Consumer alert: HOA, condo articles often misleading, inaccurate

By Deborah Goonan, Independent American Communities

It should come as no surprise that the real estate industry is in business to sell homes. Therefore, it is very common to read articles about housing options for sale in online news media and magazines.

Consumers should view many of these articles with a healthy amount of skepticism, just as they would view any advertisement or infomercial.

For example, consider a recent article that appeared in the Houston Chronicle, entitled What is a condo?

It is, essentially, a press release for The River Oaks luxury condominium in Houston.

A promotional video illustrates that The River Oaks is certainly no ordinary condominium. With only 79 units, many exceeding 3000 square feet, white glove concierge service, valet parking, housekeeping services, private gardens and terraces, and abundant green spaces, only a few discerning buyers can afford the lifestyle.

According to one website, condos for sale range in price from $1.7 to $4.5 million dollars. Rents range from $1,500-$3,500 per month.

But savvy real esate marketing teams know that the average reader tends to generalize these unique, romanticized versions of lavish condo living, believing that a scaled-down but similar lifestyle is within reach for median income households and first-time homebuyers.

A personal pet peeve of mine is that many written explanations of HOAs and condominiums are “fluff” content. They tend to soft sell the advantages of certain new home communities, fail to mention potential financial risks and practical disadvantages, and are chock full of misleading commentary and inaccuracies.

For example, take this excerpt from What is a condo?

Condos aren’t apartments, and they’re not townhomes.

This is a blatantly untrue statement. A condominium is distinguished by its type of ownership and governance, not necessarily the type and style of construction.

For example, many new construction townhomes are governed by condominium associations. And most condos are indeed vertical, apartment-style construction. In fact, prior to the last recession, quite a few condo associations had been converted from rental apartment buildings to condominiums for sale. Post-mortgage foreclosure crisis, many of those financially unsustainable conversions have been “deconverted” from condo associations back to rental apartment communities.

The River Oaks condominium also happens to be an extensive apartment conversion, a 1960s mid-century modern makeover.

Here’s another inaccurate statement (emphasis added):

In more layman’s terms, condominiums are individually owned. Residents, who either own or rent them, have a shared interest in the surrounding property, which typically include a pool, fitness room, meeting space and other common elements.

Wrong. Renters have absolutely no “shared interest” in the “surrounding property” in a condominium association. Although tenants can often use common amenities, and, in some cases, may pay additional rent or fees for that privilege, only condo owners possess an actual undivided financial interest in the condominium association’s common areas.

By the way, in most cases, a tenant cannot vote in association elections or on business matters, unless the condo owner relinquishes his or her voting interests to the tenant.

That brings us to the next nugget.

With the HOA, homeowners can serve on the homeowner’s board and have an input on how their community is being run.

This statement is somewhat misleading. While it is technically true that any homeowner (but usually not a tenant) can serve on the board and participate in the management and governance of a condo association, there are often practical obstacles standing in the way.

First, if the condo developer is still holding a majority of voting interests and controlling the board, condo owners will have little to no input. Even if a few condo owners are able to serve on the board, they will hold a minority voting interest, and relatively limited power to outweigh controlling votes of the developer.

The same principle applies in condo associations with multiple investor-owned units. Sometimes a voting bloc is formed by a small number of association members who happen to own a majority or even a super majority of condo units.

And, because many state laws do not impose mandatory term limits on condo board service, since most states also allow use of proxies, and due to the fact that HOA elections are loosely regulated and easily rigged, getting new blood on the board, while not necessarily impossible, can be a daunting challenge.

The article goes on to interview the General Manager of The River Oaks condominium.

Of course, any employee of a major corporation in community association management is going to promote only the benefits of condo living. There’s nothing wrong with that. It’s his job, after all.

But a smart buyer will take statements such as this one with a grain of salt.

“It’s a neighborhood without sidewalks,” [Tom] Romans [General Manager, First Service Residential] said. “In terms of service, our staff will greet residents as they arrive, carry up their packages and park their vehicles. If any assistance is needed, the Concierge is available to respond.
“Finally, the flexibility to come and go without having to make multiple arrangements.
“For those who have grown tired of the expense and effort in keeping up a private residence, condominiums offer a tremendous benefit.”

The statement about a “neighborhood without sidewalks” may be true for The River Oaks Condominium. But condo communities with multiple low-rise buildings, as well as townhouse and villa style condo neighborhoods do indeed come with sidewalks or private roads or even walking trails. The more shared interest in common property, the more it is going to cost each owner in condo assessments and fees to maintain those sidewalks, private roads, parking areas, green spaces, and amenities.

The vast majority of condominiums certainly do not come with concierge service and luxury amenities. Most condo owners will have to clean and maintain their own interior spaces and fixtures and park their own vehicles. With rare exception, condo residency is not at all like living in a luxury hotel or resort, with a full staff to cater to all of your needs and desires.

And no matter what your price range, the expense of living in a condominium is not necessarily lower than maintaining a detached, private home, especially a home that is not bound by mandatory HOA restrictions and assessments.

More importantly, when you own a condominium, unless you are able to exert influence by serving on the board, you give up personal control over day-to-day maintenance and short- and long-term financial planning that will directly affect your household budget and quality of life.

In short, a buyer must carefully weigh perceived benefits vs. many undisclosed risks, unforseen costs, and practical disadvantages of owning a condo.