Imagine you have a part ownership interest in a small $20 million dollar corporation. Now imagine an annual owners' meeting, where the Board of Directors are recruited into reluctant volunteerism – not by qualification, education, training, achievement, business acumen or past experience. Perhaps they have never run a business of any kind. No business management experience ... perhaps even individuals with no ownership interest in the Corporation at all - making decisions for your company while overseeing the first and largest annual budget of their lives. Now imagine giving them something they may never have had before: the unilateral power to... decide what problems are addressed affect the inherent value of the corporation without informed knowledge of market factors spend all capital reserves without consulting the owners impose assessments on the owners raise any fees assessed to owners to the full extent allowed by bylaws without consulting the owners enforce arbitrarily company rules and regulations on an owner by owner "judicial" basis hire outside management who are not actually employees of the corporation, whose competence has no oversight, and who favor the Directors discretely with services. Did you really buy into this company? Maybe not. Welcome to only one scenario of a Homeowners' Association who, by their governance, are an example of the communism intrinsic to an HOA. Responsible leadership is not guaranteed - even with well-meaning citizen owners like you. Majority rules in a small voting party. Otherwise, it is not a democratic model. Vigilant accountability helps. Be proactive and ask questions. Volunteer board members have fiduciary responsibility (jointly and severally liable) along with the authority and trust of the Association to enforce covenants and guidelines, and maintain the property. Responsible HOA Boards can accomplish much good to protect and preserve homes and property values, while keeping dues low, keeping promises on budget agreements, building reserves for the "unexpected expense", and handling budget emergencies, should they occur. That's what an HOA should look like to a prospective buyer of your investment. Buyers will wish to feel that dues are not unusually high for services and amenities (or the lack thereof) - and are well-advised to scrutinize whether vendor services and paid property management are realizing their full value. Is the community stable and the Association satisfied? Do your due diligence before buying. Covenants are good for uniformity and stability...but what are they? ASK for the Covenants, By-Laws, Rules & Regulations, Annual Budget, Financial Statement, the Minutes, talk to neighbors, and inquire of other neighborhoods who utilize the same Property Management company. Do they meet their contractual obligations and treat the Association with professional respect? Don't settle for a Property Manager's mere verbal assurance that "yes, I think they're in pretty good condition." Once you've satisfied your data inquiry ...well, then it might be a fine community in which to buy and live. There are over 15,000 homeowner associations in North Carolina. Over approximately 53% of owner occupied homes in North Carolina are located in communities with a homeowner association. Less than 20% of homeowner associations use a property management company. The rest are primarily self-managed. Understanding Homeowners' Associations and CC&Rs When you buy a home in a new subdivision, town home, condominium, common interest development (CID), planned unit development (PUD), or co-op, chances are good that you also automatically become a member of the homeowners' association. The homeowners' association will probably exercise a lot of control over how you use your property. CC&Rs The transfer deeds to houses in new developments include limitations on how the property can be used. These limitations called covenants, conditions, and restrictions (CC&Rs) put decision-making rights into the hands of the homeowners' association. Some associations enforce every rule; others are run in a more relaxed way. Most associations try to make decisions that will enhance the value of the houses. Be certain the CC&Rs are compatible with your lifestyle. CC&Rs can limit the color or colors you can paint your house, the color of the curtains or blinds visible from the street, and even the type of front yard landscaping you can do. Some CC&Rs require that garages facing the street be kept neat or closed, do not allow laundry clotheslines, prohibit basketball hoops in the driveway or front yard, and prohibit parking RVs or boats in the driveway. Read the CC&Rs carefully before you buy, and if you don't understand something, ask for more information, and seek legal advice if necessary. Once you've moved in and need some sort of variance, you'll likely have to submit an application (potentially with fee), get your neighbors' permission, and possibly go through a formal hearing. And if you want to make a structural change to your house, such as building a fence or adding a room, you'll likely need formal permission from the association (on top of having to comply with city zoning rules). Maintenance Fees Homeowners' associations can usually require members to pay fees for common property maintenance. The fees can run particularly high if the development has a pool, golf course, or other recreational facility. Many homeowners' associations let their boards raise regular assessments up to 20% per year and levy additional special assessments with no membership vote for capital improvements like a new roof. If you're on a tight budget, check the homeowners' association membership fee and how easy it is for the board to increase the amount. Also, if parts of the development have been occupied for awhile, attend a homeowners' association meeting and talk with the officers about financing and other issues of concern. Partial List of what HOA's May Regulate: ...shingles and exterior paint, fences and hedges, trees, lawns, and weeds, pools, swing sets and basketball hoops, garages and sheds, mailboxes, clotheslines and garbage cans, outdoor lights, TV antennas and satellite dishes, window coverings and wreaths, gardens, home businesses, pets (size or even acceptability), and noises and obstructions of views. For more information, research our Buyer/Seller Tips where you'll find the North Carolina Real Estate Commission's article on HOA's, new home buyer's information and 10 Things Your HOA Won't Tell You. ... better read - Mark
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