Pros and cons of HOAs: Are they actually bad?

If you’re looking to buy a house, there’s a good chance you’ll encounter several properties governed by homeowners associations, more commonly known as HOAs. According to a study by the Journal of Urban Economics, HOAs control nearly 60% of recently built single-family homes and 80% of houses in new subdivisions.

But they have a complicated legacy — you may have heard horror stories or heard familiar reasons why HOAs are bad. While HOA communities sometimes bring out the worst in everyone, they do have their benefits, especially for buyers who aren’t ready to sacrifice the lower-maintenance lifestyle of renting vs. buying a home.

What is an HOA?

An HOA is a governing structure for a planned community — whether it’s a development of single-family homes, condos, or townhouses — composed of the community’s residents. It’s an entity that maintains the community’s standards of living in exchange for a fee, much like a landlord or property manager. In other ways, an HOA is more like a government, setting rules for the community, hiring vendors, paving roads, repairing roofs and fences, and handling disputes. 

As of 2018, roughly one-quarter of Americans live under some type of community association, spread across 347,000 associations nationwide according to the Community Association Institute.

By region, HOAs govern about 33% of homes in the Northeast, about 50% in the Midwest, and more than 75% of homes in the West and the South. 

States with the most HOAs

• Florida
• California
• Colorado
• Washington
• Arizona

States with the fewest HOAs

• Mississippi
• Arkansas
• Wyoming
• West Virginia
• Oklahoma

What does an HOA do?

In planned communities with a homeowners association, the land developer outlines rules and restrictions concerning the use of the community. Then, once the development is completed, the developer turns over the operation and governance of the HOA to an elected board of volunteer homeowners who run the community and maintain its budget.

The exact operations of an HOA vary between communities. They may cover some utility costs as a part of your HOA fee, handle trash pickup, remove snow from your driveway, or a number of other services. It just depends on the community, so it’s important to read the agreement before you buy into an HOA community.

→ Learn whether you refuse to join an HOA

Disadvantages: Why HOAs are bad

Homeowners Associations get a bad wrap. If you’re wondering why HOAs are bad, here’s a look at a few of the reasons some homebuyers prefer to avoid them:

They come with HOA fees

While HOAs offer a number of benefits, they come at a cost — and not always a small one. HOA fees (sometimes called HOA dues) are mandatory. The actual cost of these dues can range from $100 to $1,000 a month or more, depending on the services the HOA offers. However, research shows that each dollar in HOA fees brings about $1.19 worth of benefits to homeowners in HOA communities.

In addition to maintenance and upkeep, HOA fees may pay for employees who work for the association, and a reserve fund that covers unexpected expenses and emergencies like a flood, hurricane, or fire.

While you do get something for HOA fees, you’ll have to perform your own cost-benefit analysis to decide whether the fees are worth it for what you get When fees are high, they may impact your ability to pay the mortgage, so it’s one extra thing to consider when buying a home.

Curious if you can afford HOA fees? Use our mortgage calculator to find out.

They come with the risk of lien or foreclosure

You’re required to pay HOA fees even if you don’t use all, or any, of the amenities. And if you don’t pay them, you could be assessed a fine.

Those who can’t or don’t pay fine assessments or regular HOA fees can face a lien on their property from the HOA, and risk losing their home to foreclosure — even if they’re up to date on their mortgage.

HOAs tend to use a lien or foreclosure as a last resort on homeowners who refuse to pay their assessments, but the risk is there. If you’re somebody who will not appreciate fines for breaking rules, an HOA might not be for you.

There’s a lack of choice

Since HOAs handle so much of the community upkeep, it follows that they often have meticulous guidelines for individual homes. Some of the common violations of deed restrictions include:

• Unapproved exterior home paint color
• A garbage can in view of the public or neighbor
• “Unkempt conditions” such as mildew or peeling paint
• A hose left out in the driveway after washing your car
• Unapproved shutter styles

You can’t make changes to the exterior of your home without consulting your HOA agreement first.

They come with rules, rules, and more rules

In addition to not being able to personalize your home the way you’d like, HOAs often come with a litany of rules. Abiding by a list of paint colors or only parking two vehicles in your driveway isn’t exactly draconian, but other homeowners association rules may regulate:

• Fencing dimensions
• How tall your grass can grow
• Why type of fertilizer or sprinkler system you can use
• The size and composition of a garden
• The number of pets you can have, as well as breed or weight restrictions
• The dimensions of a “For Rent” or “For Sale” sign

Seventeen percent of HOA residents say restrictions on exterior home improvements are the worst aspect of living in a community association. 

Learn more about what rules the HOA can and can't enforce

There’s potential for corruption and incompetence

HOAs are made up of volunteers in the community. In other words: They’re human. A good board can be efficient and professional, a bad one can mismanage the community, misspend money, or abuse their power. The number one reason HOAs face lawsuits is a failure to maintain the basic upkeep of the community for reasons of corruption or incompetence.

Likewise, if your HOA lacks money in a reserve fund, the whole community is on the line for the bill in the event of a disaster. Even if there is no disaster, the HOA can authorize special assessments to pay for certain projects or increase monthly your dues based on no other reason but the board’s mismanagement. 

Benefits: Why HOAs are useful

Despite HOAs’ bad reputation, 89% of residents are satisfied living under a community association according to the Community Associations Institute. Here are just some of the reasons homeowners like having an HOA:

They handle exterior upkeep

Most HOAs handle a large portion of your home’s exterior upkeep so you don’t have to. Some things an HOA may do include:

• Mowing the lawn and landscaping
• Pest control
• Maintaining heating and air-conditioning systems, electrical system, plumbing, lighting, elevators, and security systems in common areas
• Repairing roads, roofs, walls, and building components
• Trash pickup
• Snow removal
• Cleaning and painting building exteriors
• Painting and cleaning common interiors in condo complexes

They increase home value

HOAs sell for an average of 4% more than similar homes outside of HOAs, according to a 2019 UC-Irvine study. The sale price tends to be even higher for larger houses and homes in smaller subdivisions.

This is because homes under HOAs rarely fall into disrepair. Homes and amenities governed by HOAs are subject to regular upkeep and inspections that keep them in good condition. Likewise, in a functioning HOA community, all homes are well-maintained by the association. There’s a sense of community conformity, which ensures that no home falls into such disrepair as to harm other homes’ values.

→ Learn more about what brings down property values

They offer amenities

Many HOAs offer amenities like swimming pools, tennis courts, golf courses, playgrounds, and gyms in the communities. They’re semi-private in the sense that only community members have access, but you don’t have to maintain them personally. Some HOAs host social gatherings like block parties, community yard sales, cookouts, or pool parties, too. This sense of community can be a priceless benefit that HOAs bring to a neighborhood.

They can lower your bills

HOA fees cover different things but one commonly included cost is utilities. An HOA often takes responsibility for basic water and gas, as well as city services like sewer, trash, and recycling. While you pay for those services through your HOA fees, the flat fee you pay to the organization could be lower (and more convenient) than what you’d pay for each bill separately.

They offer conflict resolution

Put aside the horror stories for a moment. Sometimes, HOAs resolve conflict rather than incite them. If your neighbor plays loud music in the middle of the night or they fail to pick up after their dog who just so happens to love your front lawn, an HOA can step in. Talk to your HOA about the problem you’re facing and they’ll advocate for you with the power to enact consequences on your neighbor if they fail to comply.

An HOA is a community, and the board wants people to get along.

Is an HOA right for you?

There are pros and cons of living in an HOA community, but much of the decision comes down to personal preference and the nature of a specific HOA. Some HOAs are more strict than others. HOAs with more rules, amenities, and services, may also come with steeper fees, but it depends on each individual association.

If a home in a planned community catches your interest, make sure you ask for the HOA’s declaration or master deed. Ask questions about the HOA’s financial status and whether the home you’re interested in has any outstanding debt to the association. (As the new buyer, will be responsible for that debt). Review disclosures that indicate how often the HOA has increased dues and assessments and how often it’s allowed to do so.

Make sure to talk to residents to see how they feel about management. Most importantly, review your budget and lifestyle when considering a home with an HOA. Do the benefits outweigh the costs? Only you can say.

You can also lean on your real estate agent for advice. If you're looking to buy a house, Orchard works with experienced local agents who can help you find your dream home. Learn more about how Orchard works.