Considering One HOA Versus Another


There it was.  The orange house.  The bright orange house.  The newly-painted bright orange house.  The neighbors stood aghast as they watched each stroke cover more of the nondescript color, the one nobody could remember now.  That lost color may as well have been green because they couldn't imagine themselves living next to the Great Pumpkin, much less convincing someone else to pay for the privilege.

This story doesn't happen to come from Silicon Valley's real estate circle but it's an illustration of individual property rights.  Whose, though?  As you can see, the story is different if you're the painter or the onlooker --- and because Silicon Valley has such limited space geographically, what one person does with their property often affects many others positively or negatively.

When you purchase a home in a homeowners association (HOA), you get a set of benefits in exchange for your monthly HOA fee.  (See the article The Impact of Homeowners Associations on Purchasing Decisions.)  But you also explicitly agree to play by the set of rules established by the HOA, in the cryptically-named CC&Rs: it's covenants, conditions and restrictions.

For many people, judging an HOA by benefits versus the monthly dues is sufficient.  Others prefer to pay a lower HOA fee for fewer services.  It's a topic deep enough for there to be companies that specialize in evaluating homeowners associations, but with an hour or two of scanning and reading HOA documents, usually included a home's disclosure packet, you can evaluate how well an HOA will work for you.

What Are the HOAs Rules?

Most HOAs aren't like this one.  People in this community of eight condominiums would walk past the empty garden window and look into his kitchen through the blinds.  Human nature and curiosity being what it is, he understood the effects of having the sidewalk unit closest to the main entrance, but being the live dishwasher in his own version of the Truman Show wasn't his aspiration in life.  

The empty wine bottles were from expensive brands, even if he did get them at Costco, and he washed them thoroughly then trimmed the metal foil to look presentable.  Lined up one next to another, they were actually both a good visual barrier and were arranged somewhat artistically.

The knock on the door the next day, though, meant the others in the complex didn't share that sentiment.  The president of the HOA delivered the news of complaints, and the bottles were removed.  But several months later, the neighbor in the unit above did something similar but, because there weren't any complaints, it remains to this day --- or at least the last time I visited the property.

HOAs Are Small Governments

This isn't different from living in a non-HOA community.  Neighbors can and should talk with their neighbors when disagreements arise.  The difference is that an HOA has a governing body which (1) gives members a voice in matters that impact the overall community and, (2) can assess fines for violations of the CC&Rs and enforce their authority through a property lien.  Yes, not paying a fine is like not paying your mortgage.

And, just like any other community, the smaller the constituency, the more individual personalities and relationships come into play.   But the key to remember is that people from different families and different walks of life join together in an HOA to secure services that they wouldn't necessarily be able to afford on their own.  As part of the community, home owners agree to follow the CC&Rs and the areas its rules cover.  Here are some examples.


What one person does with their property has a direct impact on the property value of the non-orange houses around them.  This consistency is designed to increase property values and usually includes any area outside the "four walls" of the home.

For example, outdoor fixtures like lamps, doors, window frames and garage doors are almost always standardized by the HOA.And most HOAs have common sense rules about outdoor decorations, plants, fences and patio furniture.

But most HOAs regularly consider exceptions to the CC&Rs based on need and common sense.  My clients who are concerned about CC&Rs can read some tips on going through disclosure packets and looking for specific rules that would keep them from using their homes the way they want to.  (See the article Why the Perfect House Wasn't So Perfect.)

Number of People Living in the Property

Rules limiting the number of people (and often, the number of adults) who can reside full-time in an HOA-affiliated home are fairly common.  While no one would ever say this directly, the net effect of these rules is to require a certain ballpark level of income in order to live in the association.  Higher incomes means higher property values.


Some HOAs go a little further, particularly smaller ones.  They might have rules requiring owner-occupancy of the property, or for rental (and sometimes the renters) of that home to be approved by the HOA's governing body.  The rationale is that renters become neighbors too and some treat the neighborhood better than others.  (See the article Not Overpaying When Buying a Home.)

How people feel about this issue clearly depends on whether they want the freedom to renting out the property or the security of knowing who your neighbors are. 

Noise and Appliance Usage

It's not necessarily noise from neighbors or members of the association.  HOAs may also write into their by-laws that construction, repairs, and maintenance (especially using those omnipresent leaf blowers) will only be done during certain hours.

In addition, like some apartment complexes, a few HOAs will request that major appliances like dishwashers or washer-dryer units not be used during certain hours.  In one complex in Palo Alto, the main water line actually ran through one of the units so that anytime someone ran their washer, the rush of water would create a train-like roaring sound in one of the bedrooms.  The merits of this design not-withstanding, a rule was created so that the owner of that unit could sleep more soundly.

Saving for a Rainy Day

Where does that HOA fee go?  Sometimes you pay the same amount as your neighbor next door; other times, you pay based on the size of the unit you're occupying.  Obviously you have to pay for the services and amenities the HOA provides its members, but in most cases --- at least for well-run HOAs --- some of that money goes into a reserve fund.

The reserve fund is a pool of money saved by the HOA board for major repairs and unexpected events.  HOAs pay good money to consulting companies to tell them exactly how much money they'll need when and what proportion of their HOA dues to allocate to this savings.

There is a total target number based on the anticipated capital expenditures, with a risk factor and insurance coverage sometimes built-in, with a graduated increase in reserves each year until the target is met. 

But the management summary is that a "fully-funded" or "well-funded" reserve fund means less risk to you.  After all, if the roofs need repairs but there isn't enough money in the HOA reserve fund to pay for it, the repairs either go undone, or a special assessment is levied on each of the owners.