Hot Property: Understanding Homeowners Association

House hunting is—and always will be—the process of weighing seemingly countless options and picking the ones that dovetail with your needs and wants.

There’s location, financing and even the moral impasse presented by full basements versus crawl spaces. One of the most important decisions any potential homeowner will face is: “Who are my neighbors and how much input do they get in how I manage my property?”

Enter the Homeowners Association (HOA).

Nearly 18 percent—24.8 million—of U.S. homes are part of the nation’s 300,000 HOAs, be they condominiums or detached dwellings, according to the Community Association Institute (CAI). In 2010, nearly 62 million residents were living as part of HOAs.

Despite occasional bouts of bad press, the vast majority of the HOA members are satisfied with their associations, according to the CAI. Polls have indicated that more than 70 percent of those living in HOAs had positive experiences.

Ellen Sarantos, president of the Irvington Park Homeowners Association in Lynchburg, said the HOA provides an important quality to every neighborhood. “The homeowners association sets the neighborhood standards,” she said. “Through the bylaws, we provide consistency.”

Mark Jordan, a planner with Bedford County, explained that local governments have very little to do with HOAs. “The county doesn’t govern private covenants,” he said. Since HOA members must pay local property taxes and partake of few local government services, many locales are loath to tinker with a golden goose. Most HOAs maintain their own roads and common areas, saving the local governments and Virginia Department of Transportation millions of dollars annually. In essence, HOAs do not play heavily on the minds of local governments.

In contrast, potential homeowners ought to keep the HOA blip on their radar. By their very nature, HOAs feature restrictive covenants and bylaws that dictate the fabric of their neighborhoods. Some homeowners chafe under these restrictions, and others welcome the standards they bring to the community.

Jennipher Lucado, president of Brownstone Properties, Inc. in Lynchburg, is a 23-year veteran of HOA management. Lucado explained that Brownstone manages 29 HOAs scattered throughout Lynchburg, Bedford County, Campbell County, Amherst County and Pittsylvania County. As a management agent, Brownstone handles a myriad of administrative chores for client HOA boards including collections, being the point contact for HOA members, and managing contractors.

“The [HOA] board retains all the decision-making powers. We take the day-to-day pressure off the board,” said Lucado, a CAI-certified Association Management Specialist and a Certified Manager of Community Associations. “The board members all have jobs. They’re busy.”

Steve Moriarity, a principal with Chadwick, Washington, Moriarity, Elmore & Bunn PC, a Northern Virginia law firm specializing in HOA and condominium law, says while HOAs are necessarily complex beasts, they deserve respect and understanding. There are two basic types of HOAs—those for condominiums, and those for detachment homes with land, said Moriarity. The difference is fairly simple. Condo owners—as members of the condo HOA—share ownership of the common areas or amenities the HOA owns. In a development scenario with homes on lots, the common areas are owned by the HOA. The HOA also charges fees to the property owners to maintain the common areas.

When buying a home, researching the HOA is as important as looking for evidence of termites and verifying the number of bathrooms. Moriarity explained that it is relatively easy to get information on any HOA connected to property that may become your dream home.

If a property is part of an HOA, that will be noted on the deed. The information is readily available in every courthouse or through the counties’ electronic registries. When the sale is being consummated, the buyer can request a full disclosure of the HOA involved. The disclosure will provide the Declaration of Covenants, the HOA bylaws, and any other rules enacted by the HOA Board of Directors.

Lucado and Moriarty stressed the need to request the HOA’s financials as well. “This may be the single most important item that a new homebuyer will want to check concerning an HOA,” said Lucado. By their nature, HOAs govern not only the look of a neighborhood, but also significant aspects of the infrastructure, like roads, common areas and amenities. In some instances, HOAs are responsible for individual home repairs. Potential homeowners want to be sure the HOA is in good financial shape to manage such capital costs.

Lucado said having a CPA scrutinize the state-required Reserve Study can provide a good indicator of an HOA’s financial health. “It’s important to see what is being held in reserve so you can protect yourself from special assessments in an emergency,” she added.

Sarantos explained that the Irvington Park HOA board manages their own finances and capital reserve. She reiterated the importance of prospective homeowners understanding how HOA dues are spent. In Irvington Park, HOA dues fund the capital reserve and maintain common capital assets, such as the pool, tennis courts and common areas.

Due diligence on HOAs has become more important over the years due not only to their proliferation, but also to the nature of the developments themselves. One increasingly popular development type in this area is the “maintenance-free living” retirement community. In many cases, the HOA assumes the responsibility of upkeep on a much greater proportion of the property.

“Look at the documents and be certain what is covered by the HOA and what is not,” said Lucado. “I’ve never seen an HOA cover every maintenance situation.”

In cases of storm damage, an HOA can increase assessments significantly to repair homes. However, most fee or one-time assessments will be covered by the bylaws, and it is not uncommon for an assessment ceiling to be on the books. In addition, often the HOA membership has to approve any attempt at raising more money.

“Some HOAs have very few rules, but others can be very, very specific,” said Lucado. “And you don’t want to find that out after the fact.”

The good news is that a strong HOA can go a long way toward stabilizing your home’s value and even increasing it.