Are Low HOA | Condo Assessments Really A Bargain?
By:Daneen Reinke - August 1, 2019
High HOA fees can be very off putting when you buy a home. They can also make a property you intend to let out appear to be a bad investment, as the fees have to be passed on to tenants.
However, those fees serve an important purpose. They cover everything from landscaping and yard work to luxury amenities such as pools and clubhouses. Unusually low fees can actually be a bad sign. They can indicate, for example, that routine maintenance work is being neglected to save money, potentially resulting in a high special assessment or, worse, structural problems that could force you to move out. Low HOA | Condo assessments can mean that the board is cutting corners or getting the money in other ways, such as a high reinvestment fee.
In fact, HOA | Condo assessments are set by the board, taking into account three things:
1. The typical annual cost of routine and preventative maintenance.
2. The typical annual cost to run and staff amenities, and the reserve.
3. The last is the money the association sets aside for emergencies, such as major storms, or for projects, such as elevator replacement, that do not have to be done that often but cost a lot.
If the assessments don't cover enough of these, then the board will have to levy a special assessment. These can run into thousands of dollars and be care more painful than the higher dues that should have been charged.
When Purchasing a House or a Condo
Look at the assessments and compare them to other buildings in the area. If the assessments are higher, look at what you get for them and whether that particular amenity is worth it for you. For example, tennis courts may be a selling point to a keen player, but unimportant to others.
If the fees are particularly low, you need to try to understand why. An older building with fewer amenities may have lower fees, but higher maintenance costs to consider. If the building has a lot of owners on fixed income, then the low fees may reflect what they can afford. These associations end up with no reserve and no cushion in their budget. The obvious concern is whether the HOA will be able to pay for an emergency and whether all of the maintenance is being done. Deferred maintenance is worse for your investment and resale value than high fees. Your home may lose value and curb appeal, and may be harder to sell when the time comes. Not only that, but inadequate maintenance could lead to liability. If an owner or visitor sues the HOA for negligence, those costs too have to come out of the reserves and will end up being paid for by owners.
Also, associations may realize their fees are too low and increase them suddenly, resulting in a major jump in cost that can throw off your budget or, worse, put you in a position of not being able to afford the fees. Generally, a small annual fee increase should be expected and is better than a larger one in ten or more years. If reserves are not funded, then you will need to provide additional funds as needed.
Again, you should look at assessment levels in comparison to other similar properties. Make sure they are not unusually low, and if they are, try to find out from the board why. Higher fees now are better than an unpleasant surprise later. And while low fees can be associated with a lower cost of the property, this is not a bargain if you find out that maintenance is not being done and you are not even able to fix problems yourself.
"Bargain" HOA and condo assessment fees are seldom an actual bargain, and you should consider exactly what you are getting for your money when you choose a property to buy.