The 8 Steps to Forming a Successful HOA
Today, homeowners' associations (HOAs) govern roughly 24.8 million American homes and are one of the fastest-growing forms of housing in the United States. Nonetheless, these developments don't just magically appear. What starts as a vision must also travel through phases of construction, legal paperwork, and more. Securing the land, planning the infrastructure, and building the foundation of an HOA is a process that can take months, even years, to complete. Here's a breakdown of the steps taken to create the successful homeowners' association that residents enjoy today.
Step 1: The Very Beginning
It all starts with a developer who initiates a community expansion project. A developer must find suitable land, perform a financial study, purchase the property, and then begin the pre-development phase.
Step 2: The Pre-Development Phase
The pre-development phase is when permits and approvals are established to start building. During this time, an attorney drafts the community association's governing documents, which are customized to protect the development's common elements and home values.
Step 3: A Developer-Controlled Association
Community associations are conceived by the developer, who typically forms a nonprofit corporation to own the land and amenities, and in the case of condos, certain parts of the building exterior. Initially, the developer owns all the lots or units in the association; therefore, the developer controls the association.
Step 4: The Building Process
Once plans have been approved, roads and the infrastructure of the subdivision are built. The utilities—electricity, water, sewer, telephone, and cable—are also installed. All the work in this phase can take several months or years to complete, but it's the best time to hire a community management team. During this time, the community management team can:
- Work with the developer and sub-contractors to finalize construction issues
- Review governing documents
- Open bank accounts
- Provide orientation to the homeowners
Once the final phase of the buildout approaches and the development has accepted a significant number of new homeowners, the management team helps the association transition to a homeowner-controlled community.
Step 5: The First Annual Meeting
All associations are required to have an annual meeting during the second stage of development. This is where the homeowners, developer, and management company begin their journey as a team. During this time, a "Shadow Board" or a "Board in Training" comprised of homeowners is established for a community to successfully transition from developer control to the control of the homeowners.
Step 6: Shadow Board Involvement
The Shadow Board becomes involved in the decision-making processes. Changes to contracts, additions to the community, budgets, and committee development are some areas where they may need to contribute. In the meantime, the developer is finalizing the buildout of the homeowners' association. Everything needs to get the all-clear to move onto the final step: the transition.
Step 7: The Transition Meeting
In some cases, the turnover of control occurs at 75% sellout, some at 100%, while others specify that control can change when the developer prepares notice to the association that it's willing to transition. Once that happens, the developer releases control to the homeowners. Transition often absolves the developer from all financial obligations for the community and places all obligations set in the declarations and bylaws in the hands of the owners who have elected the first official board of directors to represent them.
Step 8: The Board of Directors Establishes Community
The board of directors is a group of volunteer homeowners who have been elected to lead and govern the community. Board members are responsible for enforcing covenants and restrictions, setting goals, protecting homeowners' rights, and developing a true sense of community.
Understanding How an HOA Operates
Once a homeowners' association is officially born, it must then continue to be successful with the leadership of the board. To understand how an HOA operates, who makes up the board, the management company’s role, and who is responsible for establishing the rules, read the blog post, “An Educational Guide to the Homeowner Association Industry,” by Associa’s media and public relations director, Ashley Cantwell.