A row of colorful houses.

How To Handle Transactions Involving An HOA

Erin Gobler5-minute-read
July 27, 2022


There’s nothing more exciting than helping your client find the perfect home that checks all of their boxes. However, something may still come up that gives the buyer pause, including the existence of an HOA – short for homeowners association.

HOAs are common in condominiums, townhouses and even single-family homes. In fact, they’re becoming increasingly common in new developments. And while HOAs have their downsides, they can also have some advantages for a homeowner. And in many cases, they’ll find the HOA is well worth it.

As an agent, it’s important to be prepared to help your client through the process of buying a home with an HOA. Keep reading to learn more about how HOAs work and what your client should know about one before buying a home.

What Is An HOA

A homeowners association (HOA) is a neighborhood organization that governs a particular community. These organizations often exist in condos or planned communities and create and enforce rules that all community residents are subject to. And unlike many organizations, membership in an HOA often isn’t optional – all residents are automatically a part of the HOA.

In most cases, residents within an HOA are required to pay monthly or annual dues. These fees can range from just a few dollars per month to hundreds of dollars per month. The amount a particular HOA charges in dues depends on the services it offers and is at the discretion of the HOA board and residents.

An HOA is governed by board members, elected by people who live within its community. Those who serve on the board can pass regulations and other initiatives.

In exchange for HOA fees, these organizations often offer a variety of services to their members. Depending on the neighborhood, the HOA may offer amenities like parks, playgrounds, pools, fitness centers and community centers. They also often handle services like trash removal, snow removal and landscaping.

In general, the more services an HOA offers, the higher its annual dues will be. However, the cost might be worth it for residents who really take advantage of everything the HOA has to offer.

What Your Client Should Know About The HOA

As a home buyer, moving into a home that has an HOA can be intimidating. Here are a few things your client should consider before buying a home with an HOA.

What Is Covered

One of the most important things your client should consider is what’s actually covered by the HOA. Some neighborhood organizations may offer relatively simple amenities like a local park and basic maintenance services on communal property. Others may have more extravagant amenities like those we mentioned previously.

First, it’s important for your client to understand the HOA’s offerings so they can decide if the monthly or annual dues are really worth it. While one HOA might require higher fees, it may also have amenities that allow your client to save money elsewhere. For example, if the HOA offers a fitness center for residents, your client can cancel the gym membership they pay for.

Another reason it’s important to understand what the HOA covers is to ensure it can meet all of your client’s needs. For example, an elderly home buyer or someone with mobility issues might specifically want an HOA that will handle snow removal and other maintenance for the entire neighborhood so they aren’t responsible for doing it themselves.

Does The HOA Have Rules?

Unfortunately, HOAs are notorious for their strict rules. These organizations can regulate everything from the color of your home to the type of fence you can have in your yard – or even whether you can have a fence at all.

Many homeowners resent being told what they can do with their own property, which is understandable. And in many cases, even if you are allowed to make changes to the outside of your home, you’ll have to get them approved by the HOA first.

The goal of HOA rules is generally to keep the neighborhood looking nice and to prevent anyone from letting their property go and bringing down the local home values. However, in many cases, they can feel overly restrictive, so it’s important to know what you’re getting yourself into upfront.

There’s another reason it’s critical to understand an HOA’s rules before your client makes an offer on the home. If a resident breaks any of the HOA’s rules, they may be subject to fees. And if they fail to pay those fees, they can eventually become a lien on the property that prevents the homeowner from selling it down the road.

How Much Does The HOA Cost?

As we mentioned, HOAs usually charge monthly or annual dues that cover the costs of any services and amenities it offers. It’s critical that buyers understand these fees upfront because they’ll be a part of their new housing expenses. For example, a $2,000 mortgage payment in a neighborhood with a $500 monthly HOA due becomes a $2,500 monthly housing payment.

HOA fees can fall within a wide range. In some neighborhoods, the fee may be as low as a couple of hundred dollars per year. However, they can easily be as high as hundreds of dollars a month in other neighborhoods.

As we mentioned, there’s usually a correlation between an HOA fee and the number of services and amenities. But for a client who isn’t planning to use all — or even most — of the amenities, the high HOA fee may not be worth it. And even worse, it could make the home unaffordable when you add it to the other expenses of homeownership.

To address high HOA fees, your client has two choices. They can choose to either only consider homes in neighborhoods with lower HOA fees or reduce their home budget to accommodate the additional monthly cost.

Are There Any Pending Lawsuits Against The HOA?

You’ve almost certainly heard stories of overly restrictive HOAs that make life unbearable for their residents. In other cases, there could be an HOA that collects dues and then fails to properly manage the funds or provide the services and amenities it promises.

The good news is that in the worst-case scenario, residents do have some due process options, including lawsuits against the HOA. But the last thing your client probably wants is to move into a neighborhood where residents are in the process of suing their HOA.

If your client is considering a home that’s a part of an HOA, it’s worth a quick search to make sure there are no pending lawsuits against the HOA. You can also look for public complaints that, while they may not be a legal matter, could give you an idea of whether the HOA is problematic.

The Bottom Line

Buying a home with an HOA can be intimidating, and many clients are likely to reject those homes right away. However, HOAs are becoming increasingly common in new neighborhoods, meaning it’s getting more difficult to avoid them.

The good news is that not all HOAs are bad. In fact, many charge reasonable dues from their residents while providing services and amenities that make those fees well worth it. And with a bit of research, you can find out whether that’s the case for the home your client is considering.

As an agent, you want to be able to best serve your clients while helping them to find their dream homes. Visit the Rocket ProSM Insights Learning Center for the latest real estate and housing updates.

Erin Gobler

Erin Gobler is a freelance personal finance expert and writer who has been publishing content online for nearly a decade. She specializes in financial topics like mortgages, investing, and credit cards. Erin's work has appeared in publications like Fox Business, NextAdvisor, Credit Karma, and more.