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.
Is it less expensive to buy a house in a PUD (Planned Unit Development)? Maybe. You will have monthly fees that may cover your front landscaping, exterior of your structure, and roof. But perhaps not. It’s possible that the fees will only cover the street paving – you have to read through the documents to see whats included and what isn’t.
What are some of the issues to be aware of surrounding HOAs in the San Jose area? What are some questions to ask if you are thinking of buying a property with a HOA?
- HOAs may be big or small and may be professionally managed or may be run by volunteer homeowners. Many small HOAs are run by volunteers, while larger complexes or subdivisions may have professional management (paid). First, you’ll want to know which it is. HOAs which are professionally run are often easier to deal with during the purchase or sale of a property, but of course that cost is factored into the dues. Small communities may be self managed – that can be fine if the members of the board are reasonable. Sometimes, though, they aren’t.
- HOAs tend to have a lot of rules – and they are not all intuitive – so if you’re buying a home in Silicon Valley with a Homeowners Association, be sure to read the HOA packet thoroughly. This will include the last years worth of minutes (great for understanding what the homeowners consider issues), the bylaws, the budget, the current financial statement (very important for grasping whether a special assessment may be coming your way in the future), and more. This tends to be dry reading but is vitally important for you to understand before you remove your property condition contingency!
- HOAs have the power to levy assessments to pay for needed improvements such as repaving, re-plastering the pool, replacing the roofs, re-fencing, etc. Most HOAs are underfunded and periodically have these special assessments, so beware!
- Some HOAs have planned assessments several times a year, so don’t be fooled when you see the monthly HOA fee. It may not be reflective of the true cost. For example, Saratoga Oaks, a stunningly beautiful townhome community in Saratoga, has assessments for both blanket insurance and for earthquake insurance which are extra payments occurring during the year. By splitting these out, the monthly HOA looks less imposing than it is in reality.
- New construction often has unrealistically low monthly dues or HOA fees. The builders want the properties to be attractive to buyers so put the monthly cost on the low side. Eventually the homeowners realize that they are underfunded and then must either raise the monthly charges, do an assessment, or both. Its not fun when that happens.
Selling a home governed by a HOA?
If you are selling your San Jose area condominium, townhome, or single family home governed by a HOA, plan ahead! You (not the HOA) will be required to give the buyer the HOA packet and will need to ask your Homeowners Association to provide the documents that compose it. Your HOA will do so, but will need some time and there will be a fee for this service. It is a good idea to have the HOA package ready to deliver to the buyer once your home goes on the market. (If it takes a long time before your property sells, you may need to update it.)
Your HOA may have rules about for sale signs and open house signs, so check before you get your home on the market. Gated Communities (while fairly small in number here in Santa Clara County) may have rules about hours for open houses, access, too, so find out ahead of time.
If you don’t like authority, don’t buy in a HOA community.
*A story is told of one HOA which had the rule that each condo owner would allow the HOA in once every 6 or 12 months to test the smoke detector. The thinking was that if one condo caught on fire, everyone would be at risk because of the nature of the complex. One homeowner didn’t want to allow them in, so refused. What did the HOA do? It took the owner to court, ran up a lot of legal fees, and eventually the homeowner was made to not only let the HOA in to check the smoke detector, but was forced to pay a large sum of legal fees too.
Most folks who live in areas governed by a HOA are happy with the association and its work. Many of these neighborhoods, such as La Rinconada in Los Gatos or The Villas of Almaden in Almaden Valley, are impeccably maintained and its clear that the owners appreciate the value of real estate that’s well managed. There is often an easier lifestyle associated with living in a HOA because someone else does much of the landscaping, or there may be common areas to enjoy such as a garden, park or pool. And in senior communities, such as along Alberto Way in Los Gatos or The Villages in San Jose, there also can be more affordable and quieter housing made available. As long as its well managed, being in a HOA can be not only a good experience, but good for your homes value.
If you’re considering buying or selling a home, I’d love to hear from you!