Agents, Buyers and Sellers: Navigating HOA Rules

 By Melissa Dittmann Tracey

About 30% of the U.S. housing stock falls under an HOA. Agent should consider promoting an HOA with strong attributes in their property marketing.

CHICAGO – The number of homes that fall under a homeowners association is rapidly growing, and real estate professionals play an important role in educating their clients about the pros and cons of HOAs.

About 75.5 million Americans reside in a community that’s governed by a homeowners association, representing more than 30% of the U.S. housing stock, according to the Foundation for Community Association Research, an affiliate of the Community Associations Institute. Newer communities may be more likely to have an HOA: About 84% of newly built single-family homes sold in 2022 belonged to a homeowners association, according to Census Bureau data. Plus, the number of HOAs is expected to grow, with predictions from the foundation for more than 3,000 new associations in 2024 alone.

Community associations — which include homeowners and condo associations as well as housing co-ops — are self-governing organizations that create and enforce rules for a group of residents in a subdivision, community or residential building. These associations collect fees that go toward the upkeep of the neighborhood, services like trash collection or snow removal, and maintenance of common areas, such as walking trails, playgrounds and swimming pools.

Homes in communities with HOAs may command a 5% to 6% higher sale price than similar homes in communities without an HOA, according to data from the Cato Institute, a public policy research think tank. “Community associations work to maintain and enforce rules that protect the overall appearance and quality of the community,” says Dawn Bauman, chief strategy officer with the Community Associations Institute and the executive director of the Foundation for Community Association Research. “Well-maintained properties and common areas often lead to higher property values, as the neighborhood remains attractive to prospective buyers.” Community associations also can “foster a sense of community” through organized social events, neighborhood gatherings, volunteer opportunities and committee appointments.

But homeowners aren’t always satisfied living under HOA rules, which can be strict. This is an important consideration for consumers when shopping for a home.

Real estate professionals often find that the way an HOA operates can alter a prospective buyer’s opinion of a home. Therefore, listing agents may want to consider promoting an HOA with strong attributes in their property marketing. Listing agents also want to ensure home sellers are in compliance with HOA rules and current on fees to avoid potential closing delays.

Snapshot of homeowners associations

What is an HOA? An organization that governs a housing community composed of individual houses, townhouses, high-rises or condos. The HOA collects fees from homeowners to cover the costs of maintaining common areas and shared amenities and services as well as enforcing community rules for items such as exterior property upkeep.

Homeowners agree to abide by HOA rules or else …

They could face fines or have a lien placed on their property for noncompliance.

$291 — Average monthly HOA fee in the U.S.

$3,500 — Average annual HOA fee

3 states with the most homes under HOAs:

• California: 4.9 million (37% of all homes in the state)
• Florida: 3.9 million (45%)
• Texas: 2.1 million (20%)

Most common services provided by HOAs:

• Neighborhood landscaping
• Security
• Personal landscaping
• Sports and leisure amenities (e.g. pools)

Most common HOA violations:

• Landscaping-related issues
• Design changes to the exterior
• Fencing complaints
• Trash pickup violations

HOA rules and regulations

HOAs implement rules and regulations to protect a neighborhood or building’s property values, maintain a high standard of living and keep the community safe. However, the types of rules and how they’re enforced can vary drastically from association to association. Homeowners may find some rules overly restrictive, like limits on landscaping, rental use or number of pets per home.

But like it or not, homeowners who live in a community with an HOA must agree to abide by the rules; they can face financial penalties and even legal action for noncompliance. An HOA has the authority to place a lien on a home if the homeowner fails to comply with HOA rules or falls behind on their dues. In extreme cases, HOAs can even initiate a foreclosure.

So, reviewing HOA governing documents is important for homeowners and prospective buyers. HOA governing documents may consist of the following:

Covenants, conditions and restrictions: Consider CC&Rs to be the community’s constitution—a legal document that outlines the association’s obligations, including maintenance responsibilities, architectural standards and how common areas can be used. CC&Rs cover homeowner responsibilities and restrictions on property modifications. CC&Rs can be difficult to change, requiring a vote of the homeowners, who are members of the association.

Rules and regulations: These are rules for homeowners to abide by on a day-to-day basis, covering items like landscaping standards, noise levels, parking restrictions and pet policies. These can be changed more easily than CC&Rs, often with just a vote of the HOA board.

Bylaws: These provide operational guidance for how the organization will function, such as election rules, board member responsibilities and meeting protocols. The bylaws offer insight into how homeowners can participate in community decisions.

Articles of incorporation: This legal document establishes the association as a nonprofit corporation and must be filed with the state or local government where the HOA operates.

Plat: This is a line drawing filed in local land records that shows the physical layout of the community, identifying the location of individual units, common areas, roads and open spaces. It helps to clarify boundaries and property divisions.

Examples of common HOA rules

Elected HOA board members typically have the authority to adopt new rules for the community. Homeowners can attend board meetings and offer input.

Some of the most common HOA regulations will address:

• Landscaping, such as mowing expectations, weed control, acceptable plants or trees, and fertilizer or pesticide usage
• Home exteriors, such as limitations on paint colors, yard signs, fencing, deck or patio construction, sheds and mailboxes
• Decorations, such as holiday displays, lawn ornaments and flags
• Vehicles and parking, such as how many vehicles are allowed, types of vehicles permitted (e.g. RVs or commercial vehicles), street parking allowances and guest parking
• Pets, such as size, weight, breed, number per home and pet waste management
• Noise complaints, such as quiet hours and crowd size restrictions
• Home occupancy limits, such as the number of people who can reside in a property
• Trash pickup, such as when trash cans must be placed on the curb and removed
• Rental restrictions, such as policies on long- or short-term rentals
• Policies for common areas regarding crowd size, hours of operation, visitor policies, and code of conduct

Unenforceable HOA rules

More than 30% of homeowners nationwide say their HOA has too much power, and 10% say they want to sell their home because of their HOA, according to a 2024 survey conducted by Rocket Mortgage.

Some HOAs may overstep their authority, leading to homeowner complaints and even lawsuits. HOA rules do not supersede local, state or federal law. In order to have legal standing, HOA regulations must be adopted by the board and included within the association’s governing documents, and enforcement must comply with fair housing and other local, state and federal laws.

For example, an HOA cannot prevent a buyer from purchasing a home in the neighborhood because of the buyer’s race, sex, religion, familial status and other protected classes. Some states also ban discrimination based on sexual orientation and gender identity.

Further, an HOA cannot selectively enforce rules that target only specific individuals or groups of people. HOAs also cannot penalize a homeowner for a violation that isn’t explicitly outlines in the HOA rules or CC&Rs. HOAs must have supporting justification for any regulation violation.

HOAs are not allowed to ban satellite dishes and TV antennas due to the Federal Communications Commission’s Over-the-Air Reception Devices Rule. However, HOAs can limit the size or placement of a satellite dish.

It can be tricky to determine whether an HOA rule is legally unenforceable. These three “hot button” issues, for example, may depend on state laws:

• Political signs: HOA disputes over political signs on a homeowner’s property are common around election time. HOAs may try to impose limits on political signs, which could conflict with the First Amendment right to free speech. State and local laws may determine the extent to which HOAs can enforce such rules. For example, Texas and Arizona have laws that prevent HOAs from prohibiting political signs, although they can regulate how the signs are displayed. On the other hand, states like Kansas and Pennsylvania allow HOAs to prohibit political signs.
• Outdoor clotheslines: HOAs may seek to prevent homeowners from stringing their laundry outside to dry. However, states like Florida, Maryland and Colorado have “right to dry” laws that prevent HOAs from enacting such rules. Associations can still limit the size and location of clotheslines.
• Solar panels: Many HOAs regulate the installation of solar panel systems on homeowners’ roofs. Some HOAs ban them altogether while others restrict where and how they’re installed. A handful of states, including Michigan, Florida, Indiana and Minnesota, have enacted laws to protect a homeowner’s right to install solar panels. These laws, known as solar access laws or solar easements, prevent HOAs from banning solar panels. In most cases, HOAs can still place “reasonable restrictions,” such as requiring board approval and submitting project plans for review.

What real estate agents should know about HOA rules

Real estate professionals should encourage prospective home buyers to carefully consider what they’re buying into when they purchase a home in an HOA community. Experts offer best practices for agents when addressing HOA matters with clients:

• Disclose: Listing agents and buyer’s agents should disclose if a home is in an HOA community, as this is considered a “material fact” under the Realtor® Code of Ethics. Agents who are REALTORS® must ensure that buyers and sellers are aware of any facts that could affect their decision to buy, sell or lease, says Deanne Rymarowicz, senior counsel of legal affairs at the National Association of REALTORS®. During the due diligence period of a real estate transaction, if not before, real estate professionals should advise their buyer clients about the existence of a homeowners association and stress the importance of obtaining and reviewing HOA governing documents, she adds. Listing agents should ask their sellers if an HOA exists in their community, as certain information, like monthly or annual fees and shared amenities, can be included on the MLS.
• Don’t interpret: Agents should be careful not to engage in “unauthorized practice of law,” which violates Article 13 of the Realtor Code of Ethics. For example, agents should not interpret an HOA’s CC&Rs, bylaws or budget, Rymarowicz cautions. Instead, agents should advise their clients to consult an attorney with any questions. “As with anything contract-related, we must be cautious in responding to buyers or sellers, never giving the impression that any legal advice is being provided,” says Harry Disbrow Jr., a broker-associate with Coldwell Banker Riviera Realty in Little Egg Harbor, N.J. “We don’t make it a practice of reading the HOA docs for our buyers or sellers.”
• Be an information source: Real estate professionals can help clients gather HOA documentation and facilitate answers to their questions from sellers, the HOA board or HOA management company. Also, agents should make sure that HOA disclosures and information packets are delivered and received in a timely fashion, as some states allow buyers to terminate a purchase contract within a certain period. “It’s incumbent on agents to make sure the buyer is aware of any deadline to review information packets so they can make the right determination for them,” Rymarowicz says.

Tips for agents representing sellers

A listing agreement should include information about the existence of an HOA, which means listing agents should inquire about pertinent HOA details with their sellers.

Here are a few best practices for listing agents:

• Highlight on the MLS: Real estate professionals will want to collect basic HOA information to include on the MLS listing, such as assessment amounts and shared amenities and services, like security features, snow removal or trash services, if applicable. An MLS could contain specific HOA-related fields to complete when listing a home. An agent also may decide to highlight certain shared amenities (e.g. walking trails, swimming pools, playgrounds and fitness centers) as a selling point when marketing the home.
• Compile information packets: In some states, like California, home buyers must receive HOA governing documents prior to a home sale. However, “the seller should not be the source of the HOA documents but always the HOA,” Rymarowicz says. The seller may have older or incomplete information, and HOA rules may have changed. Home buyers may request some of the following HOA documents:

• • Governing documents, including the CC&Rs, bylaws, operating rules and articles of incorporation
  • Recent financial statements and reports, such as annual budgets, reserves, outstanding loans and certificates of insurance
  • HOA assessments that homeowners are required to pay, including a schedule of payments and any recent special assessments

• Verify sale details: Agents should encourage homeowners to check with their HOA to determine if there are any extra requirements prior to selling their home. For example, some HOAs may require:

• • Transfer fees. HOAs may add a transfer fee whenever ownership changes occur. The seller can negotiate the fee with the buyer or pay it at closing. The fee covers distributing new documents, amenity passes and administrative costs, among others.
  • Compliance or resale inspections. Some HOAs may require homeowners to schedule a compliance inspection with the HOA management company prior to moving out. This ensures the home currently complies with all of the community’s rules and regulations. An HOA could potentially delay a home sale if violations are found and not corrected promptly.
  • Paid up: Selling a home does not erase outstanding debts the seller may owe to the HOA. Sellers who have any unpaid fees may not be able to close on the sale until the debt is paid. HOAs can place a lien on a property for unpaid dues or fines, which could affect transferring the home’s title to the buyer.

Tips for agents representing buyers

When reviewing listings with home buyers, real estate agents will want to alert them if a home is part of an HOA. An addendum is often added to the purchase contract when an HOA is involved, and some states require that certain HOA documents or disclosures be provided to home buyers for their review within a certain time period prior to closing.

Here are a few best practices for buyer’s agents:

• Factor in HOA fees: Help home buyers understand what fees they will be required to pay the homeowners association and when they’re due. HOA fees are often collected monthly or quarterly. These fees could affect what buyers can afford. Also, HOAs may occasionally collect a one-time special assessment fee to cover any unexpected costs when reserve funds are inadequate. Home buyers may want to ask the HOA for details about any previous special assessments, including the amount and the purpose, suggests Bauman.
• Research the HOA: Buyers will be required to sign legal paperwork agreeing to follow the community’s rules, so it’s important to encourage them to review CC&Rs, bylaws and the rules and regulations. Home buyers also may want to gauge the financial health of the HOA. After all, lenders likely will scrutinize the association’s finances and deny a mortgage if they feel the HOA is on shaky financial ground. Home buyers can request to see the HOA’s latest reserve study, which could give them an overview of potential upcoming repairs and special assessments.

Questions to ask the HOA

The Foundation for Community Association Research offers the following questions that prospective home buyers can ask a community association to learn more about how they operate:

• How much are the assessments, and when are payments due?
• What do the assessments cover and not cover?
• What are my individual responsibilities as a homeowner?
• What procedures are in place to collect delinquent assessments?
• How often can assessments increase and by how much?
• Does the community have a healthy reserve to fund major, long-term maintenance and repairs?
• Are there restrictions on renting a property?
• Is the community age-restricted? If so, what’s the policy on underage residents?
• Are there any communication issues between homeowners and the elected board?
• What are the rules related to pets, flags, outside antennas, satellite dishes, solar panels, electrical vehicles, clotheslines, fences, patios, parking and home businesses?
• How often does the association communicate with residents?

Make sure they can live with it: Encourage buyers to carefully review the CC&Rs and pay attention to any restrictions that may affect their intended use of the property, such as rental restrictions, parking regulations and architectural guidelines. Some states, like Nevada, allow home buyers to cancel a purchase agreement within a specified period after reviewing HOA documents. “Buyers often have specific ideas of how they want to use a property, but they may not always share that with their agent,” Rymarowicz says. “Then, they later find out about a dog breed restriction by the HOA, fencing restriction, number of rental properties allowed or that they can’t even paint their front door a certain color. There are all kinds of factors or variables that a buyer may have on their mind. It’s incumbent on them that HOA documents meet their expectations and to make sure they can do what they want.”

Don’t overstep: “The buyer’s agent should not interpret any financial statements, bylaws or restrictions of the HOA,” Rymarowicz cautions. “It’s really up to the buyer to go through the documents and make sure they can live with the restrictions, that the amount of the assessment is OK and to make sure the association is not involved in any current litigation.” Always refer buyers to a real estate attorney for more guidance.

The last word on HOA rules

HOAs are growing rapidly across the U.S., and more homeowners are living under one. Community associations can be a selling point for a home, helping to protect property values, ensuring a community is well-maintained and preserving neighborhood aesthetics. But overly stringent HOAs can prove a nightmare for homeowners having to cope with endless rules and regulations that may prevent them from enjoying or using their home as they had intended.

HOAs are becoming a growing discussion point in real estate transactions, and real estate professionals should be prepared.

“Real estate agents can be a valuable information source for home buyers considering properties in community associations by helping them understand both the benefits and responsibilities of living in such communities,” Bauman says. “Agents can facilitate conversations with current residents, board members or community managers, who can provide insight into how the association is managed and what the community atmosphere is like. By addressing important questions about the assessments, amenities, architectural restrictions and overall governance, agents ensure that buyers make informed decisions and enter the community with realistic expectations.”

© 2024 National Association of Realtors® (NAR)