DO HOME OWNER ASSOCIATIONS (HOA) ADD VALUE TO YOUR HOME?
Thanks to the industrial revolution and the advent of the automobile, Levittown New York on Long Island became the very first suburb, a pre-planned subdivision that was established in 1957. The success of this development changed the landscape of America and its impact is still being felt today. With Levittown came a laundry list of rules and regulations that all buyers had to agree to related to their home and lawn maintenance, that meticulously governed the neighborhood and prohibited residence from hanging out their laundry to dry among other things. In order to enforce these rules and regulations the first Home Owners Association was quickly formed.
In the years that followed HOAs became common place and millions of these associations govern the majority of neighborhoods in the United States. With the popularity and necessity of HOAs buyers began to ask the question, do HOAs add value to your home? This is not an easy question to answer and in fact there is no straight up yes or no answer. In order to determine if HOAs add value to your home, you need to fully understand all aspects of these associations so you can determine the pros and cons of a specific HOA and then decide if a specific HOA will meet your needs and add value to your home.
I considered making a list of Pros and Cons pertaining to HOAs but depending on a number of things including your personality, your likes and dis-likes and your individual needs and wants what someone may consider a Pro you may consider a Con and vice versa. Nevertheless, here is a list of things you need to understand about HOAs:
- They establish rules to keep neighborhoods “uniform” in an effort to prevent property depreciation or drop in home values as a result of unkept homes or unmanicured lawns.
- HOAs govern everything from home colors, landscaping, fencing, home styles, automobile parking, boat and camper storage, utility sheds, etc.
- They assure common spaces and amenities such as trash pickup, recycling, golf, tennis and club memberships, swimming, club house use, gym privileges that may be included with your yearly HOA dues and /or membership fees.
- HOAs are incorporated and include a protective covenant that allow for enforcement rights such as fines and foreclosure rights if you break the rules or default on your fees and dues.
- An HOA must have at least a 10% of their annual budget in reserve or it can affect your property value. If the HOA is funded at less than 10%, many lenders will require at least a 25% down payment on any loan for properties managed by the underfunded HOA.
- Understand the owner to renter ratio limits governed by the HOA as this too will impact the value of your property and financing options.
- Determine how a specific HOA is managed. Determine if it may be “over” or “under” managed as each present a unique set of issues.
- Does the HOA have a reputable attorney that represents them and litigates their enforcement issues such as collecting fines, serving evictions, foreclosure, etc.
As you can see, depending on your position, the above list of items could be considered a Pro or a Con when it comes to a specific HOA. Here is a list of other things you need to know, understand and consider about an HOA in order to determine for yourself if the HOA will add value to your home.
- You should first know and understand your needs and wants.
- Research the specific HOA Rules or the Covenants and Restrictions as they are different for each individual HOA.
- Verify that the home you want to purchase is currently in compliance with all of the HOA rules.
- Assess the HOAs environmental practices such as the rules related to solar panels, do they allow environmentally friendly forms of landscaping, do they allow composting, etc.
- Consider your temperament. Do you hate being told what to do? If so, an HOA may not be for you.
- Understand all the associated costs and fees. How are fees determined or changed (increased or decreased), how often are fees changed, obtain a 10-year fee history, know the current HOA “reserve”, know the history of any past or present special assessments or any future assessments and know the current monthly / yearly fees and dues and everything they include.
- Obtain the minutes from the last 3 HOA board meetings and understand any current conflicts, history of the HOA conflicts and how the conflicts were resolved.
- Determine if the specific HOA is “over” or “under” managed as each situation presents a unique set of issues.
- Obtain all of the HOA insurance information
- Consider the impact the HOA fees will have on your short and long-term finances.
In today’s market, most new neighborhoods have very active HOAs. Older homes that are not located in a specific neighborhood probably never had an HOA or have dissolved any existing HOA. If you are considering buying in a neighborhood with an HOA you should be sure to get involved with your HOA. Plan on attending the HOA meetings, casting a vote on all issues and nominated board members, review your annual budget and understand exactly how and where your money is being spent.
As you can see, depending on your needs or what you are looking for, HOAs can be a benefit or a hindrance, so it is going to depend on the individuals wants and needs so the buyer must always beware. For that reason, don’t go it alone, if you are in the market to buy or sell, contact Rick and Jim Properties at www.rickandjimproperties.com or contact us on Facebook at https://www.facebook.com/RandJProperties/ . As experienced Realtors we will get to know all of your needs and can help navigate you through these complex issues and help you determine if an existing HOA meets your needs. Knowledge is power so contact us today so we can help you understand everything about any existing HOA or lack thereof and determine if an HOA adds value to the home before you buy.