HOA meaning: What is HOA and how to estimate the fees?

First, we need to know what does HOA means?. HOA is the acronym for Homeowners Association. They can also be called POA, which simply means ‘Property owners’ association.’

They are private organizations that are run by their members for the benefit of the members. Most are managed by a board of individuals that are elected volunteers. All must be members of the association.

HOAs operate under Articles of Incorporation and fall under state statutes for non-profit organizations. The amount of local authority oversight depends on the state in which the HOA is located. With the growth of these associations the amount of state legislature over the governance for these bodies has risen too.

Broadly speaking, HOAs deal with zoning, land use and urban planning. This usually includes maintenance, repairs, improvements and general upkeep of the properties within its jurisdiction. The benefits of an HOA depend on the regulations set up when it was incorporated.

A brief History of HOA

The concept of HOA has its roots in the period after the turn of the century and first became known on the West Coast. The first ones were based on exclusivity and prejudice, both religious and racial. Fortunately, things have moved on and are a lot different today.

The modern version of homeowners’ associations really started to develop from mid-century. The catalyst for increased HOA development was a combination of various factors:

• A period of rapid economic growth during the 1960s.
• The construction of new highways, which made commuting much easier.
• The trend towards a suburban lifestyle driven by the first two.
• The lack of space for construction within the cities.
• Rising construction costs.
• People also wanted better quality housing and more control over their living conditions.
• Changes to mortgage laws
• Official state encouragement

All these combined to boost the movement of people out of cities and the idea of homeowners’ associations followed.

At first, it was neighbors banding together to manage and protect their property, but later developers created HOAs with a set of regulations and rules that new tenants had to abide by.

As the lots or houses were sold off, the balance between owner and developer gradually changed as the membership of the homeowners outweighed the appointed board of the developer. In the end, HOAs became managed solely by their property owning members.

Where Is HOA Found?

HOAs may be multiple owner occupied apartment buildings or residential subdivisions, planned communities and condominiums. Homeowners associations are a particularly American phenomenon. Although they can be found in other countries, there are very few in comparison with the United States.

It is a type of personal environmental management that has blossomed widely across the whole country since the 1960s.

According to a report by iProperty Management, in the USA in October 2021 the stats are:

• 351,000 Homeowner Associations
• 58% of homeowners live in HOA communities
• The number of HOA residents is 73.9 million
• Average monthly HOA membership fee for a single family home is $250
• Number of housing units within HOA communities is 40 million
• Newly constructed HOA homes are 62% of national figure
• 22 new HOAs form every day, on average, equating to ~8,000 new associations every year.

The comparison to the 2010 stats of 24.8 HOA million homes and 62 million residents, highlights the significant growth of HOAs.

Membership of HOA

Generally, membership of a homeowners association is automatic if you move into an HOA property. Most HOAs are mandatory while a small number are voluntary. Choosing not to join means non-members do not enjoy access to HOA amenities.

Members are immediately subject to the terms of the HOA governing documents which detail what a homeowner can and can’t do.

Membership carries a fee – usually charged monthly – and these are used by the HOA to pay for amenities and property repairs and maintenance.

It is important that anyone contemplating moving into a HOA property reviews the governing documents to understand the rules and covenants. It is also a good idea to gain some understanding of the health of the HOA.

What Are The Benefits of HOA?

The benefits of HOAs are both quantitative and intangible.

Maintenance of property values.

For the majority of people, the purchase of a residential property is the greatest financial burden of their lives. With a commitment to pay off a mortgage over 20-30 years it is not merely a purchase, but an investment. Property owners want to see their investment increase in value over the years instead of decrease.

Homeowners associations are committed to that goal. A George Mason University study concluded that on average properties under HOA management sold for about 5% to 6% more than properties that do not belong to an HOA.

Access to Amenities

To engender a greater sense of community, HOAs often have a number of recreational amenities to make the neighborhood more desirable. These amenities might be sports fields, leisure centers, tennis courts, swimming pools, walking trails, parks with barbecue pits and children’s playgrounds.HOA amenities are usually safer, less crowded, and better maintained than municipal amenities.

Reduced Maintenance, Service and Utilities Bills

All HOA are different and will have different rules as well as different fee structures that represent the amenities and services provided. These can be widely varied and may include utilities such as water, gas, sewerage, recycling and trash collection. It might include grounds maintenance, so homeowners yards are looked after as well as community areas.

Many HOA will also have agreements with local tradesmen and service providers who will offer discounted prices to HOA members.

Community and Social Benefits

With reduced risk of bad neighbors, neighbor disputes, increased community facilities and amenities, a HOA neighborhood is more of a community than non-HOA housing areas. There are also more opportunities to socialize than in other areas. HOAs aim to make life more comfortable and give their members greater peace of mind.

Today, the most common kind of HOA are called common interest development, CID, which means that all residents have access to and the use of common areas such as recreational areas, carparks etc.

A Man’s Home Is His Castle

This is true for every man or woman. Your home is the place where you wish to feel safer and secure. Homeowners associations oversee the security of your residential environment. It is the place where you wish to raise your children and HOAs are community based security for all residents of whatever age.

As with all associations, there are restrictions. This depends on the wishes of the residents when the HOA is incorporated. Most deal with the physical environment within which you live. There may be strictures on size, style or color schemes of properties. There may be restrictions on who can purchase a residence within certain communities. Most members of HOAs get to pick their neighbors by having rules and regulations written into their home association charter.

The members are looking for like-minded people that share the same values and attitudes. There are certain criteria to be met before a person or family can buy a property within these communities.

Some Pros and Cons of HOA

Pros:

• They impose the rules which everyone has to abide by and enforce them.
• The protection of property values are a priority.
• The safety and security of the residents are taken seriously.
• It is all about the right to self-governance.

Cons:

• They charge fees, levies and assessments. Non-payment can lead to sanctions.
• Some of the regulations may be restrictive.
• Those that manage the HOA funds may not be equal to the job – they will mostly be volunteers but will undertake jobs that in a corporate environment would require training or experience.
  

Rules and Regulations

HOAs are based on both rights and obligations. One of the most basic rules are voting rights. Membership should include the fundamental right of direct voting. This means that you get a voice in who is elected to the board and a say in the governance of the residential area in which you live.

Equal participation is a fundamental to the idea of homeowners associations. Self-determination on a community based level is why HOAs have become so popular. You have the right to be heard and your suggestions and complaints are considered.

On the other hand, it is your obligation to abide by the rules and regulations set down in the articles of the association. These can only be changed by majority vote and so it is your obligation to understand the rules to which you have to adhere before considering joining a homeowners association.

Make sure that your personal principles are in line with the rest of the community. Many of the rules may pertain to personal behavior. For example, noise pollution or the cleanliness of your property. Before making a decision, it is paramount to decide if you can comply with the obligations imposed before you enjoy the rights.

Although all homeowner associations have the same basic set of regulations, there are variations, depending on the importance the residents put on different things. Another basic obligation is the need to pay fees to the association.

What Are HOA fees?

Local authorities tax property owners for the continued good repair of roads, sanitation systems, street lighting and many other services that are held and used in common by the residents within that jurisdiction. That is exactly the same for members of homeowners’ associations.

The different kinds of maintenance cost money. Although it is agreed that only the more affluent members of society can afford to live in communities under HOA management, that doesn’t mean that they have money to burn.

Most of the funds are collected monthly and normally cover maintenance of the areas in common usage. Of course, the more amenities that are offered within the residential area, the higher the fees.

Once in a while, the HOA may issue a special levy if the fund can’t cover the estimated costs or if they undertake a special project. Homeowner association fees are an added burden to your cost of living.

Before deciding to buy your first home or moving into a HOA controlled property, it is advisable to carefully check out the cost of the coverage and what kind of services are offered by the HOA.

Be aware that HOAs are permitted to take action against fee defaulters. There can be penalties imposed for late payment of fees or fees that are in arrears. In some cases, the HOA can place a lien on the property and even pursue lawsuits. Their authority to do so is explained in the contract that you sign when purchasing your property, so read it carefully to fully understand or rights and obligations towards the HOA.

A Guide to HOA fees

There is no official set minimum or maximum to homeowners association fees that has been imposed nationally.

The level of HOA fees depends on where you live and the services that the community wants the association to provide. Estimates range from hundreds to into the thousands. Obviously, the higher end developments will cost more.

It is the association board of directors, probably with the help of outside consultants that decide at what level to set the fees to ensure the smooth running and security of the residential area, in accordance with a proposed budget.

According to Investopedia, typically, monthly HOA fees are between $200 and $400. They can however vary from as low as $100 to as high as $1000 in what are deemed to be luxury HOA. HOA location may also influence fees. The most expensive cities for HOAs are New York and  San Francisco.

As an example, Texas has recently set the ceiling for fees at $375 per month with legislation that came into law on the 1st of September 2021.

There is a proposal to publish an online comparison guide of HOA fees in December 2021. Any prospective home buyer would then be able to research and compare. The Texas legislature has amended some of the legal requirements for homeowner associations so that the rights between the authorities and the members are more equal than before.

It is likely that Texas will act as blueprint for other state legislatures to follow in the near future.

How Are HOA Fees Calculated?

Annual HOA fees are determined by the HOA’s board of directors. It is essentially a budgeting exercise, usually undertaken in October.

The procedure for calculating fees is usually set out in the bylaws of the HOA.

Typically, they will collate all the operating expenses of the community including:

• Utilities
• Maintenance
• Insurance
• Vendor services
• Amenities
• Overheads (HOA management fees, for example)
• Contributions to reserve fund

They might build in a cost of living rise or apply an annual inflationary percentage.

Once an annual cost is determined, the figure is divided up among all homeowners in the HOA. It may be the same for each property or it might be pro-rated based on property size.

The board of directors should have a process to responsibly manage the HOA accounts and also report periodically back to the members the financial situation. Like for any organization, proper management of funds and opportunities to increase value for money is an obligation and need.

HOA fees can be increased in an accounting period if necessary but there are limitations. Some are limited by the HOA’s own bylaws, others are limited by statute. For example, in Arizona, HOA fees cannot be increased by more than 20 per cent.

HOA Fees may be increased with or without a members vote depending on the governing documents and state laws.

Members Concerns About HOA Fees

You may not be directly involved in the determination of HOA fees, but every member can be educated on the financial implication of membership. You can understand how an HOA operates and how, where and why the fees are being spent.

Every HOA member should be familiar with what the fee they are paying covers. Reviewing the financial and budget statements usually identifies more than most people imagine has to go into the running of a HOA.

HOA members are usually welcome to submit suggestions and recommendations to reduce costs or get better value for money.

Attending HOA meetings enables you to keep up to date of what is happening and any changes and upcoming projects. Being active in the HOA community gives you a voice to question how the boards’ actions benefit the homeowners and take a view on how the board is managing fees and addressing challengers.

What Happens If You Don’t Pay HOA Fees?

The consequence of not paying your member dues varies between all homeowner associations depending on what is permitted by the HOA governing documents and state laws.

Penalties include:

• Late payment fee or compounding interest is applied
• Suspension of community privileges
• HOA may pursue the debt through the small claims court
• Default is handed over to a third-party collection agency (with a potential Impact on credit rating)
• The HOA may initiate foreclosure proceedings after a lien is attached to the property of the indebted homeowner

Any HOA member struggling with their fees should contact the HOA to try to find a solution/assistance.

Homeowners associations exist to provide a service to its members that enhance the quality of life in its community. Members pay for the services but should receive quantitative and qualitative value in return.