HOA – Is It Necessary?
It seems that most residential developments have a homeowners’ association established, especially if you compared to developments from decades ago. I would like to think that there are essentially two reasons or purposes for an HOA. One being that common area within the site plan needs to be owned and maintained by an entity other than an individual homeowner. And a second that an HOA can establish rules and regulations, usually through CC&R’s, which is intended to create better long-term home values for the homeowners.
In the instances where no HOA was established, it is very typical that streets and sidewalks are all maintained by the city or local jurisdiction. And outside of the homeowner lots, there is no common area to be maintained, such as recreation center, private park, or landscape areas. The homeowner lots essentially make up the rest of the property other than the public streets. In some cases where there is common landscape area that needs to be maintained, the city might have a city-wide LMD – Landscape Maintenance District – that will maintain these areas. The homeowners will see an LMD charge on their property tax bill, but the idea is that these LMD payments are less than what the HOA dues would be.
As for the HOA providing for rules and regulations, maybe much of this has to do with submarket and home pricing conditions. In lower, entry-level priced locations, the HOA dues may have a negative impact on home sales. And, these home buyers may not want the rules that come along with the HOA. But I think that in many locations, the HOA rules are meant to thwart rogue homeowners who could devalue the neighborhood if left unrestricted by an HOA.
So, an HOA may not be necessary if you can eliminate the need to maintain common area and your submarket does not seem to require the rules. That said, the local jurisdiction may have some say when the project is being entitled.
Please feel free to share your comments and questions below.