If you live in a neighborhood without a homeowners association (HOA), you may be considering starting one. After all, research has shown that HOAs can increase the value of a home by $10,000, or 4.2%. Why are HOAs so powerful? Because they enforce rules and regulations in a neighborhood, keeping standards — and home values — higher.
“Most condo associations, townhome associations, and property associations are set up by a developer when the development is created,” says James Kilbourne, a partner with Allen, Stahl + Kilbourne in Asheville, North Carolina, whose firm has practiced community association law for more than 30 years.
But even if your already-established neighborhood was not formed with an HOA, you can always start one now.
If you want to form a homeowners association of your own, follow this step-by-step guide.
Step 1: Gauge interest in an HOA
If you want to launch an HOA in your neighborhood, you’ll need a lot of neighbors to agree that it’s a good idea. Laws vary from state to state; In some, you might just need majority buy-in to form an HOA, but in others, you might need everyone in your neighborhood to sign off on the idea. “It’s not one-size-fits-all,” says Kilbourne.
As you gauge interest in whether your neighbors would like to form an HOA, you should also collect feedback about what people do and don’t want the HOA to provide, and use that information to shape your path as you move forward.
Step 2: Determine whether the HOA should be mandatory or voluntary
One of the first decisions you’ll have to make is to decide if the HOA you’d like to form is mandatory for everyone in your community or if they can choose to take part in the HOA. If you poke around and don’t think you can get the support you need to form a mandatory HOA, you may want to shift your focus toward creating a voluntary association.
This will be easier or more difficult to implement depending on what you want the HOA to do. For example, if you’d like to form an HOA to streamline trash service, then those that choose to opt out can schedule their own trash collection. However, if you want an HOA to pay for landscaping in your neighborhood’s common areas, opting out may be more difficult, since those who choose not to join will still benefit from the work of the HOA.
Step 3: Research your state and local laws — and hire an attorney
Once you’ve got buy-in from all or most of the neighborhood, you’ll want to research your state and local laws and reach out to an attorney.
Kilbourne says that you should hire an attorney “at the point at which you have a catalyst in the community that wants to see a change. Once you have that, we can look at the deeds and figure out the current arrangement.” Kilbourne says that in a lot of neighborhoods, road maintenance agreements are where the desire to form an HOA starts. “Folks are already paying for road maintenance, and they want to add plowing for snow or neighborhood beautification.”
Step 4: Figure out your wants and needs
HOAs can cover many services, so you’ll want to figure out which you’d like to include.
“HOAs typically include maintaining common areas,” says Lynette Baker, an experienced agent in Fresno County, California. “If you are in a condo, it could be the lobby; In all instances, it’s usually the patio areas, landscaping throughout the community, swimming pool, spa, elevators, tennis courts — things like that. In planned communities or condos, it will often include water, sewer, and garbage fees.”
Step 5: Determine your operational needs
You’ll also need to figure out the operational needs of your HOA. How will it function and run? What’s the process when changes need to be made to the rules? What committees or other organizations do you need to form?
These decisions may go more smoothly with oversight from a lawyer. “There are certainly as many different property arrangements as there are people,” says Kilbourne. “That’s why it’s so important to look at each HOA individually.”
Step 6: Communicate your plan
Even though you’ve already gotten the initial nod of approval from your neighbors, you’ll need to maintain buy-in throughout the process. Keep your neighbors in the loop and communicate each step of the way so that they know they are an important part of the overall process.
Good communication will keep your neighbors happy and, most likely, help them stay enthusiastic about the HOA.
Step 7: Write the CC&Rs
CC&Rs are covenants, conditions, and restrictions and every HOA has them. The types of CC&Rs your HOA has will depend on the wants and needs your neighborhood has already identified.
Remember that you need to get buy-in on these as well, because it’s likely that some of your neighbors won’t like the increased restrictions.
“When you are a part of an HOA, you lose the flexibility of what you can normally do as a homeowner,” says Baker. “For some, that loss of flexibility makes it less desirable to live in a community with an HOA.” Baker adds, however, that some people prefer living in an HOA community.
“They like that there’s a specific look to the neighborhood. When the community looks nicer, the thought is that the homes will retain their value.”
Step 8: Create your budget
You want to make sure you are building a solvent HOA, and that means crafting a budget that will cover the cost of everything your HOA will manage. What is the cost for the responsibilities your HOA will take on? Have you built in a buffer for price increases or emergency repairs?
“HOA fees can go up over time,” says Baker. Even so, you’ll want to prevent fee increases whenever possible by building a realistic budget.
Step 9: Put together your fee schedule
You’ll need to determine how much you will collect from HOA members, and how frequently. “Most of the time the HOA dues are a monthly fee, but sometimes they’re collected yearly,” says Baker.
Step 10: Name your HOA
You’ll need to give your HOA a name in order to make things official. Although it doesn’t really matter what you name your HOA, most are named after the neighborhood they serve.
When choosing a name, make sure it isn’t trademarked by another organization. You’ll also want to ensure the name you choose isn’t too similar to other organizations’ names in order to avoid confusion.
Step 11: Form an LLC or nonprofit organization to establish and manage the HOA
An HOA is a legal entity and as such it should be created as a limited liability corporation (LLC) or a nonprofit. When you file to become an LLC or nonprofit, you’re taking your first true step toward becoming a real association. Take note that whether you establish your HOA as an LLC or a nonprofit, your HOA will be required to pay taxes.
Step 12: Draw up governing documents
The governing documents you create will be largely based on the operational needs of your HOA. Governing documents typically include articles of incorporation (which must be filed with your Office of the Secretary of State) and bylaws, which will spell out how frequently HOA meetings will take place, how votes will be held, and the process through which board members will be elected.
Step 13: Elect the governors
It’s now time to form your HOA board. Hopefully, you have some volunteers who are interested in serving, and the members of your HOA can vote to elect them to the board. Ideally, the community members serving on your board will have some experience in the role they take. For example, it’s helpful if your treasurer has a financial background.
Step 14: Create a website
In today’s online world, it’s almost unthinkable not to have a website for your HOA. Hosting a website will give you a chance to share information in one central location.
If you don’t have the skills to create a simple website and don’t want to invest the money to hire a web designer, consider buying HOA management software, which often has a website platform built in.
Step 15: Get insurance
Just like you have homeowners insurance to protect you in case something should go wrong at or on your property, your HOA needs insurance, too. HOA insurance will protect the association and its officers in case a homeowner sues.
According to Service Insurance Group, an HOA should have:
- General liability property insurance
- Regular liability insurance
- Directors and Officers (D&O) coverage
- Social host liability coverage
- Garagekeeper’s coverage (if the association has a garage where non-members can park)
- Worker’s compensation and employee dishonesty bonds (if the HOA has employees)
- Discrimination claims coverage
Step 16: Watch the budget
Now that you’re a bona-fide HOA collecting fees from your members, make sure you’re managing the budget correctly. When it comes to money, it’s best to strive for transparency.
Provide your fellow HOA members with a regular report of the fees that have been collected, how the fees have been spent, and the remaining balance in the account.
Step 17: Keep neighbors involved
Engaged members are an important piece of a successful HOA. Even if you have a website that members can visit for information, it still makes sense to build and execute a communications plan.
While most of your residents are probably happy to get their information online, you may have a few older residents that don’t log on regularly — or at all. To make sure you’re reaching everyone in your HOA, communicate on multiple platforms, even if that means sending out newsletters that recap meetings.
Step 18: Handle complaints thoughtfully
When you manage an HOA, complaints come with the territory, so you should have a process for managing the complaints that come in. You’ll also need to determine how strictly your HOA will enforce the CC&Rs.
“I had a client who lived in a condo community, and the HOA complained about their windchime,” says Baker. “Some communities can be very strict — they’ll have people on the board walk around and look for infractions.”
As hard as it can be to navigate a situation where a resident is in violation of the CC&Rs, Kilbourne points out that infractions can often lead to a stronger and more functional HOA.
“Let’s say a homeowner is piling dirt on his property, and everyone else wants it to stop. In a case like that, it violates the restricted covenants, and sometimes in those situations, the HOA sues the reluctant member,” Kilbourne says.
That action, he says, can often lead to a positive resolution. “Oftentimes, in the end, what arises is a more sophisticated system that everyone can agree to.”
So, there you have it: 18 steps to creating an HOA of your own. Plan methodically, check all your boxes, and you can establish an HOA that will serve your community for years into the future.
Header Image Source: (Michael Tuszynski / Pexels)