HOA, POA and ARB

   When looking at a piece of land within an established and planned community you will probably come across these guys. While the names for the organizations change from area to area, Home Owners Associations (HOA), Property Owners Associations (POA) and Architectural Review Boards (ARB) are those groups of people in charge of establishing and enforcing rules that govern a community. What kind of rules? Anything you can imagine, from the color of your front door, to what kind of dogs you can have and how many, to what style of mailbox is acceptable. Not allowing motorcycles, RV’s or trailers, the style of, and materials you use to build your new home, and more are within the rules of some HOAs. These rules can be a fantastic way to maintain some sort of order within an area and can go a long way towards helping to protect your future resale value. Some people love the idea of a system of rules in their neighborhood. Some people simply can’t stand the idea of someone else tell them what they can and can’t do with their property. Which kind are you?

   These bodies often have the authority to fine property owners who violate the rules, stop work on construction and more. The whole idea of these groups is to establish and maintain some sort of set standard for the community. Some very small communities and subdivisions, or even side streets, can have some form of HOA, so be sure to ask the question. Get a copy of the covenants, conditions and restrictions from the HOA office or your real estate agent and read them.  They tend to be boring and long, but read them! Not only will these cover their “do’s and do not’s”, but will also cover their fee schedule.

   Beyond enforcing rules and regulations, these bodies are typically in charge of any common areas within a community to possibly include roadways, decorative fences, landscaping, and so on. It is possible that larger, more expensive structures such as playground, pools and clubhouses are included as well. Most communities that have something like a HOA. will also have dues. These can range from a few hundred dollars a year up to tens of thousands of dollars a year. This money is collected and spent on maintaining common areas, community improvements, possibly security personnel and more. When something big happens with in the community, or a big project comes up, there may be an assessment. An assessment will be a dollar amount you will be obligated to pay over and above your normal dues.

   Let’s look at an example. Assume you buy a lot in a community that has a clubhouse as a part of it and that clubhouse needs a new roof. The governing body may opt to pay for the new roof out of existing funds, call an assessment or a combination of both. Let’s assume that a new clubhouse roof will cost $50,000. If there are 500 homes in that community, each property owner could be assessed $100. Take it one step further: Let’s say a new clubhouse will be built for $1,000,000. Each homeowner could be assessed for $2,000. Find out!

   When looking into a new community, be sure to find out, at the very least, these few things:

How much are dues?

   Any monthly dues should be factored into your budget for a lot. These dues are almost like a tax: the bill always shows up and the dues rarely go down.

Is there a cap on the percentage of increase per year dues can be increased?

   Many communities will place a cap on their dues increases, which makes it a bit easier to plan for future expenses. For example a community may cap their possible dues increase at no more than a 3% increase each year.

How much money is currently in the reserve fund?

   You may or may not be able to find this information out before you buy a lot, depending on the organization. You may be interested in this because you might not want to move into a new neighborhood only to be hit with a very large assessment right out of the gate due to some unforeseen event or problem. The size of a reserve fund can also be a measure of the “health” of that organization and an indicator of how well it’s run.

When were the last few assessments, what were they for and for how much?

   You’re getting an idea here on what your future costs may be. If there’s only one or two “expensive” possibilities that you can be assessed for, and those items have recently had work done, you might be in better shape. Maybe.

 Are there any assessments currently, coming up or outstanding?

   See if there are any upcoming assessments, perhaps coming up for a vote, or assessments that are currently in place. Often, large assessment payments are spread out over several months or years and a lot seller may or may not want to pay off the rest of it.

   Any organization that has literal control over aspects of not only your future land but also your wallet should be fully understood before you purchase. Ask questions; ask for the worst case scenario. Do not take a conversation of a few minutes as the all inclusive truth. Get the documentation and read it. When things go wrong, or there is a dispute, it won’t matter what was said or not said. The documents are the rules.

      These groups serve a purpose and can be a huge benefit to a community or neighborhood,  however, these groups will get a bad name with some folks. 99% of the time people are upset with an HOA, POA, or ARB is because they never took the time to fully understand what it is these groups do and what is within these groups authority.  A new property owner will simply assume they know or only take a quick look over the documents. This is what I want you to understand.