By Shannon Ireland
If you buy a house in a planned development, a subdivision or a gated community, you'll likely have to join a homeowners association (HOA). Which means you’ll be faced with the prospect of paying annual dues, whether you like it or not. Condo owners often face these fees, too.
No one expects you to be happy about these payments, especially when they often come due right after the holidays. And it’s true that the dues can be spent for seemingly trivial events such as neighborhood parties, and that management fees for the associations can be steep.
The HOA can make and enforce rules such as what colors houses can be painted, what types and sizes of pets are approved, whether holiday decorations are allowed on properties - even what types of mailboxes are allowed. And it can enforce these rules with fines and threats of foreclosures.
These associations say their rules and methods are necessary to keep property values up and maintain or increase resale values of the homes in the community. You might question that. But the fact of the matter is that HOA dues also can benefit you greatly, in ways that you can see and in ways that you might never think about.
Visible benefits from your dues
In addition to enforcing some degree of uniformity in your housing or condo development, the best-known function of homeowners associations is taking care of the community’s common areas. That includes landscaping - mowing the grass, planting and pruning trees, and taking care of flowers, lakes and clubhouses.
HOAs also operate swimming pools, gyms, and other amenities open to residents. Most also schedule regular pest control in common areas, and some set up garbage and other services.
Seems like these are pretty useful benefits, right? And there’s more to come.
Not-so-visible benefits
You can understand easily how you benefit from landscaping and swimming pools and gyms and the rest. But one of the real advantages of paying HOA dues comes when the association uses them for insurance for the condo or housing development. Why does a housing or condo development need insurance? We’re glad you asked.
Property insurance
This protection covers residents for any physical damage that happens to the common areas - particularly those clubhouses and other amenities mentioned earlier. Much like standard homeowners insurance, this coverage will help when there is damage from fire, wind, hail, and other covered perils.
This is particularly important in condo developments, because it also protects the buildings that house the units from the perils mentioned above. It’s up to the condo owner, however, to protect the contents of the condo.
What if the housing or condo development didn’t have any or adequate property insurance? Then the HOA would level special assessments against all the home or condo owners. Depending on the nature of the damage, that could result in you paying far more than your dues to make the development whole again.
Liability insurance
This is one of the most important parts of an HOA insurance policy, because it protects residents of a development if someone gets injured on common property. An injury could result in HOA members being sued, and legal costs and any award in the case could run into the hundreds of thousands of dollars, possibly more.
Why is this your concern? Because, again, the HOA could levy special assessments to raise the money to pay for the case. And remember, you’d have no alternative but to pay the assessment - otherwise, your home could be in danger.
Directors and officers insurance
Again, if someone - say, another resident - sues the leaders of the HOA, you would face the wrath of the courts just as much as the directors and officers. And again, you could be subject to a special assessment.
Employee dishonesty insurance
This would replace your - and other residents’ - HOA dues in case an employee steals money from the association.
Give your dues their due, but …
The almost-bottom line: Your dues, especially the part of them that goes toward HOA insurance, protect you from the prospect of paying larger amounts. So the dues do perform a useful function.
But here’s the real bottom line: You shouldn’t have to pay any more than is necessary. That means you should take the initiative. Make sure the HOA is spending your money wisely. Is it soliciting bids for the landscaping business? Does it seek several quotes for the insurance coverage before committing to a provider?
In other words, don’t hate the fact that you have to pay HOA dues. But don’t let your association get away with wasting that money, either. Your dues perform an important function that could save you money in the long run.
Related:
- Condo Insurance: What’s Best for Your Nest?
- 5 Insurance Tips for First-Time Home Buyers
- Do You Need an Umbrella Policy?
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.
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