In most real estate transactions, homebuyers and sellers hire real estate agents to represent them. In many cases, buyers and sellers never interact with each other; the agents work as intermediaries and do all the negotiation.

Every now and again, however, you may run into the acronym FSBO on your house hunt. This means “for sale by owner” — a seemingly minor detail that impacts the sale significantly. 

If you’re wondering what FSBO is, you’ve come to the right. This article offers a complete overview of FSBO, including: 

• What is FSBO in real estate?
• MLS listing vs. FSBO
• Why homeowners sometimes choose FSBO
• Considerations to make during an FSBO transaction
• How home buyers can potentially benefit from FSBO deals
• The challenges of FSBO
• Frequently asked questions about FSBO

What is FSBO in real estate?

FSBO refers to a method of selling real estate where the owner handles the entire selling process end-to-end without using a real estate broker. Instead, they’re responsible for all of the tasks associated with selling a house, including marketing the property, taking photos, making yard signs, listing it, negotiating with buyers, and closing the deal.

All kinds of properties — both single-family and multi-family homes, including standalone houses, condos, apartments, and townhouses — can be sold directly by the owner. However, the vast majority of real estate deals are not made this way. 

In fact, the latest data from the National Association of Retailers (NAR) has FSBOs accounting for just 10% of home sales, with the typical FSBO home selling for $225,000 versus $330,000 with an agent.

MLS listing vs. FSBO

When a homeowner decides to sell their property with the help of a broker or real estate agent, the real estate company typically lists the property in a multiple listing service (MLS) database. There are numerous MLS databases throughout different areas and regions, and each is a network of new listings designed to help real estate professionals. 

When a property goes into an MLS database, the listing typically includes details like square feet (sqft), location, features, and asking price. This allows other real estate agents to access and share information with their clients, resulting in greater market exposure. 

In an FSBO transaction, the property owner assumes the full responsibility of marketing and selling the property to potential buyers. Since they don’t use a real estate agent, FSBO properties typically do not appear in an MLS. 

Instead, property owners usually explore alternative means of advertising FSBO properties like social media, classified ads, open houses, and online platforms like Zillow, Redfin, or Trulia. That said, some MLS systems do offer limited services to FSBO sellers in exchange for a listing fee. 

Why homeowners sometimes choose FSBO 

Any time you explore a new home that’s for sale, you should always think about why the person is selling their house and what their selling strategy might be. This is especially important with an FSBO property, which deviates from the traditional selling process.

With that in mind, let’s examine some common reasons a homeowner may choose to market their property FSBO instead of using an agent.

Save money

One of the top reasons why homeowners choose FSBO is to save money. In most transactions, real estate brokers ask for 5% to 6% of the sale price, with half going to the listing agent and the other half going to the agent representing the buyer. By selling the property themselves, homeowners can avoid paying a real estate commission and pocket the savings instead.

If a person opts to sell their property FSBO to pinch pennies, it may indicate they are a tough negotiator and looking for the best possible deal. In such cases, you should go in ready for a potential price battle and round up as much comp data as you can. 

Maintain control over the sales process

Working with a selling agent requires giving up significant control over the selling process. Naturally, not all sellers are comfortable with this.

By selling a property FSBO, the homeowner can set the listing price, retain control over the property’s appearance, and negotiate directly with buyers — all without relying on an agent. 

Control the market 

Sometimes homeowners want to avoid exposing their property to the general market and target their advertising to a specific group of buyers. FSBO helps reach potential buyers without listing the property on an MLS and attracting the attention of every real estate agent under the sun.

Homes for sale by owner: Considerations to make

In a traditional real estate transaction, buyers often leave the heavy lifting to their real estate agents. But when buying a property for sale by the owner, the process requires more diligence. In addition to securing a mortgage, here are a few other factors you need to keep in mind when you’re considering buying a FSBO property.

Pricing

First things first: Research the market and ensure the price is fair and in line with similar properties in the area. Here, it helps to get an appraisal or consult with a real estate agent if possible. According to the NAR, 16% of FSBO sellers struggle with getting the price right. 

Property inspections

Always insist on a comprehensive home inspection before agreeing to any purchase. This holds true regardless of whether you are completing an FSBO or traditional sale. Asking for an assessment can help reveal potential issues that a seller may be trying to hide — like malfunctioning wells, septic systems that are past their useful lives, or structural damage.

Negotiations 

Sellers often try to avoid dealing with real estate agents altogether when putting their houses on the market as FSBO. As such, you may have to get in the trenches and negotiate directly with the seller about things like price, contingencies, and repairs. Before diving in, brush up on your real estate negotiation tactics.

Escrow and closing

In an FSBO transaction, the roles of escrow and closing are similar to a traditional sale. However, there are some key differences to be aware of. 

In an FSBO sale, the seller and buyer must decide how to handle the escrow process. The two parties can use a third-party escrow company or attorney to facilitate this unless they want to handle it themselves.

What’s more, during closing the seller is responsible for coordinating all closing details — like scheduling the closing date, preparing all of the necessary documents, receiving signatures, and addressing last-minute concerns. It’s also necessary to meet in person and finalize the sale. 

Unpredictability

All real estate transactions have a degree of unpredictability to them. When you remove professional real estate agents from the process, things can get a little more chaotic. 

To switch to the first person for a second, when I was buying my first house, I was eying a property that was a FSBO listing. After some tense negotiations, we finally had a deal. The sellers were a married couple; the house was in the wife’s name, but the husband didn’t want to sell. 

Then things got weird. Even though the listing included a commission being paid to the buyer’s agent, the sellers started trying to weasel out of that clause. After more back and forth, the seller ultimately withdrew from the deal. It was an emotional rollercoaster and a waste of time.

When two real estate agents are involved in a deal, they work together to bring it to the finish line expediently. There’s less likelihood of funny business.

The benefits of FSBO for buyers

While people often think of FSBO transactions as being beneficial to the seller, there are some advantages for savvy buyers who can navigate the process and execute a transaction. 

Less competition

From a homebuyer’s perspective, an FSBO transaction means less competition because the property is usually not included in MLS listings. With less competition comes greater negotiation power, which means you could wind up with a better deal.

Personal connection

When dealing directly with a buyer, you can connect more personally. This can establish trust and understanding and help reach a price that both parties can agree to. 

To illustrate, suppose you need a family home in a safe neighborhood with a decent school system. You discover a seller who wants to see their home go to a family that will appreciate the property and put it to good use. In this case, forming a connection with the buyer could help facilitate an easier sale. 

Direct negotiation

In an FSBO transaction, you or your real estate agent can negotiate directly with the seller. This can potentially lead to more flexible and personalized negotiations without someone standing in the way and potentially complicating the process.

The challenges of FSBO

Despite offering a more direct and intimate buying experience, FSBO has several challenges and drawbacks for buyers. Here are a few reasons why buyers tend to struggle when they buy directly from an owner.

Negotiating without third-party representation

The negotiation process goes more smoothly when two licensed real estate professionals with experience closing deals are the ones doing it. In FSBO deals, the buyer may be disadvantaged if the seller has more knowledge or experience negotiating. 

Some buyers may also be uneasy about working with sellers without a neutral third party. This can create trust issues, making it harder to reach a deal. Sellers also may not provide as accurate or trustworthy disclosures. Unfortunately, verifying disclosures on your own may be challenging.

Having less market information

Real estate agents have deeper access to market data and local economic conditions than you do. That being the case, it’s typically much more challenging for buyers to determine a property’s actual value. 

Buyers who choose to move forward with FSBO transactions should consider going in with as much data as possible. Even better, consult with local authorities for information about the property and surrounding area. 

Handling emotional attachment 

Selling a home can be an emotional experience, making it hard to negotiate from a business standpoint. It’s common for sellers to throw curveballs into the equation by changing prices or terms, being flakey, and otherwise attempting to back out of deals.

FAQs for FSBO homes

Thinking about pursuing a FSBO property. Here are some answers to commonly asked questions.

Are foreclosures different from FSBO transactions?

A foreclosure is a different type of transaction. It occurs a homeowner defaults on their mortgage payments and the lender takes legal action to repossess the property and recover their outstanding debt. While a homeowner may choose an FSBO sale to save money, it does not necessarily mean they are financially distressed or in danger of foreclosure. 

How does an FSBO impact the buyer’s agent?

As a buyer, you can still work with an agent when purchasing an FSBO property. However, it’s up to the property owner to decide whether to negotiate with a real estate agent and pay them a commission. 

If you decide to use a buyer’s agent during an FSBO transaction, ensuring that the seller will agree to an agent commission ahead of time is critical. Sellers often try to get out of paying buying agents, leading to disputes and legal issues. 

Do mortgage lenders accept FSBO transactions?

Lenders do accept FSBO transactions. As such, you’ll still have to go through the normal mortgage application process.

Without a real estate agent, the lender will most likely require an independent appraisal to ensure the property’s value and sale price are accurate before issuing a loan. You can also expect the lender to complete a title search, review the contract and other documentation, and verify proof of funds for the down payment and closing costs. The lender may also need to work with the seller to get documentation and complete the mortgage process. 

What consumer protection services are available to buyers during an FSBO sale?

All purchasers are entitled to various consumer protections to ensure a fair and secure homebuying process. This includes the right to review property disclosures, inspection contingencies, financing contingencies, and the right to conduct a title search. 

In addition, buyers can hire a real estate attorney to review the purchase contract and use a neutral third-party escrow service to hold funds. FSBO sellers must also comply with state and federal consumer protection laws, and fair housing laws which prohibit discrimination based on race, color, sex, religion, disability, national origin, or familial status.

What is a flat fee MLS listing?

A flat fee MLS listing is a real estate service that allows homeowners to list their properties in an MLS database for a one-time, flat fee instead of paying the traditional commission fees to realtors.

The bottom line: Should you buy an FSBO house for sale?

The vast majority of real estate transactions take place between licensed real estate agents. But during your search, you may find a dream house listing in a top market like New York, Chicago, or California with an FSBO acronym attached to it. Should that happen, only you can decide whether you want to move forward with this type of process. 

While FSBO transactions are more challenging, they can be a walk in the park if both sides come to the table organized and ready to make a deal. It all depends on the property, the seller’s mindset and strategy, and the buyer’s willingness to negotiate and ask the right questions. 

We get it: Buying a property is tricky, and there are countless pitfalls along the way. While research can help, sometimes sites like Realtor.com don’t tell the full story about a property. 

Before you start searching for your first property, we recommend checking out our free guide for first-time homebuyers.

Disclaimer:

The content provided on this website is offered for educational purposes only. While we endeavor to provide accurate and up-to-date information, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the content for any purpose. Visitors are advised to consult with qualified experts before making any financial decisions or taking any actions based on the information provided on this website.

When you’re buying a home, it’s easy to get caught up in focusing on things like a property’s appearance, price, and location. But homebuyers also need to carefully consider other factors, like the water you’ll have access to.

Unless you’re a robot or an advanced artificial intelligence algorithm, you need water to survive.  After all, water permeates almost every part of our lives. We use it for drinking, cooking, cleaning, growing plants and vegetables, and countless other tasks — which is why it’s critical to have access to clean, affordable, and reliable tap water that comes out of a faucet at your new place. 

When you’re buying a new home, you have the choice between whether you’ll be drinking and cleaning with well water or city water. Read on to learn what well water is, how it works, its pros and cons, and important safety considerations. 

What is well water?

Well water originates from a deep hole or shaft beneath the surface of the ground. It can come from different underground sources like aquifers, where water sits in permeable rock formations or porous materials such as sand or gravel. 

Not everyone in the United States has access to well water. Roughly 43 million people — 15% of the U.S. population — use private domestic wells as their source of drinking water. In most cases, you’ll find well water in rural or suburban areas that lack municipal infrastructure. 

While it’s possible to install a well in an urban environment, you’ll likely need to obtain permits, licensing, and inspections to install one.

What is city water?

City water comes from a municipal water system. Such systems contain water that originates from local sources like lakes, rivers, underground wells, and reservoirs. The sources that contribute to each city’s water system vary by location. 

Unlike well water, city water goes through several rounds of treatment and sanitation to ensure it’s safe for consumption and other uses. 

Some examples include: 

• Sedimentation, where water sits in large basins, heavier particles sink to the bottom, and clean water rises to the top.
• Filtration, which involves passing water through sand, gravel, and carbon filters to remove impurities. 
• Disinfection, the process of using chlorine and chloramine to kill harmful microorganisms like viruses, bacteria, and parasites. 
• pH adjustment, which involves adjusting the pH level of the water to optimize taste and reduce corrosion in the distribution system.  

When using public water systems, homeowners have little to no direct say as to how the city stores, treats, and transports water. So, if you’re considering purchasing a home that uses city water, you’ll want to research local water and infrastructure quality to ensure it’s safe. You may also need to invest in private filtration systems to purify the water before use. 

For guidance, the U.S. Environmental Protection Agency (EPA) offers abundant water data and reports that you can use to find information about water quality in your community.

How does a well work?

Unlike a municipal water system, a well generates water on-site — meaning it’s a private, decentralized mechanism and the property of the homeowner.

A well contains several mechanisms, including: 

• Casing to ensure structural integrity and prevent the well from collapsing; well casing may include steel or PVC.
• Screens, which allow water to enter the well while keeping out debris and larger particles.
• Pumps that collect water and bring it to the surface; the two most common types of pumps are submersible pumps and jet pumps, which rest above ground.
• Holding tanks — or cisterns — which store water before transporting it to the house for drinking, irrigation, or other household needs. 

The depth of the well depends on the location of the underground aquifer or water table, or the point where the ground becomes saturated with water. 

Three types of wells to know about

There are several types of wells in the U.S. which can vary depending on the region and geology. As you continue the homebuying process, it’s important to have some familiarity with the most common kinds of wells. 

1. Drilled wells

Drilled wells — which are built using a drilling rig — are the most common type of well for U.S. homes. They reach deep into the earth to access groundwater. Depending on the location, drilled wells can run from a few tens of feet to hundreds or even thousands of feet. 

2. Dug wells

Dug wells are shallow wells that are excavated either by hand or machine. They typically contain a wall of stones, bricks, concrete, or tiles. Most dug wells are less than 30 feet deep. 

3. Driven wells

Driven wells use pipes and casing to reach water tables. These are common in areas with sandy or loose soil and in areas with shallow water supplies. 

Some less common wells you may want to research a bit include mechanically bored wells, hand-dug wells, and jetted wells, which use high-pressure water or air to force the casing into the ground. 

What are the pros and cons of having private well water?

The pros

• Well water comes directly from underground sources like aquifers or water tables. Because of this, wells are often free from additives like chlorine and fluoride.
• Since well water doesn’t usually rely on chemicals, it may have a fresher and more natural taste than city water — especially if you use an additional filtration system.
• Well water systems often use little to no energy. As a result, they have a lower environmental impact than large-scale water treatment and distribution systems.

• With proper management and maintenance, wells can be sustainable water sources. However, monitoring your well and practicing responsible water use is essential for ensuring sustainability. This is especially important in areas with water scarcity and high demand.
• Using a well means your home won’t rely on a municipal water system. As a result, you can continue receiving water during local emergencies and outages — as long as your property and well infrastructure remain intact, that is. 
• As a well owner, you have control over your own water supply. This means you can test your water for quality whenever you want. You can also make adjustments to improve its quality and monitor its usage — like installing a reverse osmosis system or a UV water purifier. 

The cons

• Wells are vulnerable to droughts. For example, many wells in Texas are currently running dry following the state’s recent heat wave. 
• Contaminants can enter wells from nearby septic systems or agricultural runoff. Drinking contaminated well water can lead to serious illness. Common contaminants include coliform bacteria, microorganisms, radium, heavy metals, organic chemicals, fertilizers, radionuclides, and fluoride. Well systems can also be contaminated by human activities.

• As a homeowner, you must manage and maintain your well water. But not all homeowners want the responsibility of keeping their water supply up and running, and that’s perfectly okay. If you prefer a more hands-off approach, city water may be a better option.
• Owning a well can potentially limit your ability to build other structures on your property. When buying a home, find out where the well resides to avoid construction disturbances and delays down the road. Of course, you can always relocate the well to accommodate construction plans. But that’s about as easy and affordable as it sounds.
• Wells are vulnerable to contaminants from disasters like floods and hurricanes. For guidance, check out the U.S. Centers for Disease Control and Prevention (CDC) safety precautions for disinfecting wells after a disaster.
• If your water has high levels of magnesium and calcium ions, this can lead to water hardness and issues like limescale buildup in appliances and pipes. Well owners with hard water may need to use water softeners; otherwise their pipes and appliances can degrade, potentially leading to catastrophic problems. 

Is well water safe?

New homeowners often assume that wells are perfectly safe to drink from. But without the proper treatment, they can contain high levels of harmful substances — like E. coli, pesticides, heavy metals, harmful bacteria, and animal waste. Consuming contaminated water can lead to gastrointestinal illness and other health risks. In fact, a recent United States Geological Survey (USGS) study reveals that roughly 23% of wells contain one or more contaminants at a level that can cause potential health effects.  

Considering this, well water can still be perfectly safe to consume and use around the house — as long as you follow the right safety protocols. Well water safety depends on the following factors.

The surrounding environment 

It’s important to consider the well’s location. Wells that are near septic systems, hazardous waste centers, and industrial sites can potentially be unsafe due to pollutants. Homeowners in such situations should take active measures to fortify their wells and potentially add additional filtration and purification methods.

The well’s construction 

Proper well construction is necessary for maintaining superior drinking water quality. The well must contain a seal to prevent surface water from getting inside and contaminating it. 

Proper maintenance 

Wells can degrade over time or break due to movement from the earth or nearby construction. As such, it’s critical to inspect your well periodically and keep up with maintenance. Wells that sit for long periods of time without inspection or upkeep can become unsafe.

Treatment options for well water contaminants

While it’s impossible to completely prevent wells from contamination, there are several things you can do to remove or reduce the presence of harmful substances. 

• Reverse osmosis is an effective water purification method for removing contaminants like minerals, nitrates, nitrites, pesticides, bacteria, and viruses. It involves passing water through a semipermeable membrane to remove impurities and cleanse the water. Typically, reverse osmosis systems are located either in the house or near the point of use.
• Aeration is a purification method that involves releasing air into the water. You can use aeration to eliminate radon, which is a naturally occurring radioactive gas. 
• Water filtration systems can remove things like sediment, chlorine, and other common contaminants. They come in various forms like sediment, carbon, and multimedia water filters. Filtration systems sit either in the house or at the point of use. 
• Well water testing can help identify different contaminants and inform you about your water quality. Generally speaking, it’s wise to hire a professional to test your water in a certified laboratory. It’s a good idea to get test results regularly — and especially in the event you detect a change in water color, taste, or odor. 
• Ion exchange systems use resin beads to eliminate ions like manganese, iron, and hardness minerals. An ion exchange system replaces these with harmless ions, like sodium. 

• Oxidation and filtration is yet another method to remove things like iron and hydrogen sulfide. This process involves converting substances into solid particles and then filtering them out.
• Chemical disinfection (e.g., with chlorine) can kill microorganisms and bacteria in well water. However, some chemicals can be less effective against things like protozoa and parasites. To ensure safety, always use proper dosing and monitor your water quality. 
• Distillation involves heating water in order to create steam and then condensing it back into liquid. This is a great way to remove contaminants like heavy metals and chemicals. 

Maintenance costs for wells

One of the nice parts about having a drinking water well is that you don’t have to pay monthly usage fees. On average, residential customers in the U.S. pay around $54 per month for water. But in some areas like California, water can exceed $80 per month. 

That said, well owners still need to factor in maintenance costs which can eat into savings over time. Here are some costs to keep in mind.

Inspections

To ensure your well is functioning properly, you need to schedule routine inspections. During an inspection, a technician will inspect your well and ensure components like casing, pumps, and seals are in proper condition. The cost of a well inspection depends on your location, the well size, and the extent of the inspection.

Water testing

In addition to inspecting a well system, you’ll also need to test the water regularly. This is necessary for detecting and eliminating harmful contaminants — and otherwise making sure your water is safe to drink and won’t corrode your pipes.  

Repairs

Wells may experience wear and tear as time passes, requiring extensive repairs. For example, you may need to repair or replace pump mechanisms or well casing. If the pump runs on electricity, you might need to replace components like pressure switches or control boxes.

Well cleaning

Wells can collect sediment and bacteria over time which can adversely impact water quality. Homeowners should periodically clean their well to keep it running in optimal condition.

Sealing 

Wells that have contamination issues may require resealing or sanitation. Costs for this kind of work can vary depending on the scope of the job. 

Relocation 

In some cases, local health departments or other agencies may require homeowners to relocate their wells due to public safety issues, zoning and land use regulations, contamination concerns, or infrastructure development, among other things. This isn’t common, but if it happens, it can require extensive consultations, assessments, and negotiations to address. Unfortunately, in some instances, the homeowner may have to foot part or even all of the bill. 

Replacement

The lifespan of a well depends on its type, local geology, and how well it’s taken care of. For example, a drilled well with proper installation and maintenance can potentially last for around 100 years. On the other hand, a driven well may only last 10 to 30 years. 

With this in mind, check the age of a well before buying a house to see if it will require replacement under your care. Replacing a well may be expensive, but it can also enhance your property’s value. 

Should you choose well water or city water?

There’s no right or wrong answer. It largely depends on where you want to live and whether you care about having to manage a well after purchasing a property. While maintaining a well might seem complex, it’s actually pretty simple with the right guidance, budgeting, and maintenance strategy.

At this point, you have a decision to make: Take on the responsibility of owning a well or opt for city water and a more hands-off approach to water management. 

Struggling to decide which option is right for you? Home Approach is standing by to advise. To receive a consultation from one of our experts, sign up today. 

Disclaimer:

The content provided on this website is offered for educational purposes only. While we endeavor to provide accurate and up-to-date information, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the content for any purpose. Visitors are advised to consult with qualified experts before making any financial decisions or taking any actions based on the information provided on this website.

Before you become a homeowner, it’s essential to think about how much responsibility you want to have when it comes to managing your property. 

Are you the type of person who likes to mow their lawn on a Saturday afternoon, cold beverage in hand? Or would you rather write a check and have someone else worry about it?

If you prefer a more hands-off approach to homeownership, you may want to look to buy a property that’s part of a homeowner’s association (HOA). 

In this post, we’ll examine how HOAs work, what they cover, why they’re important, and how much you can expect to pay should you become part of an HOA community.

What is a homeowner’s association?

An HOA is an organization or entity that manages a community or residential development like a condominium or neighborhood. They typically are managed by an HOA board of directors, which includes elected members who live in the community. Most communities have HOA elections each year.

HOAs are responsible for overseeing various responsibilities, including infrastructure, aesthetics, maintenance, and shared common areas within a community. They act on behalf of the property owners and work to keep the community fair, orderly, and under budget. 

In addition, associations enforce HOA rules, or covenants, conditions, and restrictions (CC&Rs). These governing documents keep the community in proper condition and help residents avoid conflicts because everyone knows what’s expected. 

Today, roughly 22% of homes participate in an HOA — a figure that has remained consistent over the last decade.

What are HOA fees?

Homeowners association fees are regular payments homeowners who live in HOA communities have to pay. In most cases, homeowners distribute monthly dues to cover the costs of managing and maintaining the common areas and shared amenities within the community.

In some cases, HOA fees may also cover utilities like water, electricity, and cable or internet. However, HOAs can vary across different communities. Before purchasing a property, be sure to find out what your HOA fees cover so that you don’t wind up overpaying for services. 

Are HOA fees mandatory?

HOA fees are generally mandatory for homeowners who live in a community or development with an HOA association. By purchasing a property within a condominium or community association, you automatically become an HOA member and must pay monthly HOA dues.

While you cannot buy your way out of an HOA, there are some scenarios where homeowners can gain a bit more control over their properties. For example, some communities offer non-mandatory HOAs with optional memberships and fees. However, non-members may not be able to access common amenities like community pools or fitness facilities. 

In some cases, the homeowners in an established community may also vote to dissolve their HOA. However, this is rare and typically requires both a majority vote and legal counseling.

If you do not wish to participate in a community with an HOA, the easiest thing to do is purchase a property that’s not part of one. 

HOA fees vs. special assessments

Homeowners in HOA communities contribute financially to the area’s upkeep through both HOA fees and special assessments. However, these are different types of expenses.

Special assessments are one-time or occasional payments that homeowners must make in addition to paying HOA fees. They typically occur when the HOA faces unexpected or significant expenses that exceed what is available in the association’s reserve fund or budget. 

For example, a special assessment may cover major repairs, capital improvement projects, and emergency maintenance like roof replacements.  

What do HOA fees cover?

The specific services that an HOA covers can vary depending on the community’s rules and regulations. But in general, you can expect your HOA fees to cover the following. 

Insurance 

HOA fees typically include insurance coverage for shared structures and common areas. They also include liability coverage for the association.

Security and surveillance

In some communities, HOAs help ensure safety. They may provide security cameras, arrange private security patrols, or restrict access to the community (e.g., with a gate). 

Exterior maintenance 

HOAs often cover exterior maintenance like roofing, siding, painting, parking lots, and structural repairs. They also typically pay for a property management company to oversee maintenance operations.

Administrative expenses 

A portion of the HOA fee goes toward the association’s administrative costs. This may include things like hiring staff members, purchasing office equipment, and paying vendors. 

Amenities 

Communities often have shared amenities like tennis courts, swimming pools, clubhouses, and fitness centers. HOA fees help keep them up and running.

Common area maintenance 

Fees also cover costs associated with maintaining common areas like community gardens, parks, walking trails, green spaces, and playgrounds.

Utilities and services

In some communities, HOAs manage utilities like cable, internet, and electricity. This can make life easier for homeowners by consolidating their bills into one easy monthly payment. 

Reserve funds

HOAs use reserve funds to cover the cost of major repairs, renovations, and expenses. 

HOA vs. no HOA: Cost comparison

Many homebuyers balk at the idea of paying into an HOA at first. But that changes when they do some quick budgeting and think about all of the expenses they might otherwise have to pay entirely on their own. As it turns out, an HOA can actually save you money if it’s affordable. 

With that in mind, here’s a breakdown of some common services that an HOA covers that you’d have to pay for out of your own pocket as a homeowner. 

Swimming pools 

Condominiums and HOAs often have private swimming pools. If you buy a home that doesn’t have an HOA and you want a pool, you will need to cover all the costs associated with maintaining a pool — like water, cleaning, chemicals, and routine maintenance. You may also have to pay more for your homeowner’s insurance policy, too.

Landscaping

It takes a lot to keep a yard looking good. If you want to maintain your property yourself, you’ll need to purchase tools and equipment like lawnmowers, shovels, rakes, and trimmers. Otherwise, you’ll have to hire a landscaper. If your property has trees or other natural resources, you will need to care for those as well. If you live where it snows a lot, you’ll also have to pay to clear your driveway.

HOA fees typically cover landscaping costs as well as snow removal during the winter months — saving you time and money. 

Upkeep and repairs

Without an HOA, you’ll be responsible for keeping up both the interior and exterior of your property. This includes things like painting, ensuring your roof and chimney are in good shape, pest control, and maintaining your walkways and driveway.

Do HOA fees build equity?

Equity is the difference between the market value of your property and what you owe to the bank. Unfortunately, HOA fees do not directly build equity for a homeowner like mortgage payments do. That’s because HOA fees go to the HOA association — not the lender that owns your mortgage.

That said, HOA payments can directly impact your property value. When an HOA is doing a great job at managing the community, HOA fees can potentially boost your equity, albeit indirectly. As a result, it’s critical to purchase a property with a responsible and financially secure HOA that is committed to doing its best to increase the value of community properties.

How HOA fees impact taxes

Unfortunately, HOA fees are generally not tax-deductible for homeowners. The Internal Revenue Service (IRS) views HOA fees as personal living expenses instead of tax-deductible expenses. 

Despite this, there are exceptions where you can write off a portion of your HOA fees on your taxes. Some examples include owning a rental property within an HOA community, claiming a home office deduction, or when the HOA assesses special fees or assessments for capital improvements.

Do HOA fees increase over time?

Just like pretty much everything else in life, HOAs generally increase over time. For example, you might purchase a property and pay $350 per month in HOA fees at first. But down the line, it’s possible that those costs could balloon to $500 or more due to any of the following factors. 

Inflation and cost of value 

The price of goods and services tends to increase over time due to inflation and the cost of living. HOAs often need to adjust their fees to cover the rising cost of labor, materials, utilities, and other expenses. 

Aging infrastructure 

Large planned communities require a variety of infrastructure like roads, fences, drainage systems, docks, grills, and benches. HOAs may sometimes raise their fees to fund capital improvement projects or fund repairs. 

Market conditions

HOAs are also subject to changing economic conditions in the real estate market. HOAs sometimes increase fees to make up for revenue shortfalls when property values plummet.

Reserve fund planning 

Part of the HOA’s job is to review and adjust reserve fund contributions. The HOA may occasionally raise their fees to ensure financial stability and prepare for emergencies.

Insurance and legal costs

Insurance premiums tend to rise over time, which can impact homeowners’ wallets. In addition, HOAs sometimes must budget for legal disputes.

When purchasing a property with an HOA, you should ask your real estate agent for a breakdown of average HOA payments for your target property. This will help you understand how the HOA’s fees have changed over time, giving you a sense of where they might be heading. 

Average HOA fees: How much can I expect to pay?

Monthly HOA fees can range from a few hundred to thousands of dollars. Right now, the average cost for HOA fees in the U.S. is around $300 per month. But depending on where you end up moving, it can be much higher. With that in mind, let’s take a look at some of the key factors that determine the total cost of an HOA fee. 

Location

The location of your property will directly impact what you pay as an HOA fee. For example, HOA fees tend to be higher in urban areas like New York City or Miami, as well as upscale neighborhoods, tourist spots, and vacation destinations. 

Amenities 

The more amenities you have, the more you can expect to pay in HOA costs. If your community has three or four swimming pools, a golf course, or a modern fitness center, your bill will be significantly higher.

Oftentimes, homeowners wind up paying for services that they occasionally use — like the swimming pool they jump in a couple of times during the summer. Before buying a home, take a look at what you’re paying for and determine whether it’s worth the cost.

Property type

The type of property that you own may also impact what you pay in HOA fees. For example, condominiums and townhouses are usually more expensive than single-family homes because they contain shared areas and amenities. On the other hand, a shared home HOA may only cover things like landscaping, security, snow removal, trash removal, and other basic services, resulting in a lower monthly price.

Community size

Large communities with 10 or 20 buildings tend to have higher HOA fees than smaller ones. That’s because they tend to have more shared spaces, more amenities, and more properties to look after. Larger communities are also more prone to lawsuits, which can result in higher payments.  

The HOA’s financial health

HOAs that lack adequate reserves and efficient planning tend to have less stable fees and higher expenses. Working with a well-managed and ethical HOA can help keep costs under control. 

Tips for managing HOA fees

Whenever you’re joining a new community, you’ll want to stay on top of monthly payments so you don’t draw the ire of your new neighbors or your HOA. Missing payments can also result in collections notices, late fees, and legal actions. Here are some tips that can help you avoid conflicts and enjoy a better quality of life.

Attend HOA meetings

By attending monthly HOA meetings, you can stay on top of community issues and voice your opinion about monthly fees and potential increases. If you can’t attend HOA meetings, ask about digital resources like community bulletins, newsletters, and user dashboards.

Keep a careful record of payments

HOA payments will add up over time, so it’s a good idea to track your overall spending. Keeping careful records can also help clear up discrepancies when they arise. If possible, consider using an online portal so that all payments are recorded in one place.

Budget for payments 

It’s important to be realistic about whether you can afford your monthly HOA payment in addition to all of the other fees you’ll have as a homeowner — like mortgage payments, property taxes, utilities, food, furniture, and insurance. Your HOA payment should fit comfortably within your budget and still leave you enough room for a decent quality of life. 

As a best practice, budget a bit higher to account for any changes to HOA fees or special assessments that may be coming down the road. Pro tip: Always set aside a portion of your savings to cover unexpected expenses. 

Demystify HOA fees with Home Approach

Buying a house can be an overwhelming experience with many different figures and details to consider. If you’re having a hard time understanding what it means to join an HOA, that’s perfectly normal.

That said, HOA payments are a critical piece of the financial puzzle when assessing home prices. For further guidance, we recommend scheduling a consultation with one of Home Approach’s expert advisors. Our professionals are well-versed in the intricacies of HOAs and can provide valuable insights to help you make informed decisions.

To gain a deeper understanding of HOA fees and access personalized guidance, sign up for  Home Approach today.

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