5 HOA Red Flags to Watch Out For

Know what you're getting into before you start paying those lofty HOA fees. Here are red flags to be aware of when buying a house or condo, according to experts.

Your neighborhood homeowner's association (HOA) helps manage community areas and property value. It's led by a board of directors, and its members are made up of residents in the community. While some HOAs are voluntary, others require mandatory membership from anyone who buys property within the HOA's area. Before joining or buying a home in an area that requires membership, check out the HOA; it can save you hundreds of dollars down the line. High HOA fees or extremely strict rules can affect your quality of life in your new home (not to mention your bank account).

Beth McCarter, mom of two and creator of The Travel Fam blog, had such a negative experience with her HOA that her family moved within two years of buying their first house. McCarter recalls coming home one day with both kids in the car and finding an HOA employee parked in her driveway.

"She would not move when asked," says McCarter. "She was taking pictures of my flower bed and handed me a warning letter. It was an extremely distressful experience." McCarter has since moved into another neighborhood with a better HOA and says the experience has been "totally different."

An overzealous HOA may be more likely in a developing neighborhood. "The builder is motivated to keep everything cookie-cutter-looking because they are still selling homes," says McCarter. Here are some more red flags to look out for before joining your local HOA.

01 of 05

Low Reserve Funds

"Buyers should always request a copy of the budget and review it to make sure the HOA has healthy reserves," says Ashley Melton, a realtor in South Carolina. An HOA's reserve funds (which are partly made up of HOA member fees) are set aside for unexpected maintenance issues. "If something comes up and funds are not available, owners could be facing special assessments," says Melton. "This would be on top of their regular annual or monthly fees."

Special assessments are extra fees the HOA can charge members when there are insufficient funds to address any repairs or unforeseen damages (such as from a natural disaster) in the community. While some special assessments may be unavoidable, a community with low reserves and frequent special assessments can be a sign of a poorly-managed HOA.

"Usually, if the HOA is 70 percent or more funded, they will be able to make all their repairs on time with enough cash flow," says Scott Ford, president of residential real estate development consulting firm, California Builder Services. "If they're less than 40 percent funded, walk away!"

02 of 05

Overly Strict Maintenance Rules

Most HOAs have community guidelines that homeowners must follow for general upkeep (such as mowing your lawn). But unreasonably strict rules are a warning sign.

"Exterior improvement guidelines are intended to maintain the overall homogenous look and feel of a neighborhood," says Chuck Vander Stelt, a realtor in Northern Indiana. "However, most HOAs have zero understanding of modern trends in exterior home design. This can cause homes in a neighborhood to get stuck in a time of a certain design era—which is bad for property values."

As a potential homebuyer, request the HOA's CC&R (Covenants, Conditions & Restrictions) to get a feel for the rules and guidelines and whether they will be the right fit for you.

03 of 05

"Right of First Refusal" Clause

Some HOAs have a rule that you have to offer your home to the association first before putting it on the market. "These are likely unenforceable by law," says Vander Stelt. ROFR rules have a history of discrimination, since they gave the HOA power to stop an individual from buying a home in the community—by buying it first.

"The latent effect of HOA 'first right of refusal' rules discriminates against minorities, single-parent households, and other marginalized people," explains Vander Stelt.

04 of 05

Poor Communication and Lack of Transparency

If the association does not communicate with members often or clearly (but makes changes anyway, such as arbitrarily increasing fees), stay away.

"If the board or the property manager isn't transparent, or it's difficult to get documents from them, this is a big red flag," says Ford. He says this may be a glimpse into the culture of the community and could be a sign that the association has too much power—or is very disorganized and not following regulations properly.

05 of 05

Amending Rules Is Difficult

Another sign of a bad HOA: A 75% vote is needed to amend rules. "Most people are indifferent and uninvolved," says Vander Stelt. "With such a high bar, rules are unlikely to ever change to keep up with current times. A majority vote on an issue with a quorum (amount of total possible who voted) of about 40 to 50 percent is more reasonable."

Be wary of HOA rules that say the association can only be dissolved with a vote every 10 years. If you're a prospective buyer, don't hesitate to request documents and other information from your HOA to see how they operate—it could save you a great deal of hassle.

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  1. Clark, Simson, Miller, HOA Reserve Funds 101: What Does Your HOA Do With It?

  2. Richardson, S. Rocket Mortgage, HOA special assessment: what it is and how to handle it.

  3. Mastroeni, T. Realtor.com, What Is a Right of First Refusal in Real Estate? Getting First Dibs on Making an Offer.

  4. Williams, M. Business Insider, When homeowners associations were first created, they helped keep Black people out of the neighborhood. They're still doing it today.

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