Homeowners association fees are usually met with a groan. No one is excitedly paying an additional monthly fee, even when it goes to support shared amenities and the upkeep and beautification of common property. So how do your HOA fees affect the sale-ability of newly developed properties or the resale value of your home?
Some HOA communities themselves don’t feel the value of monthly dues. In a study of its own membership, the Community Associations Institute (CAI) revealed a less than enthusiastic crowd. For reference, the CAI is a paid membership comprising community association board members and staff--an ostensibly pro-HOA group. In the study, 37% of residents surveyed revealed a neutral-to-negative experience with their HOA, and 38% didn’t believe their HOA membership had a positive effect on their property values.
How Much Are HOA Monthly Dues?
Community association fees are no small matter. There are over 350,000 HOAs in the U.S., which makes up about 40 million households, and more than half of all homeowners live in an HOA. That is a lot of HOA members--and a lot of HOA fees. It’s estimated that nearly $100 billion are collected each year by HOAs. These fees have been on the rise. Between 2005 and 2015, the average HOA fee increased from $250 to $331, which outpaced housing prices and inflation rates.
Community association fees are attached to the property rather than the homeowner. In legal terms, the HOA fees “run with the land” so that any future purchaser is bound to the same duty to pay fees. There are a few characteristics common to most HOA fees. First, fees are typically higher for older buildings and homes, and as homes get older each year, those fees will continue to increase. As opposed to single-family homes in a development, the more units in a condo-style building, the higher the HOA fee. Fees also run with the size of the property. Typically, the smaller the house or unit size, the smaller the HOA fee.
Community association fees also vary in different parts of the country. Unsurprisingly, New York City had the highest average HOA fee at $571 per month. It was followed by Long Island, San Francisco, and Philadelphia. The cheapest HOA fees were found in Nashville and perhaps less obvious, Las Vegas, at less than $200 per month.
The Philadelphia community has responded to these high association fees. Sandy Smith, a reporter for Philadelphia Magazine, wrote an article titled, “The Condo Fees are Too Damn High,” referencing a short-lived political party and popular meme. Smith noted that “[f]ees in Philadelphia went up 47.6 percent over the 10-year time span of the study, the eighth-largest total rise among the 50 metros studied. The annual increase of 4 percent also outpaced inflation.”
How Do Monthly Fees Affect Market Value?
Monthly fees can have a negative impact on the attractiveness of a given property. These fees are just part of a member’s month housing bill. In addition to HOA fees, homeowners must consider their mortgage payment, utilities, and maintenance. These monthly costs dictate what kind of home a purchaser can afford, and too few sellers take these costs into account. Davy Morgan, a reporter in Maricopa, AZ, acknowledges this problem. “When it’s time to list their home, many sellers don’t think about the impact high fees will have on resale. . . . It’s also important for buyers to research costs associated with nearby HOAs and how they may affect purchasing power.” Even a nominal monthly fee can impact a buyer’s budget by a significant amount.
Beyond monthly fees, community organizations can tack on one-time fees such as capital improvement fees and transfer fees. Transfer fees cover the cost of placing the home in the new owner’s name, and improvement fees are considered “special assessments” that can be used to make a significant repair or necessary upgrade. HOAs can even levy fees for homeowners that are not compliant with the covenants and restrictions, and if these fees or monthly dues are not paid, the HOA can create a lien against the property. Again, these liens “run with the property,” so any new purchaser would be required to settle the costs before acquiring title to the home. These costs change from one HOA to another, so it’s important for a potential buyer to consider what the transfer fee will be and if there are any potential capital improvement fees on the horizon.
Membership in the association is not optional in most communities, so these costs affect potential buyers. Not only does it affect the final price a buyer can afford, but it affects the buyer’s perspective of the property. HOAs have been criticized heavily over the years, even from formal organizations such as the American Association of Retired Persons (AARP). Participation in HOAs can even be detrimental to neighboring communities that rely on tax-payer funds for many of the same public benefits like paved roads and lighted walkways.
Monthly fees are costly, growing, and play a part in a buyer's decision to purchase a home in an HOA. Be sure to consider the impact your fees will have on potential purchasers.