What Is a Homeowners Association (HOA) and How Does It Work?

What Is a Homeowner Association (HOA)?

A homeowner association (HOA) is an organization in a subdivision, planned community, or condominium building that makes and enforces rules for the properties and residents. Those who purchase property within an HOA's jurisdiction automatically become members and are required to pay dues, which are known as HOA fees. Some associations can be very restrictive about what members can do with their properties while others may give residents more freedom.

Key Takeaways

A homeowner association is an organization that makes and enforces rules and guidelines for a subdivision, planned community, or condominium building.
HOA members are the residents of the subdivision, community, or building.
Some communities require mandatory membership for individuals that purchase property in the zone.
Homeowner associations are run by a board of directors and typically collect monthly or annual fees to pay for common area maintenance and the upkeep of facilities.
Homeowner associations may impose fines on non-compliant homeowners.

Home Owner's Association — Investopedia / Sydney Saporito

How Homeowner Associations (HOAs) Work

Homeowner associations are usually formed within communities or neighborhoods of single-family homes or multiple-unit buildings, such as townhomes or condominiums. An HOA is typically established to make and enforce rules regarding the properties within the jurisdiction. Associations are comprised of and run by the community's residents. Membership is usually a requirement to buy a home within a community where an HOA has been established.

An HOA usually has a board of directors or governors. These groups are elected to enforce and oversee the HOA's rules and regulations. An HOA typically describes its rules as restrictive covenants in a document called a Declaration of Covenants, Conditions, and Restrictions. CC&Rs set certain conditions for owners about the maintenance of their properties.

These conditions sometimes include structural restrictions, such as the type of fences or landscape allowed. But they may also include more minor aesthetic choices like the color of paint on a house. A CC&R document may also outline the penalties for violating the guidelines set forth in the agreement. These penalties can take the shape of fees or forced compliance. In some cases, it may even be as drastic as litigation.

Homeowner Association (HOA) Fees

Some HOAs can wield significant financial and legal power over the property owners in their zone. HOAs collect monthly or annual HOA fees. These fees depend on a number of factors, including:

Type of property
Number of properties in the group
Location
Amenities offered
Operating expenses

The fees are typically between $200 to $400 per month, but they can range anywhere from less than $100 to upwards of $10,000 in luxury neighborhoods or communities.

HOA fees also often contribute to the association's reserve fund, which is set aside for major renovation projects or emergency use. In addition to regular fees, HOAs can also impose special assessments on homeowners when the association lacks sufficient reserves to pay for unexpected repairs on common areas, such as sidewalks or parking lots.

The HOA's board is usually responsible for the organization's finances. As such, it oversees the collection and management of funds. Along with setting dues and assessments, the board can slap fines on homeowners who break the rules or damage the common areas. In addition to imposing penalties, HOAs can also place a lien on a property if a homeowner falls seriously behind on their dues.

Existing HOA liens can make it difficult to sell the home unless they are cleared.

Homeowner Associations (HOAs) vs. Community Associations vs. Property Owner Associations

Most HOAs are incorporated. This means they are subject to state laws. However, some states consider condominium-based HOAs (often called condominium communities) and organizations governing cooperatives (called co-op boards) to be distinct entities from HOAs.

This distinction is made on the assumption that the property interests of these organizations differ. As a result, the designation community association serves as a broader, umbrella term that encompasses HOAs, condominium communities, and co-op boards.

However, an HOA is distinct from a property owners' association. This organization is a more broad term that usually refers to a group of people who want to better their community and the real estate values of the property in their community. The main difference between them and HOAs is that property owners' associations may include anyone in the community with an interest in the value of the community's real estate, including individuals who aren't homeowners.

358,000

The number of HOAs in the U.S. as of 2021, according to the Foundation for Community Association Research. A trade organization/lobbying group, the foundation estimates that 74.2 million Americans reside in a community association neighborhood or property.

Advantages and Disadvantages of Homeowner Associations (HOAs)

Advantages

The HOA provides regulations and guidelines for its members. These standards are upheld with the aim of preserving and enhancing the community's property values. The guidelines are often appearance-oriented, so they deal with regulations for the cleanliness of the property, the condition of the property, and any repairs done to the property. Usually, the guidelines for HOAs are designed to help ensure a uniform appearance for all the properties included in the association's zone.

The HOA management will typically provide additional services for its members in exchange for their HOA fees. These amenities are available for all HOA members and may include:

Landscaping
Parking lots
Swimming pools
Tennis courts
Party spaces
Snow removal

Some HOA fees may also cover the cost of trash collection and certain utilities.

On a more theoretical level, HOAs are symbolic of self-governance and democracy for certain individuals. This belief may stem from the idea that the best people to manage a community are the people living in it as opposed to a landlord who doesn't live on the premises.

Disadvantages

One disadvantage of an HOA is the high cost of the association fees, which could act as a deterrent for some prospective buyers. Also, the HOA rules and regulations can seem unreasonable, arbitrary, or too restrictive for some homeowners, who may want the freedom to customize their properties.

HOA board members are normally volunteers, and they may not be properly trained to manage real estate, deal with complex financial issues, or unite a disparate group of people for a common cause. Because the leadership of HOAs must reach a consensus when they are making decisions about maintenance and upgrades, it is also possible that there may be conflicts among HOA members who disagree.

Pros

Set and enforce community rules
Protect property values
Provide services, amenities, and facilities
Offer self-governance

Cons

Impose fees, dues, and assessments
Maintain restrictive regulations
Operate inefficiently
May be run amateurishly or ineptly

Example of a Homeowner Association (HOA)

Individual homeowners may conflict with their HOAs. One thorny issue, in particular, relates to the installation of solar panels. HOA boards often don't like them, fearing they hurt property values. In 23 states, they're allowed to forbid homeowners from adding them to their residences.

In 2020, an electrical engineer residing in Blaine, Minnesota, applied for permission to add solar panels to his house. In October of that year. The HOA rejected his proposal, citing aesthetic concerns (the panels were too visible from the street) and the lack of established guidelines for rooftop solar in the association’s bylaws.

The electrical engineer joined a group of homeowners and solar advocates who are asking Minnesota lawmakers to support a bill that would allow homeowners associations to regulate but not ban the installation of solar thermal panels on single-family homes. Introduced in the Minnesota House of Representatives in early 2021, it's one of a series of similar bills proposed since 2014 but never passed.

What Does a Homeowner Association Cover?

A homeowner association is an organization tasked with governing the affairs of a real estate development owned by multiple parties, such as an apartment building. HOAs are responsible for tasks such as ensuring building maintenance, deciding on whether to pursue larger renovation projects, and drafting/enforcing the building’s bylaws.

In order to fund its operations, HOAs charge their members monthly HOA fees, typically in the range of $200 to $400 per month. They also have the authority to enforce the community’s bylaws, such as by imposing fines on residents who refuse to comply.

What Are the Pros and Cons of Belonging to an HOA?

HOAs can benefit individual owners by providing necessary management services. For example, without an HOA the owners of an apartment building would need to coordinate among themselves to decide on common problems such as building-wide garbage removal, building repairs, and community policies. This could be very time-consuming for residents and could result in conflicts and disagreements between owners. On the other hand, HOAs can also create problems for owners to the extent that the owner disagrees with the HOA’s community bylaws or spending decisions.

What Legal Powers Does an HOA Have?

Individual HOAs have different levels of legal powers, depending on how they were designed. However, HOAs generally have the legal authority to create and enforce community policies, such as whether to allow smoking, pets, or rentals in the building. HOAs also decide on budgets for the building and have the authority to charge monthly or one-time fees to their members. If a member refuses to pay these fees or to comply with the community policies, HOAs can impose a range of penalties. In many cases, these penalties can include monetary fines, the restriction of community privileges, and even litigation.

The Bottom Line

Owning a home comes with many rights and responsibilities. But if you own a townhome or condo or are part of a specific community, you may be part of a homeowner association. Being part of these communities can be beneficial because they often take care of some of the nitty-gritty of homeownership, such as property maintenance, utilities, landscaping, and snow removal. But keep in mind, though, that these organizations can be restrictive by setting boundaries on what you can and can't do with your property—all for a fee.