Is it worth it?
Paying fees month in and month out may lead some residents to question their decision to move into a community managed by a homeowners association, or HOA. It may even push them into the market with the hopes of finding a more unfettered living situation.
On that ever-present flip side, though, there’s the value those fees go toward creating. First-time buyers may not be cognizant of how all those payments can be considered more of a long-term investment as opposed to an additional monthly fee.
An HOA is tasked with taking the fees, also known as assessments, and putting them to good use maintaining landscaping and common areas, coordinating garbage and recycling programs, and, in some parts of the country, even preparing a neighborhood’s network of sidewalks and pipes for winter weather. That continuous upkeep can translate to higher property values for homeowners.
So, is it worth it? A savvy real estate agent can help buyers make an informed decision based in part on the quality of the HOA managing the development.
Brief clients on the basics
Knowing some HOA basics can add an extra dimension to an agent’s real estate marketing capabilities. For buyers eyeing a move into a managed community, a knowledgeable agent can be positioned as a guide and adviser.
In turn, knowing the HOA itself, possibly through relationships with board members and a general knowledge of their goals and points of pride, creates a unique opportunity for an agent to network and reach potential new buyers and sellers. For instance:
- Board members may facilitate the distribution of a Market Report with the community’s newsletter.
- An agent could arrange introductions between potential buyers and HOA board members who will likely sing their neighborhood’s praises.
- In listing descriptions or photographs, an agent could highlight a community’s lesser-known features or outline its key covenants, which are often geared toward safety and neighborliness.
Pro? Con? Point of view
Most of the stipulations imposed by a homeowners association can be viewed as either pro or con, depending on the client. Being equipped to explain the benefits and detriments can help establish an agent’s specialized expertise. In all likelihood, more clients will have questions about HOAs as the organizations become more prevalent.
HOA-USA, a resource for volunteers serving their neighborhood and community associations, places the number of households represented by homeowners associations at more than 40 million. The Community Associations Institute, another organization supporting such groups, points to data showing the number of HOAs nationwide steadily increasing since 1970.
What other information related to a neighborhood’s inner workings should be considered for inclusion among Community Profiles? Knowing a bit more about specific homeowners association rules can prepare real estate agents with answers to questions that may pop up during showings, open houses or phone calls with new leads.
Covenants, conditions and restrictions
In general, it appears residents are satisfied with the rules governing communities and neighborhoods with HOAs. CAI found that 70 percent of residents feel homeowners association rules protect and enhance their property values. Researching a local market’s HOA covenants, conditions and restrictions, or CC&Rs, can help prepare agents for more detailed questions. A copy of CC&Rs can be obtained directly from the homeowners association (sometimes for a fee) or from the HOA’s website.
Insurance can be a key factor to understand. In some states, for example, in a community that shares a pool or playground, the homeowners association should have insurance to protect against injuries resulting in lawsuits. “If your HOA insurance lacks this coverage, you and other homeowners might be responsible,” according to Lawyers.com. In addition, since nearly two out of every three buyers finance their purchase, lenders also want to know if there is adequate insurance coverage for any common areas. A minimum of $1 million in liability coverage is a common lender requirement.
Though the rules regarding reserve funds and reserve studies vary, HOA-USA.com recommends that homebuyers find out whether an HOA has ample funding in store for future capital projects in order to avoid the emergence of new fees. Lenders also encourage homebuyers to look into HOA reserve funds before buying. On its website, Bank of America notes that depleted reserve funds could lead to special assessments to cover the cost of an emergency.
Some homeowners associations can be overly litigious, frequently filing lawsuits against contractors, suppliers or other third parties. The absence of pending or recent lawsuits reflects well on an HOA’s management. Lending guidelines often don’t allow for approval of a homebuyer’s loan application if there is an existing or imminent lawsuit. Litigation also has the potential to result in special assessments for residents.
When lenders are asked to approve loan applications and there’s an HOA involved, the lender can require documentation that essentially protects its collateral — the home. There are different rules in each state about who obtains HOA documents and disclosures. Factors like the percentage of primary residents compared to renters, litigation, reserve requirements, minimum insurance coverage and delinquent HOA accounts are just a few of the details the HOA can be asked to verify. Many developments already have lender approval, which streamlines financing requests and increases marketability. To search for approved condominium projects, visit the U.S. Department of Housing and Urban Development’s website, which also provides a list of their approved lenders.
Writing for National Association of Realtors website HouseLogic.com, journalist and author Blanche Evans says,
“Some HOA boards meet as little as twice a year.”
If a buyer anticipates a few concerns right off the bat, they should be given an understanding of the time frame for having those concerns addressed.
According to CAI, 86 percent of residents oppose more government regulation of community associations. Currently, government involvement varies from state to state, so if a homebuyer is relocating, they may find it helpful to be brought up to speed.
HOAs that draft covenants with fair and practical guidelines for composting, vegetable gardens or solar panels may help draw in consumers seeking more sustainable living environments, writes attorney and city planning professor Seth G. Weissman in an article for Urban Land Magazine. This type of community may be ideal for buyers seeking a “green” lifestyle.
Combined, the above factors could form a checklist for agents to include in a Homes & Land Market Report, which can be easily shared over the Internet with clients.
Additionally, when supplementing your Market Report with a Showcase of Homes, consider including some relevant HOA basics.
In situations where a developer is in the process of transitioning management to a community’s new HOA, those details would be helpful for a buyer purchasing one of the newly constructed homes, or in a Market Report on New Construction.
Going the extra mile with the HOA information you offer clients demonstrates specialized expertise and foresight, which can make your real estate marketing more multifaceted. As you become increasingly familiar with a particular association, you will gradually build a reputation as an expert for that community, bringing in more buyers and more listings.