(drum music) - Philip, stop.

We're not supposed to be doing that after 6:00 PM.

- Who says?

- Our HOA?

It says so clearly in the CC&Rs - The Credence Clearwater Revival?

- Covenants, conditions and restrictions.

- Give me a break.

This is America.

Nobody can tell an adult what they can do in their own home.

- Actually, they can.

(upbeat music) There are so many important factors to consider when buying a house from mortgage terms to inspections to school districts.

It's understandable that some things that don't seem too important now will get neglected only to bite you down the road.

- One such example is the HOA or Homeowners Association.

A self-governing board that oversees a community of homeowners, whether in single family homes, townhouses, or condos.

HOAs are funded by monthly dues collected from all members and exist to keep property values high.

The main ways they do this are by offering amenities and enforcing restrictions.

- Amenities offered by HOAs come in many different flavors.

A gated community might have security guards patrolling at night.

A subdivision of tract houses might have a community swimming pool and a condominium building needs to keep the elevators working and the lobby neat and tidy.

- These things all cost money and the amount of dues collected will reflect the extravagance of the amenities.

A simple HOA that offers a garbage pickup service and maintains a playground might only ask residents for $150 a month while a beachfront condo could easily charge $1,000 a month to operate a spa and fitness center.

- You can't opt out of paying for these amenities.

So before you commit, make an honest assessment of whether you'll actually use them.

Generally, the services that make everyday life easier like snow shoveling or garbage pickup are a safer bet than luxuries like gyms and swimming pools.

- But restrictions are where HOAs really flex their muscles.

Do you live for Halloween and literally count the days until you can bedeck your house with all manner of ghosts and ghoulies?

Better read those CC&Rs pretty closely because some HOAs may prohibit holiday decorations of any kind, let alone the gory tableau you've dreamed up.

- Maybe your family has three cars, but only a two car garage.

That's okay, you can just park the extra one on the street, right?

Well, that depends.

No HOA has jurisdiction over public streets.

But if the street is private, like say in a gated community, HOA can make rules about what kinds of vehicles can park there, for how long or even prohibit street parking entirely.

They can even dictate whether you can park your car in your own driveway.

- Let's say you've just inherited the handmade farmhouse mailbox your grandfather made.

Better rethink it as a backyard birdhouse because your new HOA loves uniformity above all else.

Some even require your roof shingles to match your neighbors.

- Other common restrictions include no parties, no renters, no flags, no long-term visitors, no pets over 25 pounds or no pets period.

- Okay, but are these really ironclad rules or just guidelines?

If you bent them a little bit, how much trouble could you really get into?

- The answer, a lot.

- Courts in many states have determined that CC&Rs are legally binding documents unless they violate public policies.

Depending on the terms, you could be fined, sued or have a lien put on your home.

HOAs don't play.

One in Florida confiscated 80 residents' trash bins and dropped them off at a recycling center for leaving them in plain view for too long.

A man in California had to pay $70,000 of his HOAs legal expenses and lost his home.

His crime?

Planting too many rose bushes in his front yard.

- So if you think you'll have trouble complying with any of your HOA's restrictions it's best to look elsewhere rather than risk a showdown.

Conversely, these restrictions might just be what you're looking for, like say, if you're deathly afraid of dogs or have trouble sleeping and don't want to be disturbed by loud neighbors.

- Once you've balanced the amenities with the restrictions and dues, there's one more aspect of your HOA to consider, assessments.

- Sometimes major repairs are required on shared spaces like if the community pool needs resurfacing or the elevators need special maintenance or the roof of a condo is damaged in a storm.

In these cases, the HOA may have the authority to demand that every member chip in to pay for the emergency upkeep which depending on the problem, and the number of members can result in an unexpected levy in the hundreds or even thousands of dollars.

- These surprise fees are known as assessments and though they can feel onerous they are not to be taken lightly.

Take for example, the collapse of the Champlain Towers South condo building in Miami in June of 2021.

For years before the tragedy, the condo board knew that the building was in dire need of repair but was reluctant to ask the residents for the 80 to $200,000 in assessments it would cost per unit.

- Part of the problem is that HOA boards are often made up of volunteer members who have little experience in finance or construction and are under pressure from residents to keep dues as low as possible.

According to one study, about one third of such associations have less than a third of the savings they'd need to pay for sudden, but eventual repairs.

- As Jeffrey Ducker, a principal in the audit department of a Florida public accounting firm, put it, if you're looking to buy a home in an HOA, be sure to ask for a copy of its financial statements.

Look at what its liquidity is, if it has sufficient working capital to operate and if it has set aside reserves for future major repairs and replacement.

If it doesn't have reserves that would be considered a negative factor.

- Despite the cost and the pitfalls, HOAs are actually pretty popular.

The Community Associations Institute reports that 85% of residents that have an HOA are satisfied with it.

Additionally, researchers at the University of California at Irvine found that homes with an HOA sold for 4% more than those without on average.

For many people, HOAs can make their home a better place to live and a safer investment.

As long as you have a competent board and can abide by the restrictions, you might be one of them.

- So I can go back to practicing the drums?

- Only between the hours of 10 and six or you could get an electric kit and put on some headphones which actually sounds like a good idea to me.