The pros and cons of home ownership in an HOA

Would you live in a neighborhood with a Home Owners Association (HOA)? Why or why not? HOA neighborhoods usually have a monthly fee that can be as low as $50, but as high as $300+ (in the Sacramento area at least). Why are home owners willing to fork over fees like this every month when most other neighborhoods do not have dues? Usually it’s a matter of living in a more controlled environment, a neighborhood with more conformity, a life with less house maintenance or even affordable housing depending on the HOA. At the same time, some buyers are repulsed by the concept of neighborhoods with monthly dues because they are viewed as a freedom drain because of all the rules.

Here is a list I made of the pros and cons of HOA ownership. Anything you’d add?

pros and cons of hoa ownership - by sacramento appraisal blog

Choosing Comps Inside & Outside an HOA: It is always important during the appraisal process to consider whether there is an HOA and how that impacts value. This definitely shows up when choosing comps too because when trying to support a value it is critical to use sales inside the HOA instead of pulling in “comps” from other nearby neighborhoods that really might not be all that competitive. What is happening inside the HOA in terms of value? That is always my first question before choosing sales outside of the community (and assuming the value is the same). It’s definitely okay to use outside sales as comparables in the appraisal report, but it’s always best to start inside the community first.

By the way, you may be interested to learn more about the difference between a PUD and condo (both of which usually have an HOA). If you’re local, be sure to check out the video below (or here) to know how to use plat maps to help tell the difference so you can be prepared to market a property correctly, get a loan or compare the property to other similar ones.

Question: Why do you think people move into HOA communities? I’d love to hear your take.

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Comments

  1. says

    How long and where cars can be parked, when garbage cans can be put out … those are the common complaints I hear from friends. Good communication and good HOA staff (with a touch of PR background) can definitely be the separating factor of whether it’s appreciated or not by it’s neighbors they’re “helping.”

  2. says

    We have a lot of neighborhoods with HOA’s in my area, and seems like we have similar complaints. Even though people think the HOA is a pain they still live in these neighborhoods because they seem to hold value better.

    • says

      They really can hold their value. I find the single family detached homes tend to hold their values more than say condos or town houses. When code and rules are enforced, it does help to create a uniform and very clean look. However, it can also be a real turn-off or pain to residents. It’s definitely not for everyone, but there is something to say about the role of an HOA. From an idealistic perspective though, it would be great if residents had a greater sense of community and cities did their job of enforcing standards and code so that neighborhoods would not have to have HOAs. 🙂

  3. edgar sanchez says

    Living in an HOA, I believe maitains the functionality of the neighborhood thus maintaining property values at their highest. I live in an HOA and yes there can be some nit picky rules but I would rather be reminded that I need to put away my trash recepticle after the third day than have to see people parking their cars on their lawn or big rigs and RV’s on the street.

    • says

      Edgar, you articulated one of the huge benefits of an HOA. This is exactly why HOAs are popular. Yet the irony remains in my mind that strict rules don’t necessarily bring about a better quality of life or better relationships with neighbors. Rules can definitely make for a clean neighborhood though, which is so important.

  4. s says

    How do lawsuits against a HOA and nonpayment of monthly HOA fees by owners affect the responsible condo owner neighbors? Are special assessments to be expected during the lifetime of a condo owner or are these primarily the result of poor HOA management, a large number of irresponsible condo owners, or an old and/or deteriorating complex? I’d think a good HOA already budgeted for major replacements and repairs using the various expected lifetimes of complex features. Are you calling a PUD a townhome? Are there any differences other than the ownership of land under the structure? By the way, don’t condo owners actually own the land as well, only it’s not physically divisible since it’s expressed as a fractional ownership.

    • says

      Hi “s”. Thanks for the comment. I figured it would be easiest to Q&A style below.

      Q: How do lawsuits against a HOA and nonpayment of monthly HOA fees by owners affect the responsible condo owner neighbors?

      A: Lawsuits against an HOA can hands-down deter lenders from wanting to loan in the complex. But let me be careful at the same time how much I say there since I am an appraiser who specializes in value rather than making loans on complexes involving litigation. When owners fail to make monthly payments, it can make the HOA unable to do their job over time. Not having the money to keep things moving in the community can cripple the community. There seems to be a responsibility theme in your questions. Paying monthly dues is critical and can impact everyone. This is why so many HOAs struggled when the real estate bubble burst. People cut expenses, and that included monthly dues in many cases. There were so many foreclosures on the market where the HOA was owed a few thousand dollars very easily. That can really add up over time if there are many units doing the same thing.

      Q: Are special assessments to be expected during the lifetime of a condo owner or are these primarily the result of poor HOA management, a large number of irresponsible condo owners, or an old and/or deteriorating complex?

      A: I suppose it depends on the complex and management too. Theoretically I’d think a complex should be able to forecast expenses and have fees to manage those expenses so there are not special assessments. That’s ultimately not my specialty though. I just assign a value. 🙂

      Q: Are you calling a PUD a townhome? Are there any differences other than the ownership of land under the structure?

      A: I am not calling a PUD a townhome. A townhouse is an architectural style instead of a legal classification (like a PUD is). A PUD might have a townhouse style to it, but then again it could have detached houses too. In contract a condo subdivision is almost always attached. The main difference is ownership. There may be some other subtle differences an underwriter would discuss, but from my perspective as an appraiser it is really ownership of the land and ownership of the interior walls that is the difference. Functionally speaking though, some PUDs look just like a condo from the outside though, and they really don’t have much use of the land. It’s not like they can add on or change the exterior. In cases like this, the PUD that looks like a town house and a condo is probably very similar in market appeal.

      Q: By the way, don’t condo owners actually own the land as well, only it’s not physically divisible since it’s expressed as a fractional ownership.

      A: Yes, a condo parcel might be one acre in size, which would mean all of the owners have an interest in the entire lot compared to individual owners having an exclusive interest in their individual parcel.

  5. s says

    Thanks. Can condo owners be on the hook for their neighbors’ unpaid HOA fees? As potential condo shopper, I’d want to know what my monthly expenses will be, so PITI and HOA fees are known at onset, but won’t HOA fees go up without any control or end in sight if there are enough owners who don’t pay their fees or the HOA is poorly run and repairs and maintenance are not done? Will my bank appraiser assess the health and management of the HOA and its mgmt prior to loan approval so these things are known in advance?

    • says

      Hi S. I really can’t say how and when HOA fees will go up. You should read the guidelines about how they are managed and ask the HOA that question. If you happen to be shopping locally, I can put you in touch with an agent who is really in touch with the health of most complexes. Usually if an HOA is poorly run, it is obvious by the way the complex looks. I would just keep digging around though to find out how fiscally fit the HOA is though. That would be a top priority in my book. The lender will be the one to assess the health of the HOA. If it’s a condo, the appraiser is going to have to get some information from the HOA such as number of units, how many rentals there are in the complex, etc… but it’s not very common for appraisers to actually read a budget and know the inner workings of how financially healthy an HOA is. When asked in an appraiser report about the budget, appraisers might say something like: “The budget was not made available to the appraiser and the appraiser is not qualified to analyze the budget.” On the other hand, the lender is going to be investigating a bit further. Here is some common lending issues that lenders will investigate in a condo: http://sacramentoappraisalblog.com/2011/04/21/common-lending-issues-with-condominiums/ (keep in mind guidelines for lending are much less stringent for PUD properties – especially detached PUDs, so these may not apply to a PUD situation).

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