Homebuyers usually have a list 'wants' and 'don't wants' when searching for their perfect home.
Is it a large lot? Check. Is it near a school? Check.
But one consideration that tends to be overlooked is whether the community is part of a homeowners’ association (HOA).
Though many newer developments have HOAs, the automatic membership and required fees that come with it can be a contentious issue. It’s worth weighing the pros and cons before buying in these communities.
But, what exactly is an HOA?
According to CalgaryRealEstate.com, HOAs “are formal legal entities established to maintain the quality and value of the properties and common areas involved, and to ensure compliance with their internal rules and obligations.”
Simply put, the HOA is there to beautify the community by ensuring common areas are cared for and by upholding the association’s bylaws. For example, the HOA could be responsible for the installation of community signage, entrance features, water features, amenities, centres, parks, landscaping, snow removal and even additions as extravagant as man-made lakes.
“The main reason for creating a homeowner association is to increase property values,” according to HOA Management, an online tool for the industry. “Through maintaining communal areas and enforcing rules and regulations, property values can go up immensely over time. These keep the overall community looking nice and keep the homes somewhat cohesive.”
Created by the community’s developer at the beginning of the development, HOAs are incorporated as a not-for-profit company or society. Membership in the association is generally a condition of purchasing a home within these communities.
Specific duties and responsibilities of the HOA will be outlined in an agreement between the association and all homeowners, according to McLeod Law LLP. The agreement will be registered on title to each property and is signed when the developer is the owner of all individual properties. All subsequent owners will be subject to the agreement.
“When the community starts to grow, the developer hands over full control of the association to the residents,” according to HOA Management.
Local Realtor Kevin Moore with Legacy Real Estate Services says HOAs will continue to become more common in Airdrie as the City looks to shift the financial responsibilities of some community amenities to the homeowners.
“Green areas have been maintained by towns or cities as part of their costs, and those costs are getting expensive,” Moore said. “So now, the cities and towns are looking at the developers to create those facilities or spaces within the community, and then also create the mechanism that will pay [to maintain] them in perpetuity.”
Moving the costs of maintenance to the community in which the amenity is located not only prevents the City of Airdrie’s parks department from having to absorb those costs, but also provides homeowners access to facilities and green space they might not be able to purchase on their own.
“Rather than you buying a big lot that costs more money, if you instead have close-by access to green areas, parks, pathways...you get the benefit of using a greater area than just your own small backyard, for example,” Moore said.
The realtor added lots are also tending to get smaller, making common green space more advantageous to homeowners without the direct cost of purchasing a larger property, paying more taxes on that property, and paying more for the house upfront.
“It’s kind of a win-win,” Moore said. “Ultimately, the taxpayers are going to pay anyway. It’s just you’re paying it locally rather than through the City.”
Once a homebuyer understands what an HOA is, they will want to consider the pros and cons of membership.
Increased property value
According to Point2, a news source for professionals and news outlets covering real estate topics, HOAs work to increase property value by enforcing strict rules as to how each property in the neighbourhood should be kept. Adherence to these standards often leads to clean and well-maintained neighbourhoods.
“We've all been in a case once or twice in our lives where a neighbour that we have doesn't really maintain their property,” Moore said. “That affects you directly as a homeowner. In this case, if there's an association that's looking after a big part of the community, you have some confidence that it's going to be well-maintained. It's going to look very good, and it's going to enhance the appeal of your own property.”
From spray parks to community centres, playgrounds to sports facilities, many HOAs provide a range of amenities for all members to enjoy. Some associations will even be involved in organizing community meet-ups and events. They are also responsible to maintain their shared structures.
However, Moore warns buyers to do their homework and ask a real estate professional to obtain the current bylaws and HOA financial records before purchasing a home in an HOA community.
“Do some research. Search generally about what services are provided, what areas are provided, but also the rules and regulations that go with those areas,” he said. “Who is permitted to use the areas, when are they permitted to use the areas?”
The HOA may take care of maintenance tasks, such as shovelling snow in the winter, trimming hedges or mowing the grass in the summer. Some HOAs will also be responsible for trash collection.
However, the rights, services, and amenities for which the HOA is responsible range widely, as do the fees being charged, according to the financial news publication Investopedia.
Built-in savings account
A well-managed HOA will build up a reserve fund for future expenses, Moore said, which can be used in the future for improvements or repairs.
“So you have money already in the bank if something needs to be repaired,” he said. “It's kind of like a forced savings program, where you're paying now for some maintenance, but they're likely setting aside a bit of reserve cash, as well. If they do need to replace a bunch of trees, for some reason, then they have some cash in the bank to do it.
“So you find peace of mind in some respect, as well.”
That being said, this also makes it imperative that potential buyers are aware of the HOA’s current financial status.
“Are they in debt? Do they have a big project coming up that they don't have funding for? Guess who's going to pay for it?” Moore said. “You want more current information that will give you a view of what's happened in the past, what's currently happening. And the minutes of the meetings typically give you some guidance as to what's planned into the future.”
HOAs can also be a resource in the event of uncomfortable confrontation or conflicts with neighbours, acting as a third party to settle such disputes.
On the flipside, minor issues that might have been solved by speaking to your offending neighbour about the concern can escalate if reported to the HOA.
“It can get to a point where you feel the entire neighbourhood is spying on one another, and you no longer feel relaxed enough to enjoy yourself,” warned Point2.
“On a more theoretical level, for some people, HOAs are symbolic of self-governance and democracy,” Investopedia stated. “This belief may stem from the idea that the best people to manage a community are the people living in it (as opposed to a landlord who doesn't live on the premises).”
While the biggest advantages of HOAs are the shared common areas and amenities, homeowners will be required to cough up HOA fees regularly to cover the maintenance, administrative costs, and salaries that come with the agreement.
These fees vary and are mandatory, whether a homeowner uses the amenities or not. Missing a payment could lead to the homeowner's access to facilities or community rentals being denied until the HOA fees – plus any outstanding interest – are paid in full.
“Typically, what would happen if you didn't pay your monthly, quarterly, or annual fee is the homeowner association would register a claim on your title – the money you owe them plus likely some interest and other costs,” Moore said. “In some cases, if the HOA bylaws set it out, they may be able to take stronger legal action against your property.”
He said if outstanding fees reach a significant amount, the association could even take legal action to foreclose on the property.
“If the fees were a certain amount and over a certain period that is excessive, the [HOA] certainly can take legal action of some kind to recover,” he said. “Otherwise, the association itself is falling into arrears; it's not being funded to the level that it needs to maintain the facilities.
“That's an issue for them – a serious issue for them.”
If the non-compliant homeowner attempts to sell their property, outstanding debts to the association will be collected through the proceeds of the sale.
Rules and restrictions
Along with access to facilities, HOA membership binds homeowners to the association's bylaws. While many of the regulations imposed preserve or enhance property values, they can be restrictive and dictate what the homeowner is allowed to do with their property. Guidelines tend to be appearance-oriented to help ensure the cohesion of all properties within the HOA's zone.
“This means that homeowners cannot alter the exterior of their property however they want. They have to abide by architectural standards that dictate design schemes, paint colours, and so on,” according to HOA Management.
Typically, rules include maintenance schedules and acceptable colour schemes; however, some HOAs take uniformity to a new level.
“In extreme cases, even the colour of your blinds or which flowers you’re allowed to plant can be enforced by the HOA,” Point2 states.
Other severe HOA regulations could prohibit home-based businesses and prevent homeowners from renting the property.
From changing the colour of the front door to cutting down a tree, homeowners will have to ask the HOA for permission to change their property.
“Every reconstruction needs to be approved by board members. The HOA board also needs to make sure all property developments meet the minimal standards; that they are fully functional and don't pose a threat to the owners themselves or their neighbours,” according to CanadaWestMortgage.ca.
“It can be a small repair such as painting the window frames or large-scale changes including but not limited to painting your house or changing your roof. The board will make sure the reconstruction complies with the overall design of the neighbourhood and will not stick out more than necessary.”
Homeowners who don't abide by the bylaws could face fines or other costs to repair faults found on the property. According to CanadaWestMortgage.ca, not accepting the enforcement can lead to a lawsuit.
The bottom line is that HOAs are a tradeoff – an additional fee and the loss of some control for fewer maintenance responsibilities, potential increased property value, and access to amenities that homeowners may not otherwise be able to afford.
Moore said he advises potential buyers to learn what benefits an HOA provides its residents and whether those are things the buyer would be likely to use.
“And number two, are you interested in paying for those if you do or do not use them?" Moore said. “If you're not a park user – a walker, for example – and you don't have kids who would be out in the park space, do you want to be paying for that...where, in other communities, you wouldn't be?”