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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.