Buying a House: HOA Fees and Other Shenanigans

As everyone knows, we’ve been looking for a new home since we sold our old home and moved into a temporary place last month.  And although real estate prices are similar here, the neighborhoods are very different.  For instance, our old town had very few neighborhoods with a homeowner’s association.  In fact, our old neighborhood didn’t have a homeowner’s association and neither do either of the neighborhoods where our two rental properties reside.  However, I kind’ve wished they did from time to time….especially when this happened:

Picture A

DSCF2546In case you’re wondering what you’re looking at, I’ll provide a basic summary of what happened.  The nicest neighbor in the world built the ugliest shed in the world.  I believe that picture #1 provides the best view of this ill-built monstrosity and the TV that haphazardly hangs under its eaves.  The second pictures shows how incredibly tall the shed is and how it towers over the owner’s fence and the surrounding area in general.  Keep in mind, I had to be discreet when taking these photos so they aren’t the best.

In addition to the giant shed on the corner, the neighbor across the street from us parked his boat in his yard year-round.  And since we didn’t have a homeowner’s association with any rules, there was nothing that anyone could do about it.  I wasn’t bothered by it at all personally.  Hell, I’ve got bigger things to worry about than a boat in someone’s yard.  However, I do know that a few neighbors weren’t happy about it and were tired of looking at it after a while.

What Does a Homeowner’s Association Do?

First, let’s start with the definition of a homeowner’s association.  For those of you who don’t know, a homeowner’s association is a formal legal entity created to maintain common areas and protect the rights of residents.  This is how Wikipedia defines them:

In the United States, a homeowner association is a corporation formed by a real estate developer for the purpose of marketing, managing, and selling of homes and lots in a residential subdivision. It grants the developer privileged voting rights in governing the association, while allowing the developer to exit financial and legal responsibility of the organization, typically by transferring ownership of the association to the homeowners after selling off a predetermined number of lots. Membership in the homeowners association by a residential buyer is typically a condition of purchase; a buyer isn’t given an option to reject it. Most homeowner associations are incorporated, and are subject to state statutes that govern non-profit corporations and homeowner associations. State oversight of homeowner associations is minimal, and varies from state to state. Some states, such as Florida and California, have a large body of homeowner association law, and some states, such as Massachusetts, have virtually no homeowner association law.

Homeowner’s Association, or No?

Like I said, we haven’t had a lot of experience with HOA’s since our old town had very few.  And since almost all neighborhoods in our new area have them, we’ve discovered some interesting things.  Here are a few:

  • Some HOA’s in our area have HOA fees as high as $700 per year just for maintenance of the common areas.  I think that’s bat-shit crazy.   The cheapest HOA fees we have found were around $150 per year which is much more reasonable.
  • The strictest HOAs set guidelines for their neighborhood, only allowing certain fences and sheds to be built.  Residents also have to get paint colors approved as well as changes to shudders, outdoor lights, and signage.
  • A few of the neighborhoods have a neighborhood pool or two.  I’ve always wanted a pool but don’t really want to take care of one.  To me, a neighborhood pool sounds like a nice compromise to having a pool of my own.
  • HOAs are usually run by a board of directors and do not need to get community consent to change rules or raise HOA fees.  As someone who doesn’t like others spending my hard-earned money, this terrifies me.
  • HOAs generally have the authority to charge fines for infractions.  If unpaid, they have the authority to put a lien on your home.

Like it or not, every single neighborhood we’re interested in has an HOA.  And although I’m slightly put off by them, I’m not scared enough to refuse to live in a neighborhood that has one.  I also like the idea of a neighborhood pool and some rules. You know, just in case someone decides to build a shed taller than their house or park a boat in their front yard year-round.

On the other hand, I hate the idea of asking permission to paint my house or get a hot tub.  What’s up with that?  I’ve never really liked authority and this is especially true when it comes to my own home that I paid for with blood, sweat, and tears.  Regardless, these are just some of the factors we’re considering as we choose a new home.  I don’t want to live under the rule of an HOA but I don’t want to limit myself to HOA-free zones either. I guess we’ll just have to wait and see what happens.

What are your thoughts on homeowner’s associations and HOA fees?  Have you had any experiences with either?

 
About Holly

Holly Johnson is a wife, mother of two, and frugal lifestyle enthusiast. She is the co-founder of Club Thrifty and a staff writer at Get Rich Slowly, Frugal Travel Guy, and U.S. News and World Report's "My Money Blog." Holly has been featured in the Wall Street Journal, Kiplinger Personal Finance, Fox Business, and Daily Finance.

Comments

  1. We own a condo, so it is similar rules in place with the condo corporation. I like them for issues when people get sloppy with their property, but sometimes I find them a little limiting. I know that since they are town homes they want a consistent (exact same!) feel throughout, but sometimes I wish I could just paint my front door :)

  2. We’re very anti-HOA and condo association. It’s tying yourself to the financial decisions of others and does not seem worth it especially when I’ve heard so many tales of adult-bullying being perpetrated by these associations. We live in a lovely non-HOA neighborhood and can’t imagine it any other way.

    • You wouldn’t be able to live on the North side of Indy then!

      Seriously, every house we’ve looked at has had an HOA except for a few houses in the downtown area. And since we want to live tucked back in a neighborhood, we probably don’t have much of a choice. I don’t want to live near a main road where just anyone can drive by my kids playing in the yard. So the kid’s safety probably trumps my skepticism of HOAS.

  3. I don’t like homeowner’s associations in general, and I’m glad most neighborhoods we were looking at (including the one we bought in) don’t have them. I think it makes sense for townhouses and condos, but I don’t like the idea that you can and can’t do things depending on what a commission decides.

  4. I am on the fence is like you. I think HOA fees are nuts, and actually just walked from two investment property deals because I felt the HOA was poorly run. I do however recognize that if the HOA is very well run even the steep fee of $700 a year can be seen as a good investment as the HOA acts like an insurance policy against stupid people who will bring the value of your property down. It is a toss up, but I would focus more on the HOA directors on a case by case basis.

  5. We have an HOA that currently charges about $450 a year. It covers common area maintenance, the community pool and a couple of other things. Our neighborhood is so much nicer than the surrounding neighborhoods though and I’m sure it will help my resale value. Yes we can only build certain types of fences and must get exterior changes approved, but we knew that when we bought the place and we are OK with the rules because they allow us to do everything we’d want to do anyway why protecting our neighborhood from broken down cars in yards and ugly half falling down fences.

  6. Welcome to the North Side of Indy, land of the HOA. Before we purchased my grandmother’s old home we looked, briefly, at the north side, but decided we hated HOAs. In fact we pretty much avoid almost all newish construction because all those areas had HOAs with pretty insane prices.

    Where we live, our HOA is voluntary. I usually pay about $100-$150 a year since they mostly use the money to pay for snow removal and I’m ok with that. Recently some jack-hole crashed into this old brick entrance thing we had so the HOA is helping pay to fix it and I am ok with that too. Other than that, I don’t really like HOAs. I don’t like basically paying for a bunch of stupid rules. I get that people are dumb and tend to do dumb things, but to me, most HOAs seem like a waste of money.

    • It really is the land of the HOA, but they’re all different. Some are much stricter (and expensive!) than others. I wouldn’t mind one as long as the rules weren’t stupid.

  7. lol bat-shit crazy. I like that. As far as my experience goes, it’s nice to live in a neighborhood where you don’t have to deal with other people’s trashy house, but I hate having to pay some arbitrary organization a fee and then have to ask them permission to do anything with MY house.

  8. I don’t have much experience with home owner’s associations, probably because I don’t own a home and apparently MA doesn’t really deal with them. But my uneducated viewpoint has always been that I’d rather do without the fees and restrictions.

  9. I hate HOA’s.

    Each of my family and friends have only had issues from the start. They aren’t crazy people who throw big parties, paint their house purple, or never mow their lawn. They have received $50 fees for leaving their trash can one day past when the trash people came. They have well landscaped yards then have been fined because the HOA didn’t think the 4 year old tree was trimmed back enough.

    I wish you luck with HOA’s, but I am deathly afraid of them.

    Have a good Wednesday Holly!

    The Warrior
    NetWorthWarrior.com

  10. I’m on the fence about it as well. Our neighborhood doesn’t have one but we do have friends here that live in HOA communities. Some of those are good and others are like you’re living in a communist state. I would have to look at the benefits before deciding on one though. As much as I wouldn’t want a neighbor who had farm animals grazing in their yard, I as much want the ability to do what I want and be different. ;)

    • My siblings live in a HOA neighborhood and they haven’t had any issues. I guess it just depends. To me, it’s about the total package.

  11. I think it depends on the HOA. Our former home was in a neighborhood with an HOA and the fees were $60 a year (we didn’t have a lot of amenities, it was mainly to care for common areas) and aside from the fact that a chain link fence option was off the table when we put in a fence, it never bothered us too much. However, the HOA president did put rather snarky comments in the neighborhood newsletter on a regular basis that we all assumed were directed toward the neighbor who badly needed a new garage door and left Halloweeen decorations up all year long- but as far as I know all of the other neighbors agreed that this was tacky as well :-)

  12. I have mixed feelings about HOAs. My parents lived in a somewhat higher value custom home neighborhood for a while, and having the HOA did help protect the value of their house. No neighbors with crazy paint colors, or boats in their yards. They had really strict rules though, so I’m not sure I would like that.

    I owned a townhouse in my early twenties in Irvington that had a $250/month HOA fee. Steep, but we were in older buildings that were all connected on a boiler system, so that also paid for heat and hot water. That fee was also supposed to create a fund for major repairs, like when the roofs had to be replaced. But we still ended up paying an assessment for that cost. About a year after I sold my unit I found out the President (who’d been in that position for many, many years) had been stealing from the HOA for years. They figured he’d stolen 10′s of thousands of dollars. He was forced to pay the money back, which resulted in the fees being lowered from there on out. I kinda feel like I got screwed in that deal.

  13. My very first property was a townhouse with a HOA fee of $270 a month! I was in the Board of Directors (I was nominated and voted in by older members). What I discovered was appalling and most likely illegal. The management company and the president of the Board of Director were cohorts. As much as we pay in HOA fee, our pool was always down (too much bacterial load), our grass was more like weeds, and I would bet they got kick backs on big projects done in the community (resurfacing asphalt, security gates, etc). I was nominated and voted in because I was young and inexperienced and they didn’t think I would raise questions. I couldn’t wait to sell my place and get the heck out of there!

    Of course, not all HOAs are like that. I’ve seen some that are really well-managed and actually do their job. Good luck on your house hunting! We might be doing the same after the holidays.

  14. We have a HOA, and I like it for the most part. Our subdivision is not in the city limits,so HOA does a lot of the work of a municipality if we were in town. It takes care of snow removal and with irrigation water. Our fee is $350 per year, but if we had to pay for water, that could easily be $100/month in the summer when we water the yard. I stopped going to meetings a few years ago because it’s always a bitch session and I can’t get those hours of my life back, but they are pretty reasonable for the most part. The worst thing we ever had to pay was $2000 per lot for paving the road around the subdivision. If you’ve ever lived on a gravel road, it sucks and I was happy to pay, but some people were upset with that decision, and it was a lot of money. Other than that, there hasn’t been anything outside of the annual dues. Also, we are not allowed to rent our our house, which I didn’t consider in the beginning, but wish we could if we ever decide to travel for a year.

    • $350 per year isn’t so bad, especially if it includes water.
      I would just having trouble paying $700 per year if I didn’t really get anything in return.

  15. There’s not a whole lot of HOAs here, unless you’re in a townhome or a super fancy-pants neighborhood. Personally, I think they’re a P-I-T-A, but I can see where they’d be a huge help if you had a neighbor who built an eyesore of a shed right out in front of your yard like that.

  16. I have come to the conclusion that HOAs are worthless. We have one that doesn’t cost a lot, but they throw their power around. They think they are the freaking government sending people letters about what they want done. They don’t really keep the neighborhood in check. I have heard horror stories about HOAs. Also, in many states, if you don’t pay your HOA fees, you can’t sell your home and some have the power to start foreclosure precedings. That is just too much power. We are looking for a new neighborhood that doesn’t have one. They are hard to find here.

  17. HOAs can be blessings like when they prevent the boats in the front yard, or the cars up on concrete blocks. However, I think sometimes the HOA boards get a little power mad and run the association like their own little fiefdom. I remember the Frasier tv episode where Frasier tried to put an antique door knocker on his door. I think that the entire premise behind these associations are to maintain the integrity and value of the neighborhood. In that instance, they can work well.

    • I would agree. The HOA in my parents’ old neighborhood was extremely strict; Down to exterior pant colors, no structures not connected to the house (i.e. sheds), etc. They lived at the very back of the development, where the long back yards sloped down into a creek. Their very difficult neighbors decided to get creative, and built a shed in the middle of their back yard, then extended their deck out and over the shed. It looked like they had a long boat dock in the middle of their yard. My Dad thought it was hilarious, but was thankful not to have to mess with it; The HOA made the family tear it all down about 6 months after it was built.

  18. When I looked for land to build my retirement home, I came across HOA’s and found out some details that convinced me I wanted no part of them. Aside from the fact that you have another “council” or association to deal with whom many times cannot enforce their rules without taking legal action, I discovered that the HOA is accountable for common grounds in your development such as water retention basins. So when, heaven forbid, some small child drowns in the water retention basin, I get included in the lawsuit as a member of said HOA. Absolutely no thanks! I have almost four acres, and I will hang laundry and park my camper or utility trailer where I like (behind the barn, out of sight from the neighbors / road).

  19. Hi Holly! Our 1,400 square foot townhome has a HOA of $270 (soon to be $280 in January). Most of the developments here in Houston have them. One townhome association wanted $400 per month and that was 10 years ago. Lunacy. We don’t swim or play tennis (which it seems the board members really like to do and replaced a perfectly good tennis court with a state-of-the art one just last year or so). Personally, I liked how it was in Upstate NY. Yeah, you might have a pink house in your neighborhood, but for the most part it was ok. Hope you find what works for you and Greg.

  20. Might be worth it in the long run to talk with families who live in the neighborhood. They might be able to give some insight into how controlling the HOA is. A really strict and snooty association would keep me out of neighborhood.

  21. I completely agree with Brian – how the HOA is run can make or break you. Talk to your potential neighbors to get an idea of the HOA – preferably someone *not* on the board. My previous HOA was a PITA – if your mailbox wasn’t freshly painted enough you could get a nastygram. We tried buying a house without an HOA, but we really couldn’t find anything we wanted without one (and there were literally only two neighborhoods without one). Our current HOA is pretty laid back. There are a lot of things we can do without approval (like put solar panels on or build a greenhouse/shed within certain restrictions). There are some things – like changing the paint colors – that we technically have to apply for, but from talking to neighbors, no one’s ever been not approved as long as it complies with the county building laws. So pretty much, our HOA throws an annual BBQ and helps organize two yard sales throughout the year, otherwise, we just have to follow county/state regulations. We pay $110/yr and it hasn’t gone up in the 5 years we’ve been living here.

  22. I love having the HOA, because it keeps regulations on aesthetics such as grass length, fence height and color, restricting the parking of commercial vehicles and even leaving toys in the front yard. The back yard is fair game, so I could put the hot tub that I wanted in without any complaints. Overall, the HOA really does take care of the neighborhood, and it’s nice to not have to worry.

  23. We live in a condo and our HOA fee is quite high. They do all the exterior maintenance and we don’t have to worry about yard work. It’s nice, but if we ever move, I’d find a place with no/minimal HOA. It’s too expensive…

  24. I live in a condo and my HOA dues are around $300/month. This is actually the cheapest I saw in the area of the hundreds of condo units I looked at. My building has earthquake insurance, which is quite expensive, and that’s probably where most of the dues go. We don’t have any amenities either. Most HOA dues I saw were around $450-800/month, which is insane! My $300/month isn’t so bad.

    People complain about how expensive the HOA dues are on condos…but I really like not having to deal with exterior paint, roofing, gutters, etc. I’m not sure how much I would want to live in a house with an HOA though…

  25. HOAs can be a blessing or a curse. It really depends on how they are run, even more so than fees (which I can’t really believe I’m saying but it’s true. Low fees and a poorly run HOA is not a blessing). I would definitely talk to your potential neighbors to see what the consensus is. A home is already a huge a purchase and commitment and you don’t want to get stuck somewhere with a horrible HOA.

  26. I’m not a fan of HOAs mainly because my mother used to be in one and it was HORRIBLE. The people who ran hers were just plain evil.

  27. Our old neighborhood had an HOA and it was a miserable experience. They’d send us nasty letters about the color of blinds, curtains, even flowers. Then threaten to “enter the property” to “fix” the “problems” and send us a bill. The one and ONLY thing I miss about the HOA was that they handled landscaping. My parents HOA is even worse. Constant harassment. Run by neighbors on a power trip. I guess it just depends on who makes the rules and enforces them, but we ran like hell from an HOA neighborhood and would never look back!

  28. My parents live in an HOA neighborhood, and it was a great place to grow up. We did have a community pool, tennis courts, basketball courts and playground, and plenty of walking paths around the neighborhood. Your girls are still a bit young for this, but when they are older is nice to be able to let them walk around the neighborhood to a friend’s house or the pool, especially since our HOA kept plenty of walking paths and sidewalks so we weren’t in the street. Also, the HOA did review all siding/exterior choices, but as long as it wasn’t outrageous it never seemed to be a problem getting it approved.

    Also, I have been curious if you don’t mind my asking- since you sold your house and have not bought a new house in the same year, does that hurt you on your taxes?? I’m not trying to pry into the actual numbers, just curious how that works out for you overall?

    • Nah, probably not.

      We did get to write off the interest on our mortgage from January thru August. But since our interest rate was so low, it wasn’t that much anyways. Other than that, it makes no difference in our taxes.

      I don’t mind if you pry. You should read the questions I get in emails! =/

      • Thanks for the answer :) I wonder how much this varies by state- I’m from Maryland and always thought that there were large tax repercussions for not buying another house. Awesome for you though!

        • No problem! Our old interest rate was only 3.25% and the mortgage was smallish so we didn’t get much of a write-off anyways. I would be surprised if we lost more than a few hundred dollars in tax-write offs.

          Plus, since we’re only paying $700 per month in rent for our temporary place, we’re more than making up for it!

          I’m pretty sure we’re buying a house in the very near future so we’ll be back on board with the mortgage interest tax deduction once again very soon.

    • There are probably varying state tax laws, but I think federally you only owe taxes if your gain on the sale is over $250,000 so long as you lived in the home for at least 2 of the last 5 years. There’s a lot more to that, as there always is with tax laws (i.e. couples filing jointly can have a larger gain, etc), but so long as the difference between what you sold it for and what you bought it for isn’t more than $250,000 I think you’re okay, even if you don’t buy another home in the same year. I think improvements also play in there, but I’m not sure. Here’s the IRS link: http://www.irs.gov/taxtopics/tc701.html

  29. That’s a pretty balanced summary, Holly. We fall on the side of not wanting an HOA, as the benefits of controlling our neighbor’s behavior aren’t as important to us as the freedom to not have our own behavior controlled. I figure that’s the point of owning, in part: to be able to do your own thing on your own land.

  30. I know I will likely have to deal with an HOA when I get around to buying a house. I’m not looking forward to it, but having an HOA vs not owning a home, I’ll take the HOA. My sticking point is going to be if they allow solar panels. I have my mind made up that my future home will have solar panels installed because I like the idea of free electricity that I can sell back to the city. Plus I never understood the reason against them. It’s not like they stick out like an ugly house color or huge antenna.

    • I don’t think that solar panels are ugly either. It may take some time for people to get used to the but they’ll eventually come around when they are forced to use alternative forms of energy =/

  31. My parents retired to a place with HOA fees. They varied depending on the model of the house and where it was located within the community. I think they’re paying $420 a month, which to me, was too much. However, they think it’s worth it. The grass is cut for them April-Oct, they have an indoor heated pool and jacuzzi, 24 hour gym, craft room, exercise classes offered daily, a bar/restaurant area, and tons of community events. They are set to go up once a year, though, so you don’t really know what the cap will be. I think it might be an increase of 10%.

    My parents painted their shutters and everyone was complimenting them, so I guess they’re not as strict with that. I can see how it would be annoying to have restrictions, but as you said, it keeps everything looking great. There’s no real eyesores in their community at all, and everyone loves to decorate for the holidays.

  32. I have never lived within an HOA’s purview, but I have various friends who do. Out here in the SF Bay Area, HOA fees of $350/month aren’t unheard of. (That’s what one of my wife’s aunts was paying. She has since moved to a cheaper local.)

  33. Not a fan of them–but when bad sheds happen, it makes me want to reconsider. My house and every house is on at least 1 acre–so any eye sores are spaced far apart!

  34. That is one ugly shed Holly. I don’t know that HOA fees would solve everything. My parents house has never been under HOA and there has never been any shed incidents lol.

  35. You never really hear anyone saying how much their love their HOA.

    For a few hundred dollars a year, maybe it’s worth it. The HOAs seem to do a great job in the areas I live near. I have no idea how much they cost, but there is something to be said for knowing that your home’s value won’t decrease in value because your of your neighbors.

  36. I was treasurer of my former HOA, and I have mixed feelings. Mostly, I am in favor of the HOA because I have too bad tacky neighbors, but the make-up of the board and the hired management company can make or break the love of your neighborhood. We had one board member who felt a bit too at ease spending money and raising dues. Had there been more than one, my view would be different. I would check to see how much dues can go up annually without a vote and what percentage of households must approve changes in the bylaws (more than 50% is what you want). Don’t be afraid to look at the financials and ask what the capital needs plan is (our fence replacement was a several hundred thousand dollar potential expenditure that we kept pushing out because we felt like we could yet more years out of the original fencing). Our largest expenses were: management company, landscape contract, water, fence repair. Dues were $135 and there were 600 something houses.

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  1. […] Club Thrifty: If you’re looking at purchasing a house, deciding whether or not to choose one that’s part of a homeowner’s association will likely be part of the process. Holly has a good overview of what exactly a homeowner’s association is as well as some pros and cons of joining one. […]

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