(drum music)
- Philip, stop.
We're not supposed to be doing that after 6:00 PM.
- Who says?
- Our HOA?
It says so clearly in the CC&Rs
- The Credence Clearwater Revival?
- Covenants, conditions and restrictions.
- Give me a break.
This is America.
Nobody can tell an adult what they can do in their own home.
- Actually, they can.
(upbeat music)
There are so many important factors to consider when
buying a house from mortgage terms
to inspections to school districts.
It's understandable
that some things that don't seem too important now
will get neglected only to bite you down the road.
- One such example is the HOA or Homeowners Association.
A self-governing board that oversees a community
of homeowners, whether in single family homes,
townhouses, or condos.
HOAs are funded by monthly dues collected
from all members and exist to keep property values high.
The main ways they do this are
by offering amenities and enforcing restrictions.
- Amenities offered by HOAs come in many different flavors.
A gated community might have security guards patrolling
at night.
A subdivision of tract houses might have
a community swimming pool
and a condominium building needs to keep
the elevators working and the lobby neat and tidy.
- These things all cost money and the amount of dues
collected will reflect the extravagance of the amenities.
A simple HOA that offers a garbage pickup service
and maintains a playground might only ask residents
for $150 a month while a beachfront condo could easily
charge $1,000 a month to operate a spa
and fitness center.
- You can't opt out of paying for these amenities.
So before you commit, make an honest assessment
of whether you'll actually use them.
Generally, the services that make everyday life easier
like snow shoveling or garbage pickup
are a safer bet than luxuries like gyms and swimming pools.
- But restrictions are where HOAs really flex their muscles.
Do you live for Halloween
and literally count the days until you can bedeck
your house with all manner of ghosts and ghoulies?
Better read those CC&Rs pretty closely
because some HOAs may prohibit holiday decorations
of any kind, let alone the gory tableau you've dreamed up.
- Maybe your family has three cars,
but only a two car garage.
That's okay, you can just park the extra one
on the street, right?
Well, that depends.
No HOA has jurisdiction over public streets.
But if the street is private, like say in a gated community,
HOA can make rules about what kinds of vehicles
can park there, for how long
or even prohibit street parking entirely.
They can even dictate
whether you can park your car in your own driveway.
- Let's say you've just inherited the handmade farmhouse
mailbox your grandfather made.
Better rethink it as a backyard birdhouse
because your new HOA loves uniformity above all else.
Some even require your roof shingles
to match your neighbors.
- Other common restrictions include no parties,
no renters, no flags, no long-term visitors,
no pets over 25 pounds or no pets period.
- Okay, but are these really ironclad rules
or just guidelines?
If you bent them a little bit,
how much trouble could you really get into?
- The answer, a lot.
- Courts in many states have determined
that CC&Rs are legally binding documents
unless they violate public policies.
Depending on the terms, you could be fined, sued
or have a lien put on your home.
HOAs don't play. One in Florida confiscated
80 residents' trash bins and dropped them off
at a recycling center for leaving them in plain view
for too long. A man in California had to pay $70,000
of his HOAs legal expenses and lost his home.
His crime?
Planting too many rose bushes in his front yard.
- So if you think you'll have trouble complying
with any of your HOA's restrictions
it's best to look elsewhere rather than risk a showdown.
Conversely, these restrictions might just
be what you're looking for, like say,
if you're deathly afraid of dogs or have trouble sleeping
and don't want to be disturbed by loud neighbors.
- Once you've balanced the amenities
with the restrictions and dues, there's one more aspect
of your HOA to consider, assessments.
- Sometimes major repairs are required on shared spaces
like if the community pool needs resurfacing
or the elevators need special maintenance
or the roof of a condo is damaged in a storm.
In these cases, the HOA may have the authority to demand
that every member chip in to pay for the emergency upkeep
which depending on the problem, and the number
of members can result in an unexpected levy
in the hundreds or even thousands of dollars.
- These surprise fees are known as assessments
and though they can feel onerous
they are not to be taken lightly.
Take for example, the collapse
of the Champlain Towers South condo building
in Miami in June of 2021.
For years before the tragedy, the condo board knew
that the building was in dire need of repair
but was reluctant to ask the residents
for the 80 to $200,000 in assessments
it would cost per unit.
- Part of the problem is that HOA boards are often made up
of volunteer members who have little experience in finance
or construction and are under pressure from residents
to keep dues as low as possible.
According to one study, about one third of such associations
have less than a third of the savings they'd need
to pay for sudden, but eventual repairs.
- As Jeffrey Ducker, a principal in the audit department
of a Florida public accounting firm, put it,
if you're looking to buy a home in an HOA, be sure to ask
for a copy of its financial statements.
Look at what its liquidity is,
if it has sufficient working capital to operate
and if it has set aside reserves for future major repairs
and replacement. If it doesn't have reserves
that would be considered a negative factor.
- Despite the cost and the pitfalls,
HOAs are actually pretty popular.
The Community Associations Institute reports that 85%
of residents that have an HOA are satisfied with it.
Additionally, researchers at the University of California
at Irvine found that homes with an HOA
sold for 4% more than those without on average.
For many people,
HOAs can make their home a better place to live
and a safer investment.
As long as you have a competent board
and can abide by the restrictions, you might be one of them.
- So I can go back to practicing the drums?
- Only between the hours of 10 and six
or you could get an electric kit and put on some headphones
which actually sounds like a good idea to me.
- [Group] And that's our two cents.
- Thanks to our patrons
for keeping "Two Cents" financially healthy.
Click the link
in the description to become a "Two Cents" patron.
(upbeat music)
- For more about the unexpected bumps
on the path to home ownership, check out our video,
"How Do You Actually Buy a House?
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