Can Your Client Say No to an HOA?
As a real estate agent, your work with prospective homebuyers will inevitably involve homeowners association (HOA) terms and negotiations. Homes constructed within certain neighborhoods will fall under the bounds of HOA rules and regulations. These guidelines are intended to ensure that a community adheres to a uniform standard of surface appearance construction and behavior.
While you will have many clients who expect to be joining an HOA upon their purchase of a home and won’t mind the restrictions and fees that go along with doing so, you will also encounter clients who will bristle at their mention. In cases such as these, you may be asked what options are available.
To wit: Can your client say no to joining an HOA?
It depends.
Voluntary HOAs
Because some HOAs are structured to be voluntary rather than compulsory, homeowners can simply opt out of joining. The flip side of this coin, though, is that your client will not be assisted by the membership benefits available to those who do decide to join.
This potential downside will have to be one your client weighs against their desire to avoid paying HOA fees, adhering to their rules, and submitting to special assessments.
Mandatory HOAs
More commonly, though, membership with homeowners associations is mandatory. If your client is firmly against the idea of participation therein, you will have to help them find properties that aren’t under the jurisdiction of an HOA that makes joining a condition of purchasing a home in their community.
New HOA Formation
If your client has purchased a home within a growing community, but an HOA forms after they have closed the deal, it is unlikely that they could be forced to join. This will also apply if they purchase under a voluntary HOA that later converts to a mandatory structure.
Unfortunately, these exemptions do not apply to new incoming homeowners. This means that if your client purchases a home whose previous owners weren’t under the HOA rules, but the house itself falls under a mandatory HOA, your client will still have to join in order to close on their desired property.
How You Can Help
When you are working with a client who has a set viewpoint regarding HOA membership, you have the opportunity to add value to your services. All you must do is carefully evaluate whether or not homes you find for them are part of HOAs before you present your client with their options.
If you fail to filter homes accordingly and your client falls in love with a home they have no chance of purchasing without joining an HOA, it’s likely that your client isn’t going to be happy with you.
We recommend that real estate agents ask new clients whether or not they have preferences regarding homeowners associations. Some clients have not yet thought about whether applicable terms and conditions would constitute a deal-breaker for them. Your inquiry could give them time to form an opinion from the outset, preventing both you and your client from wasting valuable time and effort chasing properties that wouldn’t have worked for them.
Dissolving an HOA
Without question, this is the nuclear option.
If your client has become fixated on a home located within a compulsory HOA, they do have the option to take on the somewhat herculean and certainly costly task of dissolving the HOA. Ideally, they will be able to recruit interested neighbors to their side. In this instance, there is strength in numbers.
In fact, overturning an HOA usually requires 80% of members to vote in favor of doing so. The exact steps required to complete the process will vary, so read up on both applicable state law and the CC&R documents if your client is interested in pursuing this course of action.
While the dissolution of an HOA must be overseen by a real estate attorney, the cost of retaining one can be divided between the total number of unhappy members.
The Detail-Oriented Approach
As stated before, the process of overturning an HOA is complicated, time-consuming, and expensive. Before presenting this option to your client, ask them if there are specific rules of the HOA that are untenable to them. If the existing neighbors aren’t happy with the way the management is operating the HOA, or it does come down to specific rules, there may be an alternate approach that will work: change from within.
Do warn your client that this method is neither quick nor guaranteed. They will have to join the HOA, attend board meetings, and join their neighbors in making their voices heard. If the board refuses to bend, they could work to become a board member.
Ultimately, with enough time and political maneuvering, an HOA can be transformed from within.
The Takeaway
Before you show homes to a new client, ask how they view HOAs. If you discover that they are firmly against purchasing a property within a mandatory HOA, take care to show them homes that are outside such boundaries.
If your client is conditionally amenable to purchasing within an HOA, it is still wise to help them analyze the rules, regulations, and covenants to which they would be agreeing upon closing the deal. If your client does not take the time to understand the rules completely, they may end up with buyer’s remorse, for which they may pin the blame on you.
Keep your clients happy, and they will speak highly of you to others. Word of mouth is the best advertising for a new real estate agent, so do your utmost to impress each client you secure.
Finally, it would be wise to network with one or several real estate attorneys in your locale. HOA complexities are only one of the numerous situations that could benefit from a trusting relationship with a real estate law expert.