Developer benefits most from a homeowners association (HOA)

By Deborah Goonan, Independent American Communities

home construction

Homebuilders, their real estate agents, and the HOA industry have been marketing homeowners, condominium, and cooperative associations as beneficial to homeowners for nearly 5 decades.

According to those who make their living selling homes, managing and providing services to these Association Governed common interest communities, HOAs protect property values.

Like most urban legends, there’s no basis in truth for the claim that restricting one’s individual property rights with mandatory association governance makes one’s home any more valuable than a property without a long list of restrictive covenants and an HOA. But the legend has been repeated so many times that many people believe it to be true.

In theory, the neighborhood governed by your HOA would be better maintained and groomed to higher aesthetic standards. In theory, the community would have been well-planned and carefully constructed.

But in reality, the value of your home is more dependent upon location, relative size of the home and lot, quality of construction. A comparable home in a well-managed municipality will be just as valuable – if not more valuable  – than a home in a well-managed HOA.

Conversely, a home in a shoddily constructed, or poorly planned and managed homeowners or condo association won’t hold much value at all. The truth is, HOA neighborhoods evolve into slums for the very same reasons some cities and town do – because there isn’t enough revenue (either taxes or HOA assessments) collected and/or the money is poorly managed. Therefore maintenance and security suffer. When that happens, people who can afford to move out do so, and the rundown neighborhood is left with a high vacancy rate, blight, and increasing levels of crime.

The cold, hard truth is that your HOA is not legally obligated to provide all of the services promised at a consistently high level that you might expect for your hard-earned dollars. So betting on your property values being protected is really a game of chance.

So why are 73% of new homes built in a homeowners’ association?

HOAs have become prevalent because they benefit local governments: your municipality or county gets to tax each property at the same rate as non-HOA homes, but they don’t have to offer the same level of services. Think about it. Your HOA often provides certain essential services such as “private” road maintenance, snow removal, maintenance of storm water ponds, mowing grass in the common areas, perhaps even trash collection. Yet a portion of your property tax dollars provide the same services to other non-HOA neighborhoods.

That’s a pretty sweet deal for your local government, but creates what amounts to double taxation for HOA consumers.

But besides the fact that HOAs have become perceived as “cash cows” for local governments, there are really only two reasons for their continued creation and existence:

1) HOAs provide a devious but legal way to exclude any resident that is deemed undesirable or unpopular. I call it discrimination by CC&Rs. 

2) HOAs benefit developers.

Unfortunately, neither one of these reasons serves the public interest or the greater good. Here on IAC, you’ll see many examples of how the power of your HOA to enforce of restrictive covenants is abused.

But today, I’m going to focus on a recent article that blatantly illustrates exactly how developers benefit from setting up a homeowners’ association.


What are the benefits of an HOA for the developer?

In Lebanon, New Hampshire, Brady Sullivan has been building homes in Phase I Prospect Hill. Phase 1 consists of 171 lots. Sullivan’s corporate representatives want the City to approve Phases 2 through 4, and to release $200,000 of a $250,000 bond.

But, not so fast! Residents of Phase 1 are not pleased with the quality of construction, and City officials say that infrastructure and landscape improvements are not complete, nor up to code.

It turns out there is a homeowners association. So why is Phase 1 so messy and incomplete?

Well, it might have something to do with the fact that Prospect Hill HOA is still under the control of Brady Sullivan. There are only 28 homeowner votes to the developer’s 143 votes, and 3 out of 5 board members are appointed corporate affiliates of Brady Sullivan.

HOA corporate structure exists so that a developer can maintain financial control of the Association until most of the homes have been built and sold.

As is usually the case, developer and homeowner (consumer) interests are not aligned.

While a developer wants to minimize the corporation’s upfront investment and future liability, homeowners expect the quality and service they were promised, and at a reasonable cost.

Luckily for these homeowners, the City Planning Board is putting a hold on Brady Sullivan’s progress for now. Hopefully, they will actually hold the developer’s bond and approval for Phases 2-4 until the builder fixes what’s wrong with Phase I.

Complaints Hold Up Developer (NH)

By Tim Camerato
Valley News Staff Writer
Tuesday, September 13, 2016


Lebanon — Developers’ plans to construct 117 units in phase two of a subdivision off Prospect Street stalled on Monday, as existing residents complained about the quality of work already done nearby.

While some of the city’s concerns at the site have been met, there’s still issues with deteriorating sidewalks, drainage issues and a problem with the sewer line’s proximity to the water lines, said City Planning Director David Brooks.

“I guess I’m a little bit leery of releasing the security without some way of making sure those fixes get fixed,” he said.

The association also became a point of contention during the meeting. Brady Sullivan officials said the second phase of the project is needed because of high rates residents pay to maintain a pump station, and more residents would spread that burden more evenly.

Some of the residents accused Brady Sullivan of shielding itself from paying for the pump. It controls about 143 votes in the association, compared to the 28 votes of single-family homeowners, and three of the five association board members are appointed by the company.

“The residents are sort of crippled in terms of leverage,” said Williamson, who told the Planning Board that he was also forced from the association board by Brady Sullivan.

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