In the recent past, Homeowner Associations (HOAs) have become prevalent in the United States. According to Robert H. Nelson, a public policy professor, homeowners’ associations and cooperatives represented about 1% of US housing. However, a recently concluded study indicates that there are over 300,000 community associations in the United States.
These community associations house over 60 million Americans, which is 20% percent of the nation’s population. He added that half of the new housing in the US was built and organized between 1980 and 2000 under the private governance of a community association. To help homeowners understand the complexities of HOAs, this article describes how they are formed, their benefits, and the associated cost.
Steps to Creating a Homeowners Association
The State property code formulates the procedures for creating a homeowners association. For example, in Texas, a three-person committee must be formed to petition for the formation of a homeowners’ association. The committee must issue a written notice indicating that they want to create a homeowners’ association. At least 60% of property owners must be notified and approve the petition within a year. Once HAO is formed, it can create restrictions through a separate agreement that needs to be approved by at least 75% of property owners.
The process for creating an HOA depends on its location. Firstly, you have to develop a business structure by forming a Limited Liability Company or non-profit organization. Then, create conditions and restrictions that describe how the association will operate and establish procedures for future modification of the terms of the association. If those forming the HAO are not experts in real estate law, it would be advisable to hire an attorney. The attorney ensures that HAO leaders follow the stipulated procedures to avoid legal problems once the association is formed.
2. Protect the HOA
The board members of an HOA runs and oversees its operations. As such, they protect the association if sued by the homeowners. In Elk Grove, California, for example, an HOA was sued for its suggested changes to parking rules. The HAO wanted the Houston, Texas man to remove the burglar bars from his home notwithstanding increased crime rates in the area. In the case of litigation, the board of directors provide financial protection to the HAO.
3. Collection and management of dues
HAOs collect money from the community’s residents to sustain its functions. Much of the money goes toward the upkeep of the facilities while some funds cater for legal, administration, and accounting services. It may pay for garbage collection, landscaping services, and pool maintenance. Additionally, a portion of the collected money is used for the recurrent expenditure, and the rest is set aside in a reserve fund.
A newly formed HOA needs to analyze and construct a budget to determine the amount of money needed to collect from each property owner. The analysis determines the cost of expenses that will be paid by the community members. It also determines the percentage of funds that will be allocated to the reserve fund. Notably, the reserve fund’s value must be preserved against financial crisis such as inflation.
4. Update homeowners
As members of the community, residents must be updated of the HOA’s operations and issues affecting the entire community. Leaders of HOAs must hold regular meetings with members to keep them alert of the current state of affairs. Residents should be notified early enough to ensure that everyone has an opportunity to attend. Also, residents have the right to hold elections for official and directors. Furthermore, HOAs members have the right to view HOA activities and financial records and should be granted access upon request.
5. Enforcing homeowners association rules and handling complaints
Since HOAs are rule-based communities, officials may enforce rules that members are breaking. Besides, they should also handle residents’ complaints regarding the existing regulations. If homeowners refuse to comply with the community rules, they may be fined or sued.
Benefits of a Homeowners Association
The benefits of homeowners associations depend on personalities, preferences, and the quality of a given HOA. However, rules and dues of HOAs vary but members must abide by the stipulated regulations and pay a monthly, quarterly or annual fee.
Here are the benefits of HOAs:
1. Low maintenance cost
In most homeowners association, snow removal, garbage collection, and lawn care are handled by the association.
2. Recreation amenities
While not all homeowners association have tennis courts and swimming pools, many offer a broad range of amenities such as walking trails and social halls.
3. Professional management
Many homeowner associations have dispute committees that solve conflicts relating to neighbor’s dog barking, a dispute over a tree or loud parties. Members can report to the association rather than confront a neighbor.
4. Standardized appearance
Homes within homeowner associations must abide by the set regulations; therefore, you are less likely to see unkempt lawns within HOAs. In fact, some HOAs have design review board that approves changes to your home exterior.
Cost of Forming a Homeowners Association
One of the major attractions to living in homeowner associations is the convenience and amenities available to homeowners. However, this comes with homeowners association fees. The cost associated with these amenities can be substantial. Each homeowner is required to pay a monthly, quarterly or annual fee to cover the expenses. Therefore, living in a gated community is a trade-off. Before deciding to buy a condo, consider the expected cost and what to expect in return.
Every homeowner association has its policies. Some provide a broad range of services, and therefore they set their fees accordingly. As a rule of thumb, most HOAs covers the cost of services such as maintenance of communal facilities, insurance, pest control, and city services.
The formation of a homeowners association comes with high-level responsibility and major implications. Therefore, if you are considering buying property in an HOA, reflect on the associated responsibilities and the level of risk. Make sure you understand the terms and conditions of an HOA before buying property.