Most people are attracted to the lower price of a townhouse or condominium home. There can be savings of up to 30-40%. Some are pretty good deals. I’ve seen 3 bedroom town homes of 1500 – 1700 square feet for two thirds of a single family dwelling. Many are very spacious with nice features.
At first glance it looks like a pretty good deal. Some homes look like a single family dwelling on the inside with one common wall. What many buyers don’t realize is the high cost and hassle of the Home Owner Association (HOA). A bad HOA can make your life miserable.
In general the HOA is an organization that covers the exterior maintenance of your home and other units in the complex. The HOA usually covers insurance (for the exterior), landscape maintenance, repairs such as painting, concrete repair, pool service, park service etc. Each home owner in the complex pays a monthly HOA fee which is not tax deductible. This monthly fee can be expensive.
The HOA monthly fee is in addition to the cost of the mortgage, property taxes and home owner’s insurance. It’s quite common to have HOA monthly fees as high as $300 - $400 a month. If you have a $2000 a month mortgage, $200 a month property taxes, $50 a month home owner’s insurance and $300 HOA fee that adds up to a total of $2550.
Most HOAs have a governing board elected by the home owners in the condominium or town home complex. The ‘board’ usually has a president, secretary and treasurer plus additional board members. The board can act like a small governing body. Depending on the HOA bi-laws, the board decides what maintenance, repairs and enhancements should be done to the complex. The board sets priorities and HOA fees. Buy a majority vote on most HOA boards they can decide to increase HOA fees or impose special assessments to each home owner. A well run board will issue monthly income and expense statements to each home owner.
Taking in monthly HOA fees can be big business. For example if there are 100 homes in a complex and each home owner pays $300 a month that’s a total of $30,000 a month or revenue or $360,000 a year. That’s a lot of money.
There have been many cases of mismanagement and even fraud in HOAs. I know a case where the board decided each unit in the complex needed repainting. The board got a no competition bid from a painter and imposed a special assessment of $5000 on each home owner. After a contentious board meetings and investigation it was found the owner of the painting company was a friend of the board president. Competitive bids later showed each unit could be painted for $2000 each.
In another case, the board imposed a special assessment of $24,000 on each home owner in a 186 unit complex to do drainage repairs. If the home owner refused then a lien was taken against the home. Those who couldn’t pay a lump sum could arrange for a load with additional monthly payments of $250 for 15 years.
In many cases HOA boards set priorities and determine that repairs or enhancements are urgent. To the contrary, many times repairs can be done over time and in many other cases not needed at all. The home owner doesn’t have a say.
One might think a home owner can sue the HOA board but in reality he’s just suing himself because he is part of the association. A lot of power is given to HOAs.
A single family dwelling may be 30% more expensive but the home owner doesn’t have the hassle of an HOA board and all that goes with it. The single family home owner can set the urgency of repairs the priorities and eliminate high HOA fees.
Buyer beware, investigate the HOA thoroughly before buying a condominium or town home.
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