Higher HOA fees lead to lower property values?

The implication is that property values should be higher with HOA fees, yet since inception of HOAs in the 1970s, the tide has turned.

According to a recent survey, more buyers are now paying attention to HOA fees when considering a home purchase. HOA fees are shown on real estate websites and many potential buyers refuse to even look at a home with a HOA.

Assessments for services that homeowners do not want reduces property values because the marginal purchaser of property feels there is less benefit out of the services than their cost.

Many times when a buyer is making the decision on which to buy  the one with the lowest HOA fee wins. This may leave the home with higher HOA fees to languish on the market, as the price is lowered many times to get it sold. Thus, the average home sales price in the area is lowered.

Frustrated sellers who cannot sell their home, due to higher than average HOA fees (especially if it is in an older area) may have no choice but to rent it out or let it be foreclosed on. We all know that property values plummet as “rent houses” and foreclosures become the norm.

Fees that are out of line with area neighborhoods, of the same age,  are negatively capitalized into property values.



…keep in mind that buyers are often influenced in their purchase decision by the size and fairness of HOA dues. Buyers use this number as one of their criteria for deciding on a place to live. If your dues seem unduly high compared to similar communities in your area, you make the homes harder to sell.” (See #5 on Lawyers.com)



BOARD MEMBERS MUST THINK OUTSIDE THE BOX In these economic times intelligent board members realize the importance of finding ways to lower assessments; the incentive being higher property values for all. Many HOAs are now wisely splitting the amenities (i.e pool and tennis memberships)  from the regular HOA fee making it much more attractive to home buyers. This also gives the HOA the chance to sell many more memberships to outside members at a higher price.

Far-sighted board members have found that pricing the homeowners assessment slightly below the other area HOAs (even $3 less) gives the home with the lower priced HOA fee the upper hand as home buyers make their decision. This leads to faster sales and less price reductions, thus keeping property values higher in that subdivision.

How do your HOA fees compare to others in your area? If they are out of synch and you allow them to continue without speaking up, you are hurting yourself.


6 responses to “Higher HOA fees lead to lower property values?”

  1. Griff says :

    I’m so glad someone put that on the blog! It is exactly true. I sold Real Estate for 10 years in Tulsa and the only clients I had that would even consider HOA were clients in upper end markets looking at new construction or homes less than 10 years old.

    Your average Tulsa buyer right now is looking for homes in the $100-160,000 range. This is what people can afford and still be able to save a little money on the side. These middle to lower income earners can not neccessarily afford HOA dues, so when they look at older homes to start out in or to buy for their 2nd larger home after those babies come, they go to the older neighborhoods, look for fixer uppers, and will usually steer away from neighborhoods like ours because of the area and the additional cost.

    I bought my home just one and one half years ago because I wanted to scale down my income to debt ratio and have a larger lot with a pool. (When you hit your late 40’s, keeping up with the Jones’ isn’t as appealing anymore, well, to me anyway. It’s time to think seriously about retirement and savings.) So I took a leap of faith, sold my beautiful midtown home, paid off all of my debt and thought, “oh great, know I can start living!”

    I found out 10 days before closing that there was a mandatory HOA over here. I was absolutely furious. The selling broker had not disclosed that. I was told there was a pool, but you bought membership. If I would have know that, I seriously would not have bought this house, because I had already settled for so many things moving over here not to mention, I couldn’t get out of either contact.

    So these people that say, “you knew what you were getting into when you bought over here,” don’t know what they are talking about. Know one can possibly imagine all of the other politics that goes on with HOA until they actually live in one either.

    I can imagine how the residents who built over here feel now. They saw how it was ran in the beginning with the lower dues and separate pool fees and as the story goes, it was doing so well, there was a surplus. What happened? Why did it change to a flat rate?

    It’s time for a change, but for some reason, too many people don’t want to take that “leap of faith” and even consider a test run. I’ve crunched some numbers and believe it can work, but of course, I have only “estimated costs.” Would love to know the real numbers to run this thing, but we never can seem to have anything firm on paper to refer to.

    This is another reason people don’t want to buy into HOA’s. They are notorious for being extremely secretive about their money and consequently, no one trusts them.

    I am speaking of HOA in general. They all have a bad rep., condos especially. Well, we are stuck with ours for the time being. I just hope we can reach some kind of compromise on all of the “sticky issues” surrounding our HOA.

    Oh, I also forgot to mention, my home has already fallen in value by $4 a square ft. in this short time. I had a market analysis done just 2 weeks ago. It’s not the economy.

    Other Tulsa neighborhoods are stable and some are even on the rise. I really think cost of our dues have had an effect on the decline in value in addition to those lovely apartment dwellers and traffic.

  2. Jimmy Stanford says :

    I purchased a condo in Santa Ana, California in late 2010. I consistently found lower property values with condos that had higher than normal HOA dues. I pay 200 per month and that’s very reasonable for this area. Other complexes are in the mid 300’s and above, but have a lower selling prices. I would rather put the extra money into my mortgage rather than maintaining plastic ducks in a man-made pond.

  3. Marian Latimer says :

    HOA’s lower property values, period.

  4. Rick says :

    A well run HOA is very important. It’s also important for neighbors to act, well, neighborly. I am in a Tulsa neighborhood with a good group of neighbors, and the HOA is trying very hard to initiate improvements. Despite the challenges, I personally think HOA’s are helpful to maintaining a neighborhoods value. In doing a quick google search I can find just as many articles about the benefits of an HOA versus the challenges that HOA’s face. Here’s just a sample…

    • Edwin says :

      Rick, Were you aware that the link you provided is for a law firm that specializes in helping HOAs (i.e. HOAs are their bread and butter) so that is why it is very one sided. The only worthwhile thing said was “…. Associations have to be run effectively and efficiently to have a positive effect” In a recent survey of homebuyers an overwhelming majority said they did NOT want to be in an HOA. We have all heard stories of HOA boards that make up rules as they go bullying and terrorizing homeowners instead of following the covenants. People do talk (at work and with friends and family who will then tell others about a dishonest board of directors and some of the asinine things they do. Word gets around and people do remember. They may not remember exactly what they heard about an area but hey will associate it with something bad. A board of directors ethics (or should I say lack of) can in effect be much of the problem that causes lowered property values in certain HOAs. I might add that I am aware that board members are volunteers. It seems the only ones who will volunteer are the least qualified but maybe it gives them the feeling of importance and power they have never been able to get any other way.

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