What the emergence of homeowners associations implies for purchasers

• The percentage of new single-family homes constructed within HOAs increased from 49% in 2009 to approximately 65% in 2023, as per the U.S. Census.
• The amenities can come at a high cost depending on your area.
• Here's what buyers need to know.

Many buyers aim to steer clear of purchasing a property with a homeowners association when shopping for a home.

But that may be easier said than done.

It's crucial to comprehend HOAs before purchasing a property in the U.S., as their numbers are increasing.

According to recent data from Frontdoor, nearly three-quarters or 70% of surveyed homeowners would prefer a community without an HOA if they were to buy a new home in the future. In September, Frontdoor polled 1,005 homeowners, 85% of whom are currently part of an HOA.

Why it's hard to avoid HOAs

The board of directors, composed of community residents elected by homeowners, governs the neighborhood through a set of rules and regulations, while homeowners pay dues to maintain and repair common areas like parks, roads, and community pools.

There are organizations that cater to various types of properties, including single-family homes, rowhomes, condominiums, and cooperatives.

The typical first-time U.S. homebuyers is 38, an all-time high.

Over the past few decades, the number of HOAs in the U.S. has significantly increased. In 1970, there were approximately 10,000 community associations with around 2.1 million residents, according to the Foundation.

The percentage of new single-family homes constructed within HOAs increased from 49% in 2009 to approximately 65% in 2023, as per the U.S. Census.

In the United States, HOAs or common-interest communities make up approximately 30% of the housing stock and house 75.5 million Americans, as stated by the Foundation for Community Association Research, which is an affiliate organization of Community Associations Institute, a group representing HOAs and other community organizations.

Local governments are increasingly seeing common-interest communities as a beneficial option, according to Thomas M. Skiba, CEO of the Community Associations Institute, an organization representing homeowner and condominium associations.

Local authorities no longer have to plow the street or perform maintenance, yet they still receive the full property tax value, according to Skiba, who spoke to CNBC.

In some regions, HOA membership is more prevalent. Specifically, Florida has the highest HOA membership rate of 66.86%, with over 4 million homes in HOAs, as per a data analysis by This Old House, a home improvement website.

Steve Horvath, co-founder of HOA United, stated that buying a home outside of a community is often considered a luxury in many cases.

How HOAs add to homeownership costs

The cost of a common interest community will vary based on its location and the amenities provided by the association.

The cost of mandatory membership for homeowners can range from $100 per year to over $1,000 per month, depending on the community, according to the American National Bank of Texas.

HOA fees often increase over time and occur frequently, according to a survey by Frontdoor. Of the current HOA members surveyed, 51% reported an increase in their fees, while 65% said price increases happen regularly.

How to vet an HOA before you buy

According to Frontdoor, about 60% of surveyed homeowners had a positive experience with their community.

Of those who wanted to move from the neighborhood, 63% complained about fees and 53% cited inconsistent rule enforcement.

The CEO of the National Association of Home Builders, Jim Tobin, stated that HOAs can sometimes be very intrusive, such as dictating the colors you can use to paint the exterior of your house.

When searching for a home and deciding whether an HOA community is suitable for you, consider these factors during the shopping process.

• Obtain HOA paperwork, including covenants, bylaws, fee schedule, rules and regulations, and meeting minutes from your real estate agent or the seller's agent, experts advise. These documents can provide insight into the HOA's management.

• Skiba advises to inquire about the HOA's monthly or annual fees, budget, and the history of how assessments have grown over the years.

• Horvath advised that it's important to check if the house you're interested in buying has any unpaid assessments. These outstanding balances should be addressed by the seller during the sale.

• Horvath advised reviewing any pending litigation, disputes, or existing judgments within the community.

• Skiba advised examining the community's reserve funds to ensure adequate funding for repairs and renovations.

• Would it be possible for you to attend a board meeting or the member's annual general meeting?