Homeowners' Association (HOA) Definition

What Is a Homeowners' Association (HOA)?

A homeowners’ association, or HOA, is an organization that develops and implements rules for properties and the residents in a community. It is commonly run by community residents who are elected by members of the association. Owners who buy a house in the jurisdiction of an HOA automatically become members of that HOA and are bound by its rules, including paying an HOA fee.

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What Is an HOA For?

homeowners association

An HOA is a non-profit, voluntary association that the developer of a master-planned community usually creates even before the first house is sold. They appoint the HOA board and ultimately leave the care and maintenance of the community to its HOA[1]. After the developer exits, the HOA can be independent, and homeowners are free to elect the members of the HOA board.

The HOA concept was originally conceived to market and sell homes. Today, there are 63 million people living under a community association, which includes an HOA. This is an estimated 24% of all homes in the U.S.[2]

Among the goals of an HOA is the implementation of community rules, known as covenants, conditions, and restrictions (CC&R). These rules are to preserve, maintain, and enhance the properties in a community while keeping it orderly and peaceful. It also collects HOA fees, used to take care of common areas in a community to benefit all homeowners.

Ultimately, HOAs enforce rules concerning properties. Examples of issues falling under the HOA’s jurisdiction include[3]:

  • Landscaping.
  • Architectural/design controls.
  • Home maintenance standards.
  • Policies on noise complaints.
  • Disputes between homeowners.
  • Limits to home occupancy.
  • Vehicle parking regulations.
  • Pet ownership (type, breed, size, and quantity).
  • Rules on AirBnB and short-term rentals.
  • Garbage disposal and recycling.

How Does HOA Membership Work?

Membership to an HOA begins once someone purchases property within a cluster of apartments, condos, townhouse complexes, or gated communities. Upon becoming a member, a homeowner must follow the HOA rules and contribute to an HOA fund through a recurring HOA fee.

HOA members can volunteer to join the Board of Directors in making decisions when dealing with maintenance issues, addressing members’ complaints, and handling the community’s finances. These decisions—which can impact the value of the property—are made according to rules. These rules limit what the HOA can do concerning the community and its properties and ensure a cohesive atmosphere throughout the neighborhood.

The HOA also takes care of maintenance, insurance, repairs, landscaping, and other issues, sparing individual homeowners from several responsibilities they would have to do alone otherwise. HOA fees cover some running costs as well, even though board members may volunteer their services.

Voluntary vs. Involuntary HOAs

A homeowner automatically becomes a member of the HOA when they purchase a home, and they sign a contract for their membership to the association. Most HOAs operate under this type (an involuntary HOA).

However, some HOAs called “voluntary HOAs,” allow homeowners the choice of whether to sign an HOA membership agreement or not[4]. And even if they do, homeowners can also opt out anytime. As a result, the HOA cannot enforce rules or take action against homeowners who have not signed or opted out of the contract.

Voluntary HOAs function identically to involuntary ones. A homeowner who opted out of the contract or did not sign it forfeits access to the amenities and other conveniences that the HOA offers.

Pros and Cons of an HOA

Some people may like the uniformity, consistency, and security of a neighborhood with an HOA, but some view HOAs as oppressive and restrictive. HOA rules vary by neighborhood and its board, but generally, there are some advantages and disadvantages common to all HOAs.

Below is a comparison of its pros and cons.

PROS:

  • It keeps property values high. Houses and properties with HOAs generally have higher curb appeal than those without. As a result, HOA neighborhoods tend to fetch high prices when listed on the market—at about 5% to 6% higher[5]. Without an HOA, homeowners could make changes on their property that may not exactly fit the rest of the neighborhood.
  • Access to amenities. HOA-maintained communities have access to amenities that other areas do not typically have and are open for all HOA members. These include pools, athletic courts, gyms, parks, even daycare centers and playgrounds for children.

homeowners association athletic court

  • Greater convenience. HOAs often contract third-party professionals to care for common areas, such as entryways and hallways in a condo or an apartment. They may also take care of garbage disposal and recycling. Note that for homes in a master-planned community with detached homes, the owner has to take care of their own lawn, but the HOA may dictate lawn care standards.
  • Utilities. Some HOAs, especially in condominiums, “bundle” utility payments with the HOA fees. This makes it easy for owners, as they only need to pay a one-time fee for utility bills (such as electricity, gas, and water).
  • Community spirit. HOAs often make meeting other owners and neighbors easy and natural, as there will always be social opportunities to mingle with others. HOAs often hold events as well.

CONS:

  • HOA fees. Fees can vary from property to property and HOA to HOA. Properties located in upscale neighborhoods, for instance, will have higher fees, as well as those with more amenities and perks (like a golf course). HOAs are not static; they may change yearly depending on the needs of the HOA. Finally, late payment of fees may result in fines, whereas some HOAs have the authority to attach a lien to your property and foreclose it, if applicable[6].
  • Poor management. Elected board members may not always be capable or have the community’s best interests at heart. As HOAs are self-regulating, embezzlement of HOA funds may sometimes occur without the knowledge of homeowners[7].
  • Overzealous HOA. Some HOAs micromanage their members, creating a restrictive environment. This atmosphere may create highly structured HOA neighborhoods and complicated rules that can stifle homeowners’ creativity and unique personality.

Takeaways

Homeowners’ associations, or HOAs, are self-regulating, self-managed non-profit organizations that manage and maintain a certain community. They may demand compliance from member homeowners and HOA fees in return for the upkeep of common amenities and services that all members can access and enjoy. These HOA fees are not static; the HOA, which is headed by a Board of Directors, may increase or decrease it depending on the needs of the community.

About a quarter of all American homes are under the HOA model, and there are mixed reactions to being part of one. Some homeowners think they are too restrictive, while others welcome uniformity and reliability of their HOAs. In any case, HOA rules and regulations are enforceable in court by way of a written contract, so some HOAs offer voluntary contracts and opt-outs if the homeowner feels that the benefits of the HOA are not sufficient for a monthly or annual payment.

Sources

  1. Goonan, D. (2016.) HOMEOWNERS FIGHT HOA DEVELOPERS STILL IN CONTROL OF COMMUNITIES. Independent American Communities. Retrieved from https://independentamericancommunities.com/2016/09/11/homeowners-fight-hoa-developers-still-in-control-of-communities/
  2. IKO Community Management. (2019.) 13 Statistics About HOA Communities That’ll Make You Proud. Retrieved from https://www.ikocommunitymanagement.com/blog/13-statistics-about-hoa-communities-thatll-make-you-proud
  3. Associa. (n.d.) HOA 101: Rules & Regulations. Retrieved from https://hub.associaonline.com/blog/hoa-101-rules-regulations
  4. Spectrum Association Management. (n.d.) Are HOAs Voluntary? Retrieved from https://spectrumam.com/voluntary-hoa/
  5. Agan, A., Tabarrok, A. (2005.) What Are Private Governments Worth? George Mason University. Retrieved from https://www.cato.org/sites/cato.org/files/serials/files/regulation/2005/9/v28n3-2.pdf
  6. Moore, C. (n.d.) Important Facts About HOA Liens & Foreclosures You Should Know. Homeowners Protection Bureau. Retrieved from https://www.hopb.co/blog/understanding-hoa-liens-and-foreclosures
  7. Hovland Forensic. (n.d.) HOW TO RECOGNIZE HOA EMBEZZLEMENT. Retrieved from https://hovlandforensic.com/hoa-embezzlement/

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