If you’re a homeowner, you’re more likely to live in an HOA than not. According to HOA-USA, over 40 million households or 53% of owner-occupied households in the United States are located within some form of a community association.
For homebuyers, this may mean that buying in an HOA is unavoidable, so it’s a good idea to understand what sort of fees to expect and what they will cover.
Here are some common ones to expect when buying, living, and selling in an HOA.
What sort of fees are you likely to see when purchasing a home in an HOA?
When buying and living within a community association there are several types of fees that you may encounter at some point. There are fees related to the closing, regular fees, irregular fees, and miscellaneous fees.
Below are some examples of each type of fee. Every neighborhood is slightly different, so not all of these may apply to you. It’s important to carefully review your association’s documents before closing to understand what you will be charged and why.
Fees related to the closing
- Application fees - HOAs are subject to the Fair Housing Act, but they can require approval applications and reject a buyer or renter based on financial instability, criminal past, or if the association has reasonable cause to believe that he or she may not follow the rules and regulations of the community.
- Background Checks - Some associations may require an additional fee for submitting a background check along with the approval application.
- Capital Contributions - Many developers charge a one-time capital contribution to the first purchaser of a home to help establish the association. Some HOAs may continue to charge a capital contribution fee on resales.
- Transfer fees - This fee is required to transfer the account from the current homeowner to the homebuyer.
- Estoppel Letter fee - The homebuyer doesn’t usually pay for this cost, but once you become a homeowner, if you decide to sell, it’s customary for you to pay. If you’re buying in a Florida HOA, homeowners are ultimately responsible for this cost, even if you take the house off of the market.
- Association Dues - Monthly dues are the most common regular fees, but depending on how many associations govern your home and their structure, you may pay additional fees on a quarterly or yearly basis.
- Special Assessments - Similar to the special assessments levied by a public municipality, an association’s special assessment goes toward special projects or funds for needed repairs after unforeseen accidents or natural disasters.
- Gate Access
- Pool Access
- Initiation Fee
- Food & Beverage
How do these fees benefit the homeowners?
Some associations are powered by volunteers, people who live in the community and want to make it the best neighborhood possible. Other associations, however, may require the help of professional property managers. The latter is far more common since the burden of processing dues, bookkeeping, dealing with owners’ concerns, and ensuring the community’s standards are enforced is a full-time job.
Approximately, two-thirds of homes within the jurisdiction of an HOA are run by professional property managers. Some of these fees go to the management’s payroll.
Amenities and upkeep of the grounds are the other major expenditures related to community living. Some fees also include services like water, sewer, and trash, but some don’t.
Lobbies, patios, landscaping, swimming pools, elevators, gates, roofs, and golf courses all require maintenance. So when considering your future home, weigh the costs of the association’s fees with the perks of the community.
How do homebuyers know what fees to expect while living in an association?
The details of what is included as part of your fees will be listed within your association estoppel letter, sometimes called a resale package or HOA demand letter. The amounts and schedules should all be delineated within these legally binding documents.
The title commitment lists the requirements of certain documents that must be ordered and other tasks that must be completed before a title insurance policy is issued for the lender and homebuyer. HOA information is an important part of this process because associations have the right to lien on a property when an owner misses a payment. In some cases, a property may be governed by multiple associations, each with its own fees.
Missing an association could mean the new owner is obliged to pay an additional fee.
- If you come across an HOA that has been dissolved, don't assume there are no fees.
- In some cases, HOAs can be reinstated and start charging fees after closing.
- Sometimes title commitments have incomplete or incorrect association information.
- Reinstated associations may start doing business under a new name.
Title agents have to take time researching, ordering, and examining a property’s HOA information to uncover any potential HOA liens or pending liens against the property before it’s sold. These title agents use PropLogix for HOA research to increase their title company’s productivity.
Is living in an association worth it?
The value an association adds to your experience as a homeowner largely depends on what type of community you envision. The common criticism against associations is that they are restrictive and homeowners are often embattled with the association’s board and their rules. But according to IKO community management, 90% of people say they are on good terms with their association’s board members and 76% of people say that their association’s rules and regulations “protect and enhance property values.”
There are a lot of pros and cons that come with living in a community association, so it’s a matter of weighing those with what matters most to you as a homeowner.