Homeowner Associations (HOAs) are a private organization that governs a community. They manage and enforce rules for the properties in the area, and collect monthly fees to pay for amenities and the upkeep of the community.
Depending on the association, fees may be collected on a monthly, quarterly, or annual basis. But this begs the question: What is typically included in HOA fees?
This article discusses everything you need to know about HOA fees, including the role of HOAs, consequences of non-payment, and common questions about fees and tax deductions.
What Is A Homeowners Association (HOA)?
A Homeowners Association (HOA) is a private organization that manages and maintains a residential community.
It enforces community rules and oversees the upkeep of shared areas like swimming pools, parks, fitness centers, tennis courts, and golf courses.
In exchange, members pay a monthly, quarterly, or annual fee to support the organization’s operations. These fees are mandatory and are often discussed prior to the purchase of a home within the community.
HOAs have been around since the mid-1800s, but it wasn’t until the 1960s that they became a common (and desired) feature in newly developed residential properties.
Today, over 75.5 million Americans—or 30% of the total population—reside in a community governed by an HOA, per the Foundation for Community Association Research.
Of the 1.3 million homes built in new subdivisions, over 80% of homes are part of HOAs. This percentage is expected to increase as the prevalence of Home Associations continues to grow in response to the rising demand for community-managed living.
What Are HOA Fees?
Homeowner Association (HOA) fees are monthly, quarterly, or annual fees that the association collects from members in exchange for maintaining and managing the community.
Property owners within these communities are automatically considered members and are thus obligated to pay these fees.
HOA fees typically cover basic utilities, such as garbage disposal and wastewater collection, as well as maintenance of common areas like swimming pools, tennis courts, and community clubhouses.
HOA fees vary depending on the location, size of the home, and the number of services provided.
High-cost living areas often have higher HOA fees due to elevated maintenance costs, labor expenses, and property values.
For example, in Houston, Texas—a city known for its relatively lower cost of living—average HOA fees typically range from $200 to $400 per month. In contrast, New York City, with its much higher living expenses, often sees HOA fees upwards of $650 per month.
HOA fees for condominiums and townhomes also tend to be higher than single-family homes because they often cover additional expenses, such as shared plumbing and electrical, building insurance, and exterior maintenance.
As for the size of the home, HOA fees are often higher for larger residences because they’re assumed to use more services and require more maintenance. Many HOAs calculate fees based on square footage or the size of the lot, so owners of larger homes typically pay more than those with smaller units.
Common Inclusions in HOA Fees
The services and amenities covered by HOA fees can vary widely from one community to another. Some offer only basic upkeep, while others—particularly those in exclusive enclaves and upscale neighborhoods—provide a full range of services and luxury features.
Here’s what HOA fees typically cover:
Exterior Maintenance
One of the common goals of HOA is to maintain the aesthetic and uniformity of the community. As such, many organizations cover the upkeep of a home’s exterior. Services can include:
- Exterior painting
- Siding maintenance
- Landscaping
- Roof repairs or replacements
Amenities Access
Many communities, particularly gated communities, offer shared amenities like swimming pools, gyms, parks, playgrounds, and sports courts to improve the living experience of existing members and attract potential buyers.
The HOA takes on the responsibility of keeping these areas clean, well-kept, and functional. They would hire professionals to clean swimming pools, maintain fitness equipment, and mow the lawns in parks and common areas. They’d also inspect and repair playground equipment, sports courts, and other shared facilities to ensure they remain in top condition year-round.
Utilities and Services
HOA fees often include utilities and services like trash collection/recycling, water for landscaping and irrigation, snow removal, pest control, and lighting for shared spaces and streets.
Some also offer gas and internet bills at discounted rates, negotiated by the association at a bulk price.
Insurance for Common Areas
HOA covers physical damage to shared areas like gyms, playgrounds, parks, and swimming pools against vandalism, natural disasters, and fires.
It also covers liability costs should someone get injured in the common community space, so long as the injury didn’t result from negligence by a resident.
Note that the HOA doesn’t cover individual home insurance, so property owners must secure their own home insurance policy to protect their homes from personal property in cases of natural disasters, theft, or fire.
Reserve Fund Contributions
Well-managed HOAs keep a reserve fund for large-scale maintenance and unexpected costs for repairs and replacements. It’s similar to a savings account.
For example, a clubhouse may need to be replaced in 10 years. Instead of requesting a lump sum of $100,000 from homeowners all at once, the HOA contributes a portion of the HOA fees to the reserve fund over a 10-year period. By the time the need arises, the HOA will have the needed amount to replace the clubhouse.
The reserve fund is also used for unexpected emergencies and damages. If a powerful storm damages the water pipes, for instance, the HOA can immediately repair them using the reserve funds.
Administrative Costs
Administrative costs cover the day-to-day operation of HOAs. These fees include a range of services, including administrative support, financial management, legal fees, and accounting.
Many HOAs hire a property management company to handle tasks like organizing meetings, coordinating maintenance, and communicating with residents. Larger communities require more extensive management services and administrative support, resulting in higher administrative fees.
To be clear, these fees don’t go to the board of directors that run the HOA because board members are community volunteers and thus don’t receive payment. Instead, the fees go toward the operational costs of the HOA.
Special Assessments
Special assessments are fees outside the typical HOA charge. If the reserve fund can’t cover repairs, damages, or replacements to utilities or amenities, the HOA may request additional payments to cover the shortfall.
Special assessments are often one-time charges, though some organizations may spread out the payments over several months.
What Happens if I Don’t Pay My HOA Fees?
HOA fees are part of the contractual agreement between the homeowner and the homeowners association.
Not paying the agreed-upon fees violates the terms of the contract and can have far-reaching consequences, ranging from late payment fees (which can affect your credit score) to foreclosures.
Late Payment Fees
Members who don’t pay HOA fees may incur late payment fees and interest charges on the delinquent amount (the total unpaid amount you owe).
Most associations have a grace period of 15 days, but some extend it to 30 days depending on the situation. The late payment fee usually doesn’t exceed 10% of the delinquent amount or $10, whichever is greater.
The HOA can only charge one late fee per missed payment. However, the HOA may start charging an interest rate (usually 12%) on the unpaid balance. So if you’ve incurred a late payment fee of $30 (i.e., three months of missed payment), you may be charged an interest rate of 12% until you settle your debt.
Loss of Certain Privileges
HOA fees give homeowners access to the various amenities in the community, like pools, gyms, parks, and clubhouses. Members who fail to pay the fees may lose access to such amenities.
The good news is that HOAs can’t suspend a homeowner’s access to lobbies, elevators, utilities, and trash collection services. They also can’t take the homeowner’s right to vote in HOA elections or community decisions, unless the association’s governing documents specifically allow it (but such instances are extremely rare).
Collection Agency
If the member hasn’t paid the fees despite being notified several times, the HOA may hire a collections agency to collect the unpaid dues on its behalf.
The HOA may be able to directly report to credit bureaus, but only if it’s a registered data furnisher.
However, most HOAs aren’t registered because becoming a member is time-consuming, expensive to set up, and comes with legal and data privacy responsibilities. As such, most HOAs rely on collections agencies to report the debt and use HOA administration fees to pay for their services.
The collection’s agency reports the debt to the credit bureau, and the bureau will mark the homeowner’s credit score for late payment. Late payments can stay on your credit report for up to seven years and remain there even after the debt is paid.
Liens
Sending your account to the debt collections agency is only the beginning of a much greater consequence.
When dues go unpaid, the HOA may file a lien against the homeowner’s property. For the uninitiated, a lien is a legal claim against a property if the homeowner fails to fulfill the terms of a contract—in this case, the contract a homeowner signs with the homeowners association.
The HOA will notify the homeowner of their outstanding charges and give them 30 days to complete the payment, and include in the letter that failing to do so will result in a lien.
If the payment isn’t processed despite the warnings, the HOA will record a lien with the county, making the debt public and legally enforceable.
The lien prevents a homeowner from selling, refinancing, or transferring the ownership of the property until the debt is fully paid off.
Foreclosure
In worst-case scenarios, a lien can result in the foreclosure of the property. This process can happen quickly, sometimes in as little as 30 days after the lien is recorded.
However, foreclosures usually only happen if certain qualifications are met. For example, in California, foreclosure is only permitted if the delinquent amount exceeds $1,800 or has been unpaid for more than 12 months.
Foreclosures are extremely rare, and many use them as a last resort. HOAs are community-oriented and generally tend to be on the homeowner’s side, and would exhaust all other options before considering such an event.
For instance, if the homeowner usually pays HOAs but was suddenly unable to due to circumstances beyond their control (such as losing a job or developing a sickness), the HOA may delay payments without consequence for a short period. They may also offer payment plans, waive late payment fees, or avoid liens so long as the homeowner shows good faith.
Is Being An HOA Member Worth It?
For the sake of transparency, more than half of the people living under HOAs say they dislike it, according to Rocket Mortgage. Some are even considering selling their own to get away from their HOA. Though most are generally content with the services and amenities offered, the rapid rise of costs due to inflation makes them question the value of being a member.
However, it’s important to note that in many cases, HOA membership fees are more or less equivalent to the fees homeowners would typically pay for services like landscaping, security, trash removal, and property upkeep, just managed collectively.
The HOA centralizes and oversees these responsibilities, so homeowners don’t have to worry about finding service providers or handling unexpected repairs themselves.
Moreover, properties in HOAs are approximately 6% more valuable than similar homes outside HOAs, per the Cato Institute. 6% may not seem like much, but it can translate to tens of thousands of dollars of increased property value, depending on the home’s price.
There’s also the fact that HOA gives homeowners access to amenities they would otherwise pay for separately, like swimming pools or gyms.
Instead of paying separate membership fees for each amenity, homeowners can enjoy these shared spaces as part of the HOA dues. Not to mention that these amenities are often within walking distance of the property, so homeowners save on transportation costs and time.
Ultimately, whether an HOA is worth it depends on your wants and needs. If you value peace of mind and convenience, joining an HOA might be worth the extra fees. If you value the freedom of making your own choices and don’t mind hiring your own for regular maintenance, it may be best to avoid communities with HOAs.
How to Determine If an HOA Is Worth It
The best way to determine if an HOA is worth it is to look at what services are provided and how much they would cost if paid for individually.
If the HOA board is unwilling to share detailed financial reports or explain how fees are being spent, that’s a major warning sign. Although mostly consisting of volunteers, it isn’t unheard of for some organizations to misuse the funds or even pocket them for their own benefit.
HOAs must clearly state how the money is being allocated for community maintenance, amenities, and other necessary services. That way, you’ll be able to determine if the services you’re paying for are equal to the value you’re receiving.
FAQs
How much is the average HOA fee?
According to the National Association of Realtors, the average monthly HOA nationwide is $259. States with the highest HOA fees include Hawaii ($520 per month), New York ($410 per month), California ($400 per month), and Washington ($360 per month). The location, size of the community, amenities, and services provided directly affect HOA fees.
Are HOA fees tax-deductible?
The answer to this question isn’t a simple yes or no.
HOA fees aren’t tax-deductible for homeowners who live in the property as their primary residence. The IRS considers these fees a personal expense, similar to utility bills or general home maintenance.
However, there are a few exceptions where HOA fees may be deductible.
If you own a property in an HOA and rent it out, you may be able to deduct HOA fees as a business expense on your taxes, as it’s considered part of the cost of maintaining the rental.
The same rules apply if you use your home for business. You can deduct business-related expenses the same way you would for rent or utilities.
Do you have to pay HOA fees?
Yes, homeowners who live in a community run by a Homeowners Association are obligated to pay membership fees.
Those who don’t pay the fees incur late payment charges and other undesirable consequences, like suspension of privileges, legal actions to liens, and foreclosures.
Do HOA late payments affect credit score?
Yes, HOA late payments can affect your credit scores.
Some HOAs are more lenient to late payment and may offer homeowners a 30 to 45-day grace period before asking for payment.
But if the homeowner exceeds the grace period or doesn’t pay for months at a time, the HOA might send their debt to a collections agency.
The agency reports the unpaid debt to credit bureaus, and once they do, it shows up on your credit report and can lower your credit score.
