For Your Clients: Understanding Home Owners Association Fees

By George W. Mantor

RISMEDIA, December 14, 2009—“The homeowner’s association fee is too high!” That is one of the most common objections to purchasing real estate where there is a community Association requiring the payment of regular dues and fees. These can range from less than a hundred dollars per month, if for example the only service is streetscaping, to upwards of a couple of thousand dollars for a luxury penthouse. Depending on square footage and amenities, most fees range between $250 and $750.

Taken out of context, the amount can seem outrageous. But, when considered from a prospective of value received, you can be pretty certain that you are getting one of the last great bargains.
When evaluating the HOA monthly fee, it is important to consider three things: how was the number arrived at, what does it cover, can anything be done for less?

1. How is the HOA fee determined?

In California, and probably most other states, developers must obtain state approvals before their projects can be offered to prospective buyers. Part of the submission process for developments with an Owners Association is the creation of a detailed budget for the operation and maintenance of the common area and the provision of necessary services.

Developers want to project the most positive scenarios in order to keep HOA dues low and not discourage prospective buyers. And, they are also aware that a $500 per month Association fee equates to another $100,000 that the buyer could have spent for the home. The higher the Association fee, the less the borrower/buyer can spend.

On the other side, the State wants to establish a realistic budget that will allow for proper funding well into the future. For the consumer, that process of compromising means that the budget is as realistic as it can be at the time it was created.

The main thing to keep in mind is that the developer will be paying the Association fees on all unsold property within the Association. The developer is not the one benefiting from high fees so there is no reason to blame them.

2. What does the HOA fee is cover?

It’s also important to consider what is included. Amenities very widely from project to project; high-rises cost more to operate and maintain than low rise buildings.

One of the responsibilities associated with real estate ownership is the obligation to maintain and protect the improvements from deterioration, damage, weathering, etc. Living out in the burbs you need a garage full of tools and a lot of weekends to stay ahead of nature.

Depending on the type of development, there could be a need for a lot of landscape maintenance. That takes labor, and labor is expensive.

If there are common areas such as a lobby, pool, gym, or even hallways, they need to be cleaned regularly, maintained occasionally, painted often, and replaced over time. Garages must be swept and windows washed.

Then there is liability, property and other forms of insurance, and possibly a security force.
What utilities are included? Are water, sewer, electric, gas, trash and cable billed individually or are some paid collectively through the Association?

Then there is usually a management Association looking after things, paying the bills, and communicating all of that to the homeowners.

3. Can it be done for less?

Add it all up and you’ll see that the economies of scale allow for a high level of service at a true cost far lower than you could do it yourself.

And remember, it is your building and your Association. You want to protect your investment and to have the kind of amenities that will allow for profitable reselling in the future. Serve on your Association board. If you can economize, you can lower your HOA fee.

But, don’t lose sight of the fact that you are paying for important services with a volume discount. It isn’t just an expense; it’s protecting your investment.

George W. Mantor is known as “The Real Estate Professor” for his wealth building formula, Lx2+(U²)xTFP=$? and consumer education efforts. During a career that has spanned more than three decades, he has amassed experience in new home and resale residential real estate, resort marketing, and commercial and investment property. He is currently the founder and president of The Associates Financial Group, a real estate consulting firm.

Mantor can be reached at GWMantor@aol.com.

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