislators, to get a bill passed by the Indiana General Assembly that would prohibit HOAs from restricting solar panels or their placement in any way.