When you looked for a home to buy, you probably found that some are in a home owners association (HOA) and some aren’t. The ones in an HOA came with fees and rules. The homes that weren’t in an HOA didn’t. Why are there HOAs?
When a developer buys a piece of land, s/he has a vision of what that development will be. It may be a group of homes on public streets, or it could be a community with a park, a pool, or other amenity. If the developer visions a community with any private amenity, s/he can’t expect the taxpayers to maintain it. The homeowners in that community must pay to maintain those amenities. The amenities might be as little as a monument sign with a light and a couple of plants, or they might include a clubhouse, gym, tennis courts, pools, parks, trails, a lake, or something else.
The cost to maintain those amenities comes in two parts: the operating costs and the reserve fund. The operating costs are the expenses that are once a year or more. They may include changing filters and light bulbs, chlorinating the pool, lawn mowing, and other services. Reserve costs are for those things that are done less than once a year. Examples of reserve expenses would be painting walls or fences, replacing light fixtures, replacing playground equipment, and other major repairs.
Every year, HOAs prepare a budget for the year to come. Board members plan for what operating and reserve expenses will be needed for the upcoming year and how much each homeowner must contribute to pay for those expenses. In addition, HOAs must carry insurance. Most HOA boards choose a management company to collect the fees, pay the bills, provide financial statements, assist the board, and make sure residents are not violating any rules.
The purpose of an HOA is to maintain and enhance property values. HOAs do this by keeping the amenities well maintained, and making sure other owners keep their property in good condition.