Homeowners associations, condo associations, cooperatives, oh my!
In 2016, there were 342,000 community associations (so all of the above mentioned community types) in the United States, with Florida ranking highest on the list of associations per state at 47,900. That accounts for more than 20% of the population of the US! With so many different kinds of common interest developments saturating the country, it's easy to get confused.
There are multiple ways a community can be designated. You've got HOAs and condo associations, the usual suspects, but then there are cooperatives, and townhomes, and honestly, they're all kind of the same but still very different. If you are new to community associations or just joined your community's board, you may not fully understand the differences between each type of community. Let's take a minute to break it down and help you understand not only the differences, but also what you need to know when you are trying to best serve your fellow homeowners.
What is a Community Association?
There's this belief that community associations simply poof! into existence. But that is so very rarely the case. Predominantly, the developer or builder decides if there will be a legally recognized, and they set forth the rules and regulations (Governing Documents) that those who buy into the community must follow.
So if someone buys a plot of land, pays to have their single home built, and it isn't in an existing or developing community, that house will likely never be in a community, because there was no need for regulation of their property upon building.
Who's In Charge?
The homeowners are!
Every type of community association is governed by a Board of Directors (or Board of Trustees in some parts of the country). The Board is an elected body who is legally responsible to uphold the rules and regulations set forth in the governing documents of the community.
What Every Community Needs
Regardless of which type of community you are in, every community needs to keep track of certain things, such as a member database, a history of the properties when they are sold and bought, financial records of the community's budget and spending habits, etc. Additionally, each community type has it's own specialized set of needs, which we'll talk about in a minute. It's up to the Board how they choose to keep track of all this information, either by hiring a professional management company, or by choosing a community association management software to do it themselves, or through some combination of these, such as hiring an onsite manager, or engaging an accounting firm to just manage the books.
These are by far the most common types of communities. As of 2016, about half of all community associations in the USA were homeowners associations, and there's evidence that number has only gone up.
Also called Planned Unit Developments (PUD) or Property Owners Associations (POA), HOAs exist to attempt to maintain a specific kind of aesthetic and community within a development of homes, in an effort to keep value per home at it's highest. The idea is that people want to live in an area where they can trust that their neighbors won't park random boats or RVs in their lawn, or paint their houses neon blue.
In an HOA, a homeowner owns, well, their home. They also own the plot of land it sits on, and whatever is on that plot of land, like driveways, or mailboxes. But, just like houses outside of HOAs, they don't own the streets in the neighborhood, or the playground around the corner, or the lake behind their house.
They're still financially responsible for it all, though, because it is the common ground shared in the community that keeps their property value so stable.
Unlike homes outside of HOAs, where homeowners aren't on the hook for a pothole in the middle of the road, or a broken swing set at a public park, the land within an HOA development is maintained by and for the HOA residents through their monthly or annual assessments. So while they don't own any part of the common ground within their community, they are responsible for paying for their fair share of it, because they have agreed to work to maintain the value of the space their HOA occupies.
What you should look for in your HOA management software:
- Amenity access management is a good place to start, because the amenities are often one of the most coveted features of an HOA
- Assessment specificity, because not all assessments are the same, and transparency with your fellow homeowners is crucial
- Reporting for fund accounting is also a great feature, because of the number of funds that will need to be tracked and reported on annually
Condos are another really popular style of community association, and operate a little bit like an HOA.
Condominiums are largely different because owners don't own individual homes, they own single units in a multi-unit building, much like an apartment complex. They own what exists from wall-to-wall in their unit, so their furniture and possessions obviously, but also the flooring and the paint on the interior of their unit is considered theirs, and therefore their responsibility, as well. That means that anything NOT between those interior walls (like plumbing between the unit walls, or AC units outside of the building) is the shared responsibility of all unit owners and is classified as what condos call "common elements," which is essentially the same as "common ground" in an HOA.
Unlike an HOA, however, condo owners own an equal share of those common elements. That means the association owns no real estate, it is all jointly owned by the unit owners, which could make management of the space a little tricky.
Like in the case of the personal garden on a shared roof in NYC: One condo owner decided that, because the building's roof was a common element, he would start a small basil garden. What he didn't expect, however, was that others would take advantage of his efforts! And when he posted a sign telling other residents not to take his basil, it cause quite a kerfuffle. If it grows in a communal space, is it a communal asset?
In the article, one columnist for the New York Times suggests that, much like a community bike storage space, the bikes stored there are not fair game for all residents of the condo. However, the other school of thought, touched on by an attorney in the piece, is that because this is not a designated garden, it's more accurately described as putting a sofa in a lobby--just because it's shared space doesn't mean you can use it to house (or grow) your personal items. This is where the board comes in--it is their job to, with the help of the unit owners, decide whether or not this type of roof usage falls into personal or common elements. A separate decision could be starting a rooftop community garden instead!
Condo dues still work the same way as any other community association, though. The monthly or annual assessments are allocated for the maintenance and general upkeep of the property, and owners are all equally responsible for any special assessments that come up.
What you should look for in your condo management software:
- Custom financials are huge because you have not only the financials to report on for the entire building, but also for individual unit owners
- Flexible assessments will help ensure that each owner can be charged accordingly with ease
- Reserve Fund tracking will help you keep a close on on your community's equity
Co-ops operate on a percentage of ownership. So unlike an HOA where the owners own none of the common space, or a condo where the unit owner owns what exists between their two specific walls of their unit plus an equal share of the common elements, a co-op owner might not own anything but their own belongings, and will instead own a percentage share of the whole of the real estate.
In most states, a co-op 'owner' doesn't own their actual unit, they own a percentage of the building. So say the building has 100 units, and each one has a single owner. Each of those 100 owners owns 1% of the building. If an owner wants to sell their share, they're not selling the specific unit they own, they're simply selling off their share. So if the seller has a coveted top floor corner unit, Don down on the bottom floor with a view of nothing but the next building over has first priority, and can appeal to take take that lovely top spot, because neither person owns a specific unit. He's just choosing to relocate his 1% share of the building.
On top of that, because of this percentage-share style of ownership, owners have a direct say in who lives in their community, so potential future owners have to apply before being allowed to live in the co-op.
Now say Don wants the top unit, and wants to keep his bottom one. If he's approved to purchase the for-sale top unit, he would then own 2% of the building, meaning his opinions on future decisions carry more weight than anyone else in the co-op.
Of course, there's Florida, always a special case! Many of the co-ops in Florida are trailer parks. The land the trailers occupy is the equally-divided space shared by the co-op 'owners.' So while the lots might resemble the style of an HOA, the unit owner does not own the specific land that their trailer sits on. Much like Don in his condo building co-op, if someone chooses to vacate a lot in a FL trailer park co-op, another co-op owner can appeal to relocate their trailer to the newly-open space and would have first priority.
What you should look for in your co-op management software:
- Key Performance Indicator (KPI tracking) is important to keep you informed on the success of your community
- Flexible assessments are crucial because each 'owner' will have a different share of the building, and the units are all valued differently on top of that percentage ownership, so the ability to fully customize assessments will be a huge asset
- Simplified communication, to help you stay connected and make sure everyone in the building or community feels involved and aware
Bonus Round: Townhomes
Townhomes are...interesting, because you can't tell what they are from the outside. They aren't shaped like any of the above community associations, and their shape isn't consistent.
Sometimes they look a little like condos. Sometimes they look like houses that got stretched too far up (like the ones to the left). Sometimes they look like one big house that's actually two identical houses that share a wall and driveway. Sometimes they look like a whole row of houses got smushed really close together.
And none of that matters at the end of the day.
While a lot of other community associations are distinguishable by their outward appearance, a townhome community is NOT. Regardless how they look, townhomes could be either an HOA or a condo association--it is entirely dependent on what the developer or builder of the townhomes set forth in the governing documents upon creation.
So if you're on the board for a community of townhomes, it's your job to thoroughly read through the governing documents to understand what the community requires and ensure you're following the right steps to maintain that community.