What Are Homeowners’ Associations (HOAs) and Condominium Associations (Condo Associations)?
A neighborhood of single-family homes may be organized into a Homeowners’ or Community Association (HOA), also known as a POA or Property Owners’ Association. Usually, the HOA was created by the developer at the time the community was built.
These associations have a governing body (Board) elected by the residents from among their neighbors. The Board is responsible for drafting the neighborhood’s by-laws and regulations, filing the association’s tax returns and any legal documents, developing budgets, collecting HOA dues, and maintaining common properties such as roads, parking lots, swimming pools, parks, and other community amenities. The Boards may also be responsible for developing community standards for things such as trim colors, fence styles, roof shingles, and other specifics which will help to maintain a consistent look throughout the neighborhood.
Condominium Associations are usually affiliated with multi-family dwellings such as apartment buildings and townhouse complexes. Like an HOA, a Condo Association has a Board elected by the residents from the residents. Generally, in a condominium, the association is responsible for the maintenance of everything outside of the interior walls of your apartment. That would include everything you would find in an HOA plus exterior building walls, interior hallways, windows, balconies, trash pick-up, snow removal, lawns, gardens, parks, community centers, and more.
Townhomes are a little different in that you, the owner, may be responsible for the interior and exterior of the townhome. Perhaps because townhomes share a common wall and roofline, they tend to be organized into Condo Associations rather than into HOAs.
Condo fees tend to run significantly higher than HOA fees because Condo Associations have more of the physical plant to manage than in a neighborhood of single-family homes.
Some properties may belong to both a Condo Association and an HOA.
NOTE: The contract contingency that requires you, the seller, to deliver and you, the buyer, to receive the HOA or Condo resale package is required by law. Make sure you have a good Realtor® to help shepherd you through this process. We at the PJ Team have a lot of experience doing just that.
How Do HOAs & Condo Associations Affect Your Purchasing Power?
If you are thinking of buying a home, purchasing one in a location where there is an HOA or Condo Association will require you to gather a little more information, and maybe resources, than in a location which has none. The cost of HOA or Condo fees could change the cost of a home for which you qualify and, unlike mortgage interest and taxes, are not deductible on your tax return.
For example, if your mortgage broker has determined that you are qualified to purchase a $500,000 property, high HOA or Condo fees could change that. Why? Because the mortgage broker has calculated the amount that you can afford for principal, interest, taxes, and insurance (PITI) per month based on your income, assets, monthly cash outlay, and liabilities. If one of your new monthly cash outlays becomes a $1,000 condo fee, you can now effectively afford to pay $1,000/month less for your PITI, which means you probably don’t qualify for as large a loan as initially calculated.
Lower HOA or Condo fees may not have an impact on the amount of mortgage you can get, but always check with your mortgage broker before you put in an offer to purchase your home just to be sure. A good realtor will point this out to you as well, and can ask your lender how a condo or HOA payment of $X.XX will impact your purchasing power.
Another important consideration is that some mortgage lenders require the association to have FHA or VA approval. This usually involves the ratio of rental properties in a condo or HOA and can impact the ability of buyers who may want/need to use an FHA or VA mortgage to purchase the property.
What Potential HOA/Condo Negatives Should You Consider?
Here is a more comprehensive list of HOA/Condo potential negatives to consider when shopping for a new home or investment property, though it is by no means a complete or exhaustive list since each association comes with its own unique structure, bylaws, and regulations:
a. Monthly costs. As mentioned above, HOA and Condo fees are usually paid monthly and are not tax deductible unlike some of the other costs of home ownership unless your property is income-producing.
Generally, HOA fees can run from as low as $100.00/year to $200-$300 either monthly or quarterly depending on the HOA and the amenities and services it provides. Although you can find some low Condo fees, the common range is anywhere between $450-$1,200/ month. On the high end a property at the Watergate in Washington, D.C. or at some of the newer buildings in Tysons Corner may have condo fees well in excess of $1,500-$2,500/month. So, you can see the importance of getting all the information you can on a property that is part of an HOA or Condo Association and working with a Realtor® who has experience with them.
b. Proscribed activities. There likely will be restrictions based on community architectural standards for things like the type of fence you want to install, the color you want to paint your trim, and other conformities. You may not be able to put up political or “Congratulations Graduate!” signs, but remember, the look of the neighborhood is one of the reasons you fell in love with your home. Read the HOA or Condo docs before you buy to determine if there are any restrictions that you can’t abide.
c. Implications for resale. When you sell your home, you will need to pay for and give a resale package to buyers that will, among other things, provide the purchaser with association minutes and budgets, maintenance schedules, rules and regulations, and a list of items of which you may be in violation. Any violations (such as unpaid Condo or HOA fees or a fence in disrepair) will have to be remedied by you before the sale can go through. A buyer can withdraw from the sale and get a full refund of his/her deposit based on information contained in the resale package.
What Are Positives of HOAs or Condo Associations?
a. Quality. An HOA/Condo Association helps to ensure that the common areas are well maintained, and the neighborhood or complex looks inviting, and that when you are ready to sell your home, it will be attractive to buyers.
b. Amenities and building community! Though some HOAs and Condo Associations provide few amenities, there are those that earn every penny of their fees. Some are made up of the "guy who lives on the corner" who, as president, keeps the bylaws, produces a newsletter, and collects the fees. Others are corporation-owned and professionally managed communities that maintain walking/running/biking trails, tennis & basketball courts, playgrounds, picnic areas, pools, community centers, clubhouses, exercise and fitness rooms or facilities, and sometimes more.
c. Minimizes cost of maintenance. Do you want a park or a swimming pool available to you? User and maintenance fees can be very expensive. If you are part of an HOA or Condo Association, you and the other residents share those costs. Generally, HOA and Condo Associations pay for things like mowing the common areas, snow plowing, and sometimes trash pickup and some utilities as well at no extra cost to you.
d. Implications for purchase. Condo or HOA documents give you the data you need as a buyer to help you make an informed decision about your home purchase based on the current and projected financial position of the neighborhood/complex. Your Realtor® will help you understand the legal timelines for receiving, reviewing, and accepting or rejecting a property based on the information contained in these documents.
It's important to note that when buyers receive their HOA/Condo documents they can use this as an opportunity to exit a ratified contract without giving specific cause. As a seller, your Realtor® will ask you to order the documents and have them delivered early in the purchase process so you can lock in your buyer and remove that contingency.
e. Building community! HOAs and Condo Associations are run by the owners. Serving on the Association Board or one of its committees is a great way to get to know your neighbors and the issues that affect all of you. It offers a great opportunity to make a difference in your community.
Comparing Apples to Apples!
Comparing apples to apples so one can make an informed decision about which condo to buy can be complicated beyond the obvious questions of location and aesthetics.
When purchasing a condo, the amount of condo fees and management of the condo association are critical factors to your cash flow but are inconsistent from condo to condo. Older complexes and neighborhoods may have lower condo fees, which is great if they are well managed.
Read the documents in the resale package to determine if you think they are adequately funded for current and future maintenance costs. Remember, any HOA or condo association has the ability to charge members special assessments if unplanned costs arise. If you have any questions, we at the PJ Team will be happy to answer them with you.
Statistics
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Regional Real Estate Stats from the Northern Virginia Association of Realtors
FINAL THOUGHTS: Uncertainty?
"We live in uncertain times..." When has this ever not been true? Today, as yesterday and the day before that, and tomorrow and tomorrow, uncertainty looms like a thief in the shadows. Only the light of true and helpful knowledge, the warmth of kind and caring friends, and the certainty that not only, "this too will pass", but "together we can make a difference” allow us to move forward in gratitude and hope.
As the news of the day slips in and threatens to weaken our resolve and trust in one another, both individually and collectively, it may help to recall all that for which we can be grateful, and all that we have to share that may make a difference. From Afghanistan to COVID to politics to civil injustice to the economy to the happenings and drama of our local communities and families and friends, the most common and caring response remains the same and can be found in two basic questions, ""What's going on?" and "How can I help?" They stem from our basic human need to know and need to make a positive difference.
While I focus on real estate issues that are important to my clients, I know well that they are more than opportunities to carry on real estate deals. Above all they are people. Some have family abroad. Some have experienced recent loss. Some have friends or family who struggle personally and/or professionally. Whether they work for the U.S. State Department, run a restaurant or food truck, operate a gym, or as a physician operate on someone named Jim, I can do my small part to help educate, facilitate and elevate whatever stress in their complex lives is related to their first-time home buying experience; down-sizing need; divorce- or death-related home sale; or simple curiosity about real estate investing in order to leave something for the kids or grandchildren.
Remembering that everyone suffers alone, but heals together, I never stop asking, "What's going on with you and yours and how can I help?" This is how we operate day-to-day in a life that exists in a sea of uncertainty. We swim together. We do what we can. We trust that most others are doing the same.
Please remember, if you are receiving this newsletter, it is probably because at some point, I was able to help, or guide, or advise you, with an answer to your real estate questions. Or maybe it's because we are friends, and as such, I would like to be able to help you or someone you might know realize their real estate dreams.
Like all my colleagues on the PJ Team, I am guided by a desire to help others learn, grow, and thrive so they too might help others do the same. This is how we build a community of caring neighbors, each with his or her own unique skills and gifts, creatively contributing to the health and happiness of ourselves and others.
While some members of the PJ Team may currently be busy holding Open Houses, holding free one-on-one information sessions, or finalizing offers to purchase or list a property for our clients, we will always, as a team, make ourselves available to anyone in search of assistance with real estate questions, or in search of help in achieving their real estate goals.
Whatever your "Back-to-School" or "Back-to-the-Future" plans, if they include any form of real estate concern or curiosity, don't hesitate to call.
Until next time, wishing you and yours the very best in health, happiness, and wealth in all its variations.