A Homeowners’ Association (or HOA) is a corporation that governs planned residential developments, townhouses, or condos. According to the Community Association Institute, 24% of homes are under a Community Association with more than 63 million Americans living in these communities.
Once someone purchases property in an area or building that is governed by an HOA, the homeowner automatically becomes a member and must pay fees and follow HOA rules.
Who Are They?
A Homeowners’ Association is run by a board of directors that is elected by homeowners to oversee the common assets of a property/area, manage its finances, run business affairs, enforce and set rules, and see to the maintenance and upkeep of the area. In other words, it provides structure to a community, protects property value, and ensures it is a pleasant place to live.
A board of directors are voluntary homeowners or condo owners who are elected by their fellow residents to sit on the board and make decisions on the residents’ behalf regarding the property.
The HOA contains both officers and directors. Of these people, there is a president, secretary, and a treasurer. The president is the leader and oversees all the community affairs, the secretary keeps records, and the treasurer handles the association’s finances.
What Do They Do?
Homeowners’ Associations (or Condo Associations) set a monthly or annual condo fee or homeowner fee, which is used to maintain the property and its common areas, such as the hallways, walkways, and parking lot (for condos) and parks, swimming pools, etc. for residential communities.
The board may hire a property manager to help with day-to-day operations.
While each association’s duties may vary with the type of property, some HOA responsibilities include the following:
- Set and approve covenants, conditions, rules, and bylaws (e.g. acceptable/non-acceptable resident behavior)
- Review complaints and make decisions about resident concerns
- Enforce penalties against residents if they breach the bylaws (fines, etc.)
- Appoint committees and delegate to them
- Hold meetings for members, determine voting matters, vote on issues, etc.
- Hold meetings for the board of directors
- Communicate with homeowners, property managers, and other personnel
- Set budget with input from owners
- Keep financial records
- Sets condo/homeowner fees. Price is determined by financial projections.
- Maintain a reserve of funds
- Hire and correspond with an attorney, accountant, and other professionals for the association
- Allocate spending for insurance coverage
- Budget for repairs and maintenance
- Organize and prioritize maintenance and upkeep
- Collect bids from contractors
- Arrange for inspections
- Respond to emergencies
The HOA members and board of directors have a fiduciary duty to the corporation, which requires that members act in good faith, with skill and care, on behalf of the association.
Volunteering to be on the Board
Many homeowners volunteer to be on the HOA board of directors to have a direct say in an issue or because they feel strongly about the area/property and its preservation. Joining could empower you to drive change in your community as well as stay up-to-date with issues that will impact your future.
Before you volunteer to be on the board of your own HOA, consider the following:
- Have I read and understood the bylaws/rules?
- Can I exercise good business judgment on behalf of the association and its members?
- Do I have time to dedicate to serving on a board of directors?
- When are meetings?
- Do I have a good rapport with other residents?
- Can I handle complaints or questions with patience?
- How large is the reserve fund? How often are condo/homeowner’s fees raised?
- How open is the HOA to new ideas or amendments?
- Have any issues occurred within the HOA in the past (conflicts)?
Reviewing these questions can help you to decide if being a part of the HOA is something you would enjoy. In addition to your time, this position comes with an array of responsibilities and potential liability under the fiduciary duty. Think through the decision to join by learning how your HOA works in the first place before making the call.
Pros and Cons of Homeowners’ Associations
Homeowners’ Associations are beneficial for the community in that they keep the neighborhood or building up to par in order to preserve property value and safeguard investments. Although fees are required by all members of the HOA, including the board of directors, the money is used to improve the area or building or to add amenities.
The covenants, conditions, and restrictions created by the HOA are also developed in an attempt to maintain property value and the curb appeal of the area. That way, a homeowner cannot collect junk on their front lawn without violating HOA rules.
However, some HOAs propose strict covenants. For example, they might prevent homeowners from using a clothes line, installing a satellite dish, building a fence, or owning animals that are above a certain weight/size. Each association is different, but residents within the community are expected to follow rules or they could face a penalty for violating any of the covenants. Penalties may be as minor as a warning, but could include a fine, or worse, if the homeowner fails to pay fees, the HOA could force the property into foreclosure.
Making the Best of Your Community Association
When purchasing property in a community that has a Homeowners’ Association or a Condo Association, remember that they exist to maintain the community on behalf of its residents and the majority of residents who live in a common-interest community have positive experiences.
As long as you take part, abide the rules, and pay your dues on time, your experience with your HOA should be satisfactory. If you suspect poor management, an unresponsive board, or any other problems, consider getting involved by attending member meetings, volunteering to be on the board, or submitting a complaint.
Have you been part of a Homeowners’ Association? Has it been beneficial for your community?