Here's what the rise of homeowners associations means for buyers

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When shopping for a home, many buyers may hope to avoid purchasing a property subject to a homeowners association.

But that may be easier said than done.

That’s because HOAs are on the rise in the U.S. Therefore it’s important to understand the ins and outs of these organizations before you buy.

Nearly three-quarters, or 70%, of surveyed homeowners say if they were to buy a new home in the future, they would prefer a community without an HOA, according to recent data from Frontdoor. The home repair and maintenance services company in September polled 1,005 homeowners, 85% of whom are currently part of an HOA.

Why it’s hard to avoid HOAs

Homeowners associations are composed of community residents elected to a board of directors, which govern the neighborhood by a set of rules and regulations. Homeowners pay dues to have common areas like parks, roads, and community pools maintained and repaired.

Such organizations exist for different types of properties, from single-family homes and rowhomes to condominiums and cooperatives.

The presence of HOAs in the U.S. has ballooned over recent decades. In 1970, there were 10,000 community associations with about 2.1 million residents, per the Foundation.

In 2023, about 65% of new single-family homes were built within HOAs, up from 49% in 2009, according to the U.S. Census.

Today, HOA or common-interest communities represent about 30% of the housing stock in the U.S., and house 75.5 million Americans, according to the Foundation for Community Association Research. The entity is an affiliate organization of Community Associations Institute, a membership group for HOAs and other community organizations.

Common-interest communities are becoming more typical because they provide a financial benefit for local governments, according to Thomas M. Skiba, CEO of the Community Associations Institute, a membership organization of homeowner and condominium associations.

“They don’t have to plow the street anymore [or] do all that maintenance and they still collect the full property tax value,” Skiba told CNBC, referring to local authorities.

HOA membership is more common in some areas. Florida has the highest HOA membership rate of 66.86%, or more than 4 million homes in HOAs, according to a data analysis by This Old House, a home improvement site.

“It is truly a luxury in a lot of cases to buy a home that’s not in a community,” said Steve Horvath, co-founder of HOA United, an advocacy group for homeowners in common-interest communities.

How HOAs add to homeownership costs

The price tag that comes with a common interest community will depend on it’s location and the amenities the association offers.

The mandatory membership can cost homeowners as little as $100 a year to more than $1,000 a month, depending on the community, according to the American National Bank of Texas.

Such costs tend to increase over time, and rarely go down. In Frontdoor’s survey, 51% of current HOA members said they experienced an increase in their HOA fees, and 65% say price increases happen frequently.

How to vet an HOA before you buy

Many Americans are satisfied with their HOA. About 60% of surveyed homeowners reported having a positive experience with their community, according to Frontdoor.

But others go through grievances. About 1 in 3 had some experience that made them want to move, Frontdoor found. Of those wanting to leave the neighborhood, 63% complained about fees while 53% cited inconsistent rule enforcement.

“Sometimes HOAs can be really intrusive,” like what colors you can choose from to paint the exterior of your house, said Jim Tobin, CEO of the National Association of Home Builders.

If you’re currently in the market for a home and are unsure if an HOA community is right for you, here are a few things to consider in the shopping process:

Ask your real estate agent or the home seller’s agent for a copy of all the HOA paperwork like covenants, bylaws, fee schedule, rules and regulations, experts say. Also ask for meeting minutes, whether annual general meeting minutes or board meeting minutes for the past 12 months, Horvath said. Such documents can be very telling about how an HOA is operated, he said.

Inquire about monthly or annual fees, the HOA’s budget and the history of how assessments have grown over the years, according to Skiba.

Ask your real estate agent or the seller’s agent if the house you want to buy has any unpaid assessments, said Horvath. Such outstanding balances should be dealt by the seller as part of the sale.

Review any pending litigation, disputes or existing judgements within the community, said Horvath.

Look into the community’s reserve funds, which ensures repair and renovation. Check if the community is putting enough money aside for big expenses or if they are property funded, Skiba said.