What Is an HOA and What Does an HOA Do?

FT Contributor
Tiny model houses sit on a desk above a document labeled "homeowners association."
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If you’re shopping for a home, an acronym you may have seen throughout your home search is “HOA.” Home listing descriptions must disclose whether or not a home is in a neighborhood with an established HOA. Since these organizations are associated with monthly or annual fees, the listing must also provide information on these fees so you can decide if the home is right for you and still fits in your budget.

In addition to your down payment, closing costs, and monthly mortgage payment, HOA fees are another cost to consider when buying a home. It’s important to note that if you purchase a home in a neighborhood that has an HOA, you’re responsible for paying these fees for as long as you live there. Therefore, it’s a good idea to understand more about an HOA, what it does, and the pros and cons of living in a neighborhood with this association.

What Is HOA?

HOA stands for homeowners association, which is an organization that creates and enforces rules for multi-family communities, such as condominium or townhouse complexes, or single-family neighborhoods. HOAs were first developed in the 19th century when railroad communities began to pop up outside of cities. Middle-class workers could escape the hustle and bustle of the city by taking up residence in these neighborhoods and HOAs enforced rules to keep the communities clean and safe for residents.

The federal government encouraged more residential developments and assisted in the creation and organization of HOAs. It also passed the Fair Housing Act in 1968, which prohibited these HOAs from setting rules that discriminate against race or religion. The federal government still assists in the establishment of HOAs to ensure communities stay desirable and safe. However, the government is also concerned with protecting homeowners’ rights and ensuring residents are treated fairly.

What Does an HOA Do?

HOAs set and enforce rules in the community. Most organizations are comprised of homeowners who live in the community. Some allow homeowners to join if they desire while others make membership mandatory. In most cases, HOAs have community meetings where residents and members can voice their opinions on how to improve the neighborhood.

The rules established by HOAs usually have to do with the aesthetics of the neighborhood and the behaviors of homeowners and their community guests. For example, an HOA may set a rule that all homeowners can only install a certain type of fence or paint their homes one of three different colors. An HOA may restrict homeowners from parking recreational vehicles, large trucks, or boats in their driveway or on their property.

If a neighborhood has community amenities, such as a community pool or gym, the HOA is usually in charge of maintaining and improving these amenities. When you pay your monthly HOA fees, they’re used in the upkeep of these aspects of the neighborhood. The HOA’s main purpose is to ensure the neighborhood stays clean and desirable for homeowners and residents.

What Does the HOA Affect?

If you decide to buy a home in a neighborhood with an HOA, it’s important to understand the pros and cons of this organization.

HOA Advantages

If your new community includes an HOA, there are several advantages, including the following:

  • Community amenities and facilities: If your neighborhood includes amenities and facilities for community use, the HOA keeps up with the maintenance and improvements for these elements so they stay pristine.
  • Property values: Since an HOA enforces many aesthetic rules and regulations in the neighborhood, the entire community must keep their properties maintained, which can help ensure your property value isn’t negatively impacted by nearby eye-sores or negligent homeowners.
  • Self-governance: An HOA is comprised of current homeowners, so it’s self-governing. HOA members are community members who know firsthand about the important rules and regulations that need to be addressed in the neighborhood.
  • Rule enforcement: It’s not enough just to set the rules. HOAs are responsible for enforcing these rules by issuing penalty fees or violation warnings to residents who don’t comply. This ensures residents are motivated to abide by the regulations and keep their homes compliant.

HOA Disadvantages

While there are many advantages to living in a neighborhood with an HOA, there are also disadvantages to these organizations, including the following:

  • HOA fees: When you live in a neighborhood with an HOA, you’re responsible for fees, which are usually paid monthly or annually. These fees can increase if HOA members vote that more money is needed to maintain amenities in the community.
  • Special assessment fees: If HOA fees aren’t enough to cover area improvements or amenity maintenance, the HOA can charge you special assessment fees in addition to regular HOA fees.
  • Inefficient HOA management: Some HOA management teams don’t have experience dealing with finances, enforcing laws, or creating fair regulations to improve the neighborhood, which can lead to poor money management or slack rule enforcement.
  • Conflicts between members: An HOA consists of community members who want a say in the neighborhood regulations. These members may not agree on the rules or how they’re enforced, which can lead to conflict within the organization.
  • Tight restrictions: Your HOA may set strict regulations that you may not agree with, such as no parking on the street, or a limited range of paint colors for house exteriors. These rules can be inconvenient as a homeowner but you must abide by them to live in the community and avoid penalties.

HOAs were created to set and enforce community regulations. While they can ensure property values remain stable in your neighborhood, it’s important to understand the HOA fees and other disadvantages to these organizations. If you’re buying a home, find out if the neighborhood has an HOA so you can weigh the pros and cons of your potential purchase.

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