HOAs: Cost to Purchase vs. Cost to Own

By Deborah Goonan, Independent American Communities Blog

I follow quite a few social media groups and discussion forums on housing issues, and HOA issues in particular. The same core issues are brought up over and over again. One of those issues is affordability, which means different things to different people.

Some people can barely afford to pay rent, let alone purchase a home. That’s a subject for another blog on another day.

Today I want to dispel some misconceptions about affordability as it pertains to home purchase and ownership.

One of the statements I hear repeatedly from the homeowner association industry is that the collective form of common ownership makes owning one’s own home more affordable. The implication is that, by sharing ownership with others, your personal share of expenses for common spaces (as in condos or townhouses) or amenities (as in planned communities with commonly owned pools, sports facilities, walking paths, and the like) is somehow more economical than living off the HOA grid in one of those unplanned neighborhoods of yesteryear.

I say, where’s the economic data to support that notion? The comparison of HOA to non-HOA homes is, in a way, comparing apples to oranges. The analysis of affordability must look beyond the purchase price.

If you look solely at purchase price, yes, of course, a condo or townhouse might be less expensive to buy than a detached single family house. And in theory, it seems that if you can spread out the cost of goodies such as a community pool, sport courts, or fitness centers over many owners, it might cost you less than what you’d have to pay for individual access to those amenities.

But that’s oversimplifying the issue of affordability.

A buyer needs to consider not just the original purchase price, but also the cost to own, as well as long-term value and stability of the neighborhood. Before you decide to buy, consider the following factors.

Assessments and property taxes:

  • A condo or townhouse comes with HOA assessments, and those assessments are generally much higher than what you would pay for a detached single family home governed by an Association. Utility, cable, and internet service payments might be incorporated into those assessments, but a large chunk will be used to maintain the multifamily structures and exterior landscape.
  • If you choose a single family detached home in a planned community, the more amenities the HOA offers, the higher those assessments will be, because you will be paying for all those recreational amenities.
  • By comparison, in the absence of a condo or homeowner association, there are no assessments or “dues” to be paid.
  • In all cases, you will have to pay property taxes, with no noticeable difference between tax assessments of two comparable homes, whether or not there is a Homeowners Association.

Cost to maintain your home:

  • The portion of assessments you are required to pay for exterior and landscape maintenance are not necessarily less than what you might pay if you live without the mandatory Association and simply hire your own contractors to do the work. That’s because in the Association, you are also paying for exterior and maintenance of common areas not directly attached to your dwelling – such as green spaces, small parks, and entry monuments.
  • Keep in mind that allowing someone else to take care of maintenance also removes your right to direct control of the timeliness and quality of the work. Will you really receive a good value for your money? Or will you wind up paying too much for mediocre or inadequate service?

Cost of access to recreational amenities:

  • The same can be said for the cost of assessments that cover recreational amenities vs. the cost of maintaining private memberships at nearby clubs. There is not necessarily a significant cost difference, and, in fact, a private membership might offer a better value if, for example, the pool is larger, the exercise equipment is more state of the art, and the hours of operation are more convenient.
  • Of course, if you don’t regularly use the community pool, tennis or basketball courts, and you don’t have children young enough to use the playground, why pay for those things?

Unpredictable, uncontrollable hidden costs of HOA living:

  • A significant portion of your HOA assessments – whether you purchase single family detached, a townhouse, or a condo – goes to pay for the following: security systems and personnel, multiple insurance policies to protect the financial interests of the Association, management fees, legal fees, accounting fees and other financial services as needed to file required tax returns and audits.
  • Legal costs and insurance premiums can vary considerably, especially if the Association faces unpredictable losses or a Board member abuses power that creates legal liability.

What affects neighborhood stability?

  • HOA Board leadership and management assistance can change frequently, or it may become entrenched and difficult to change. Neither situation tends to result in continuity of services or stability in governance, and that can quickly affect the condition of common elements and overall property values.
  • Because their sole source of revenue is assessments, Association-Governed Residential Communities are vulnerable to blight and crime following periods of economic stress. The lower the income stability of its residents, the more vulnerable the community is to financial deficits, which in turn leads to reduced security and deferred maintenance.
  • A homeowner or condo association is a corporation. That means the HOA board can be subject to predatory or hostile takeover by wealthy investors or any group of politically influential owners with a personal agenda.
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