|Homeowners Associations: Join Or Pass?|
Article Courtesy of FORBES FINANCIAL
Published November 19, 2017
Like many prospective homeowners, I’ve looked at properties that fall under the jurisdiction of a homeowners association (HOA), and I’ve had to carefully analyze whether the value of those HOA services outweighed the costs. HOA fees are hard for many new home buyers to swallow. These fees are incremental costs that typically aren’t planned for like a mortgage. Most homeowners invest in real estate with the expectation that they’ll see future returns on that investment. HOA fees aren’t really in that ROI vein; they’re more like an operating expense akin to apartment rent or property taxes -- money you will never see again.
I prefer to think of HOA fees the way I think of monthly bills for home security or landscaping services: I receive benefits in return for the money I spend each month. Some HOAs provide recreational benefits, like community pools or on-site gyms, for example. HOAs also require homeowners to maintain their homes and properties, which keeps neighborhoods looking clean and attractive. Many associations even help out with maintenance.
That said, not all HOAs are created equal. When purchasing real estate with an HOA, I like to draw up a good old-fashioned pros-and-cons sheet to help determine if the HOA fee is worth the cost. Here are a few questions I ask myself when drafting up that list.
• What services are provided and what do I value? I always request a comprehensive list of the services the HOA provides, from either my real estate agent or the association directly. Services can vary widely between HOAs, so I want to make sure that I’m paying for the services I really value. If a community rec center is important to me, for instance, I verify that the association provides rec center access.
As someone with a busy work schedule who would rather spend weekends with my family than doing yard work, I value an HOA that includes landscaping services. However, if you enjoy working outside, you may prefer finding a community with lower HOA fees where you can DIY the landscaping and maintenance services.
• Do the service benefits justify the cost? HOA fees can vary significantly; you could pay anywhere from less than $100 to over $1,000 per month. While the overall cost is necessary to consider, the total value of the services that are provided each month is what I focus on first.
I take care to note exactly what is included in those costs. Is maintenance of shared areas covered? Are any utilities (internet, electricity, water, etc.) or landscaping services included? If the HOA fee is several hundred dollars, I’m more inclined to expect some utilities to be included, along with a few additional “rich” amenities. On the other hand, if the HOA fee is less than $100 per month, I don’t expect a rec center and clubhouse with access to a golf course.
• How often does the HOA provide maintenance services? Some HOAs render services such as snow removal or asphalt repair for shared areas. These services are valuable, but I also try to verify that the HOA moves quickly to fulfill on them. I typically ask the HOA about service-level agreements and timelines for maintenance services. Driving around the community and asking current homeowners are also great ways to see if public spaces and shared areas are maintained. Rough roads and unhappy residents could be indicators of a slow-moving HOA.
• How well does the HOA enforce the rules? Some HOAs are notoriously strict, while others are lax. Like the services provided, this comes down to personal preference. I prefer something between strict and lax. If an individual does not maintain their home and landscaping or makes the neighbors feel uncomfortable, for instance, I expect the HOA to step in and be proactive.
This information is typically spelled out in the HOA
handbook, but I also try to ask community members about their experiences with
Many HOAs increase rates periodically by a fixed percentage or dollar amount. How often the association increases the rate and by how much can significantly impact my real estate purchase decision, especially if I could be paying twice as much within the next few years.
Homeowners associations are not for everyone. Personally, my appetite depends on the value of the services provided versus the cost. I am more than happy to pay for a service I don’t want to provide on my own and for the benefit of living in a well-manicured community. But it’s equally important to feel like I am spending money on something that provides both short- and long-term value.
The next time you go through a real estate purchase decision and have to evaluate a community’s HOA, review some of these questions to help guide you.