Buying a Home in a Community Association: Part One – Dispelling Common Myths
If you are in the market to buy a new home, it’s very likely that at least some of those that you see are located in a community with a homeowners association (HOA). An HOA is an organization that makes and enforces rules for the properties within its jurisdiction. Being a homeowner in one of these communities obligates you to join the association and pay fees for the upkeep and maintenance of common areas of the property or building. Examples include single-family, master-planned, active-adult, condominium and co-op communities.
As a buyer, you may wonder whether moving into a community with an HOA is right for you. Perhaps you have heard horror stories from unhappy homeowners or have read about unreasonable boards that bully residents. How common are these events? And are the stories even true?
In part one of our two-part series, we untangle the misconceptions and separate the facts from the myths about living in a community with an association.
Myth: Most people regret moving into an HOA community.
Fact: The majority of homeowners who belong to HOAs are happy with their communities.
When it comes to news, the negative stories always seem to get the best headlines and attract the biggest audiences. Likewise, it’s the stories about disgruntled homeowners or association boards gone amok that seem to garner the most attention. But contrary to what makes headlines, research shows that most residents find benefits to living in their HOA communities.
In six U.S. surveys conducted over the past 11 years for the Foundation for Community Association Research – including the most recent one in 2016 – residents consistently expressed satisfaction with their associations. The Foundation concluded that “the findings objectively refute the unfounded and unsubstantiated myth that the community association model of governance is failing to serve the best interests of Americans who choose to live in common-interest communities.“
In addition, more and more people continue to move into HOAs. According to data included in the National and State Statistical Review for 2015, the number of housing units that were part of a community association in the U.S. increased from 3.6 million in 1980 to 26.2 million in 2015. Data from the 2013 Canadian Housing Observer shows that in Canada, the number of owner-occupied homes that were part of an association grew from 171,000 in 1981 to 1.2 million in 2011.
Myth: Community associations have too many restrictions.
Fact: Restrictions are there to protect your property value.
It’s true that homeowners in a community association are obligated to abide by certain rules and regulations. For example, in most associations, homeowners must maintain their properties according to the community’s standards. “But this means you are unlikely to see overgrown lawns, garish paint or commercial vehicles parked in driveways,” explains FirstService Residential CEO Chuck Fallon. “For most of us, our home is our greatest financial investment. A well-managed HOA can increase your home’s value and those of your neighbors, too.”
Ashlynn Wells, senior vice president at FirstService Residential, agrees. “Without an association, how your neighbors maintain their homes directly affects your property value,” she says. “When you go to sell your home, you always hope that you will be able to sell it at a higher value. But if you have neighbors who don’t cut their grass or who have vehicles such as boats or RVs stored for long periods, it will definitely bring down the value when prospective buyers come to look at your home.”
Wells points out that if you do have neighbors who neglect to maintain their property, you won’t have to directly confront them if you are part of an association. “The community association takes responsibility for dealing with violating neighbors,” says Wells.
Myth: Residents are at the mercy of power-hungry and uncaring board members.
Fact: Most board members genuinely care about their community.
Board members are homeowners themselves so the decisions they make affect them as much as they affect other residents. In addition, board members must abide by the same governing documents (sometimes called “Covenants, Conditions and Restrictions” or “CC&Rs”) that apply to everyone else in the community. “An association is a democratic process in its most basic form,” Wells emphasizes. “Like any elected leader, board members cannot take liberties that they will not have to answer to at some point.”
Individuals who choose to serve on their boards usually do so because they are passionate about improving their community. “The vast majority of board members want to see their community thrive,” says Wells. “They make a significant commitment of their personal time when they agree to run.”
These volunteers take on their board responsibilities rarely having any previous community management expertise. As a result, they sometimes do make mistakes despite their best intentions. According to Fallon, that’s where a professional property management company comes in. “The management company will ensure that the community is well maintained both aesthetically and financially.”
In addition, a good property management company will provide training so that board members can be more successful in their roles. “At FirstService Residential, we offer a variety of training classes to our board members, including financial, management and legal seminars,” says Fallon.
If homeowners aren’t happy with their board’s decisions or with the overall job that a particular member is doing, they can effect change by being actively involved. This includes participating in elections, especially when it’s time to vote for their board members; attending meetings; volunteering on committees; and running for a board seat themselves. “The biggest problem is apathy,” Wells explains, “and it’s the primary contributor that leads to a board making decisions that may be contrary to what the majority of owners want.”
Myth: Fees can skyrocket – and nobody knows where the money goes.
Fact: Increases are usually capped, and the board must disclose the budget and actual financial statements to homeowners.
“Typically, there are limits on how much an association can raise assessment fees each year,” says Wells. “The association’s governing documents usually set these limits.”
In addition, laws or governing documents dictate how the annual budget is to be adopted. Once the annual budget is adopted, the board is required to make it available to homeowners, either by sending them a budget report or by providing instructions on how they can obtain one.
Having enough reserves for major repairs and capital improvements also prevents a board from needing to assess unexpected fees. A good property management company can locate qualified specialists to conduct a reserve study and can provide guidance to the board so that it adequately funds the association’s reserves for upcoming projects.
Myth: Residents lose money by paying for amenities they may never use.
Fact: Amenities increase property values.
Amenities may include anything from a community swimming pool to social activities sponsored by the association. Community residents enjoy many of their amenities and find that they provide a means for socializing with their neighbors. Amenities can also be very attractive to potential buyers and make the homes within that community a more appealing choice.
“Many people are drawn to the carefree lifestyle that community associations offer,” says Fallon. “In today’s fast-paced world, it can be hard to meet your neighbors or to feel like you are part of a community. HOAs and condos provide that community feeling many people desire through their amenities and social programs.”
From maintaining common areas to offering events and activities, a well-run association is there to enhance the lifestyles of community residents and to maximize the value of their property. Many communities also seek the assistance of a professional property management company to ensure that their association functions properly. In part two of our series, we’ll provide guidance on how you can accurately evaluate the health and success of a community association before buying a home in it.
To learn how an experienced property management company can help your community attract new buyers, contact FirstService Residential today, the leading property management company in North America.