By Deborah Goonan, Independent American Communities
You have probably heard plenty of marketing hype and political double speak from real estate sales pros and home builders that are bound and determined to sell housing consumers on the “benefits” of Association Governed Housing Communities.
Association governed communities include homeowners, property owners, condominium, and cooperative associations. All of these communities share collective assets and liabilities, and that’s why they are known as common interest developments (or common interest communities) in industry and academic circles.
For the sake of simplicity for the reader, in this article I will use the term “HOA” to refer generically to all types of common interest association-governed housing.
Now here’s the truth about 7 key issues.
Industry Claim #1:
HOAs provide desirable recreational amenities that homeowners would otherwise be unable to afford.
Truth: While some master planned communities and resort-style HOAs include access to a variety of recreational amenities – swimming pools, tennis courts, golf courses, community club houses, community lakes for boating and fishing, movie viewing rooms, roof decks, etc. – most HOAs are primarily residential in nature. Some may include a pool or a small fitness center, but others include no amenities at all.
Where available, amenities in most associations tend to be under utilized. A small minority of owners or tenants regularly take advantage of community based recreation facilities. If you’re the type of owner that rarely uses these assets, you’ll still have to pay for them, and the cost will represent a substantial proportion of your HOA assessments.
And while it’s probably true that you cannot afford to have your very own tennis court or elaborate home gym, if these activities are important to you, a private membership can often be purchased elsewhere, without tying up your largest asset – your home – as collateral for payment of assessments for amenities you may rarely, if ever, use.
Industry Claim #2:
The rules and regulations (CC&Rs) of HOAs ensure a more attractive appearance of the community, thereby increasing property values.
Truth: There’s absolutely no objective data to support this claim, and the industry cannot back up this Urban Legend with hard data. Here’s why.
First of all, rules in and of themselves don’t make a difference, unless they are consistently enforced. And, in many HOAs, selective enforcement is more the norm than consistency. That’s where the majority of HOAs get themselves in trouble, and quite often community conflict and contentious, expensive litigation is the result. All homeowners pay when the HOA attorney gets involved in these inevitable disputes.
Second, restrictions for most HOAs go far and above common sense rules meant to protect residents from threats to health, safety, and public nuisances. And that’s where most HOAs become a burden rather than an ally to owners and residents. Does a lawn ornament in the front yard or a holiday decoration on your condo door really impact property values? It’s highly unlikely. Onerous and petty rules and restriction are far more likely to adversely affect property values.
Third, other factors that have a more significant impact on property values include: location, overall condition of infrastructure and common area landscape in the community, condition of building(s) in multifamily housing, financial health of your association, economic conditions such as inflation and unemployment, crime rates in your neighborhood, and quality of schools for families with children. Poor maintenance, financial distress, high mortgage foreclosure rates, high crime, and poor schools commonly affect associations-governed communities as well as non-HOA neighborhoods.
Most notably, because your HOA’s sole source of revenue is assessments, it is more likely to suffer adverse effects to property values in times of economic stress.
Industry Claim #3:
Because HOAs provide their own maintenance – in other words, “privatized” services – property taxes are lower than they would be if the local government had to provide things like road maintenance, storm water system repairs, and maintenance of amenities.
Truth: The more services a local municipality or county provides to its residents, the higher the impact on the government’s budget. That could lead to higher taxes, in the form of property tax bills, sales or income tax.
However, if a local governing unit were providing services that your HOA now provides, then your HOA assessments could and should be reduced or even eliminated.
And because government units tend to serve larger populations, costs are spread out over more taxpayers, achieving economies of scale. To illustrate the concept of economies of scale, compare the cost per plate of preparing a Thanksgiving dinner for 6 people vs. 16 people vs. 116 people. Buying ingredients and cooking in bulk costs less per serving. The same concept applies to public services for large populations vs. privatized services for each small planned community.
Privatized services are commonly inflated, due to the fact that many HOAs fail to obtain competitive bids for services. Instead, the HOA may opt to obtain services from a management company’s “preferred” vendor or a board member’s family or friend. Although it can be hard to detect, because of weak regulation of HOAs, kickback schemes and padded invoices are fairly common.
Also, keep in mind that homeowners have to pay to insure all common property and shared amenities against various types of risks and losses: natural disasters, fires, floods, liability lawsuits, etc. That alone is a significant additional expense for HOA members.
The overall impact to your household budget of transferring financial liability from your HOA to your local government would most likely be negligible, if not substantially less than what you’re paying now when you combine the cost of HOA assessments plus local and property taxes.
Industry Claim #4:
HOAs offer residents more local control and less government interference.
Truth: This industry claim is at best misleading, and at worst, blatantly false.
First of all, when a planned community or condo/co-op project is under construction, the developer/builder controls the HOA outright. During this period of time, which can last several years or even decades in very large-scale communities, homeowners have absolutely no control over the governance or management of their HOA.
Second, as a property owner, the amount of local control you may have over your HOA is wholly dependent upon who owns the majority of property in the community, and whether or not those majority interests are well-aligned with your own. If you happen to be in the minority, your best interests are probably not served, and, in fact, may be harmed at the hands of majority rule.
Third, if your name isn’t on the title for your home, or if you’re a tenant, you will very likely have no voice at all in your HOA.
Fourth, as noted in number 2 above, you are more likely to experience unwanted control, interference, and meddling from your HOA than City Hall. And if you want to influence city and county ordinances and building codes, you’re free to attend public meetings, invite the local media, and follow a standard process for creating change. Good luck changing the rules in your HOA – that usually requires a supermajority vote of approval from all property owners, something nearly impossible to achieve.
Industry Claim #5:
HOAs offer enhanced safety and security, especially in gated communities or secure condo or co-op structures.
Another Urban Myth! Experts will tell you that gated communities are no less susceptible to crime than ungated or non-HOA neighborhoods. In fact, the presence of gates may provide a false sense of security, causing residents to be less vigilant about personal security.
Worse than that, when your HOA promises to provide safety and security, and someone becomes the victim of a violent crime, your HOA can be sued for negligence!
Private security systems are no substitute for personal responsibility, paid police patrols, or timely access to first responders. Gates and secure entrances often present physical barriers that impede swift access to emergency services. Furthermore, HOAs often end up paying the local city or county police department to conduct regular safety patrols and traffic control, in addition to already costly private security measures.
Finally, private security guards are often unarmed, and can often do no more than monitor a situation. Some are “wanna-be” police officers, who can get carried away exerting authority that they don’t actually possess.
Industry Claim #6:
HOAs provide maintenance so you don’t have to.
This claim is a half-truth. Some HOAs are supposed to provide maintenance services such as mowing your lawn, shoveling show from your sidewalks and driveways, or painting the exterior of your townhouse or condominium. If your HOA does what it’s supposed to do, and does a good job, all is well. But what if your HOA doesn’t do a good job or decides to stop providing these services altogether? (Stopping landscape maintenance is often allowed by law, if the exception is buried in the fine print of your CC&Rs.)
Since you don’t directly hire and pay service providers, there is little you can do if you are dissatisfied with the level of service provided by your HOA. Your only option is to attempt to get elected to the board, and then convince other board members to fire the current service providers and hire someone who will provide better service. See #4.
If you live in a single family home association, your HOA probably won’t provide maintenance services for your home or yard. Maintenance will usually be limited to the common areas. But, again, you have no direct control over quality of service.
If you were to live in a home without common areas to maintain, then you would not have to pay for this service. Plus, you would be free to evaluate and hire your own landscapers or painters to take care of exterior maintenance.
Industry Claim #7:
HOAs provide a “sense of community” that encourages neighborhood involvement, deep friendships, and stimulating social activities.
This is another half-truth. Some HOAs do have a very active social scene, but many do not. Either they cannot afford to host activities, or there aren’t enough volunteers willing to organize them.
It depends on who lives in your HOA and whether or not your lifestyle preferences align with the majority ownership interests of the community. Notice I did not say it depends on the majority of people who happen to reside in the HOA.
Once again, the overall culture of an association-governed community is driven by who holds a majority of voting interests (who owns the most property). I have seen countless examples of HOAs where a small minority of people happen to own most of the property, and therefore control the finances and make all of the rules to their liking. For example, a golf community may be led primarily by owners who hold full golf memberships, even if those owners represent less than half of the people who reside in the HOA.
If your interests happen to be aligned with majority control of governance, count yourself fortunate, and realize that such conditions may only be temporary.
You may be better off joining a private club, or volunteering with a civic or church group. Bonus: It will expose you to people outside of the limited circle of residents within your HOA.
It’s important to note that there are plenty of other conditions that can cause a great deal of conflict in HOAs.
For example, some associations actively encourage residents to report their neighbors for violations of rules and restrictions. Talk about a way to pit neighbor vs. neighbor.
If the HOA is under financial stress, count on homeowners and residents to fight over how to spend the limited assessment fund. Your neighbors will likely have differing opinions about what’s important and what’s not.
And if your HOA faces a special assessment – a very common occurrence – that will increase tensions, too, especially if many owners cannot afford to pay their share.
None of these conditions are conducive to a positive sense of community or volunteer spirit!
Each and every marketing claim made by the HOA industry is either grossly misleading or exaggerated. Virtually every proclaimed advantage of HOAs is offset by corresponding disadvantages. Other perks – such as recreational amenities, social clubs, and household maintenance – can be obtained outside the HOA scheme, without a property owner being forced to submit his or her home as collateral to a Common Interest Association-Governed Community.