Homeowners Associations (HOAs) are created to oversee condominium complexes, townhome communities and planned unit developments (PUDs) on behalf of their members. These are non-profit organizations whose purpose is to manage common areas, enforce neighborhood rules and standards, and often, unofficially, to foster community unity too. In most cases, they collect fees from members and have local authority. In other words, if you do not pay your homeowner association dues, or abide by one of its rules*, the HOA can and usually will fine you or even foreclose on you!
There are loads of HOAs in Silicon Valley. As with all organizations, some are better run than others. Its a little different than owning real estate outside of a homeowners association.
What are the pros and cons to Homeowners Associations?
At their best, Silicon Valley HOAs keep the communities they manage beautifully landscaped and maintained, they hire good providers for needed improvements, and minimize risk to all the members. By having reasonable rules and community buy-in, the neighborhood can look inviting and property values can be better maintained.
At their worst, HOAs can be unresponsive to members needs, erratic, arbitrary and irresponsible. They may, by poor planning, cause huge assessments to be necessary or raise HOA dues so that they are very high – to the point where they make homes hard to sell. Not only are those an unhappy occasion, they can also make it hard to sell a home with a special assessment looming. Fortunately, this is seldom the case in most areas – but if the HOA has a high number of defaults due to owner bankruptcy or inability to keep up with mortgage, property insurance etc. it can cost all of the members eventually.
There’s quite a bit of confusion around the real estate topic of “Common Interest Developments” (CIDs): condominiums, townhouses (or townhomes) and planned unit developments (PUD, sometimes called just Planned Development, or PD). Given that we have many of these communities in Silicon Valley, I think it’s important to explain what these are, why the type of ownership matters, and how you can tell the difference. (The explanation here is not a thorough legal definition but is a general description.)
Part of the confusion stems from the fact that there are two things to consider: the architecture of the buildings and the type of ownership.
- What is a townhouse (or townhome)? A townhouse is a type of building or architectural style, not the type of ownership involved. A townhouse could be a planned unit development (PUD) or it could be a condominium.
- What is a condominium or condo? A condominium is a type of ownership of the real estate. (We tend to think of it as an apartment which one buys, but that’s not correct.) Condo ownership means that the purchaser has 100% rights to the unit and a percentage of ownership in the common lands (fractional ownership in common areas). Condos can architecturally be a unit that resembles an apartment, a townhouse, or even a single family home.
- What is a PUD? A planned unit development is architecturally either a townhouse or a house in which 100% of the unit plus the land under it is owned and the ownership of the unit also provides for a membership in the homeowner’s association or HOA. The HOA in turn owns all the common elements (such as private roads and ammenities such as a pool, tennis court, parking lots, etc.). With a PUD, homeowners have an easement and rights to use the common area through their HOA membership.
- What is a CID? A common interest development, or CID, is a general term meaning the ownership of property in which there are “common areas” such as private roads, a pool, parking, tennis courts, utility rooms etc.
A townhouse that’s a condo can look exactly the same as a townhouse that’s a PUD. This is also true for other types of construction too. In Los Gatos we have some freestanding homes (or properties with the only common wall being at the garage) which are in condo ownership. Same with the beautiful Villas of Almaden community. Both have “common areas” and mandatory membership in the home owner’s association.