To HOA or Not to HOA
by Osman Parvez
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Last week, we put together a detailed opinion of value for a client looking to sell in the spring of 2016. Included in the set of recent, relevant sales were a mix of stand-alone properties without any HOA and several town-home style properties with substantial HOA costs.
It’s unusual to mix together HOA properties and those without an HOA, but in this case it was appropriate. Other than having a shared wall, the comparable properties were functionally similar – very close in age, size, location, finish quality, and layout.
How do you compare?
$100 HOA = $21,000 in purchasing power |
One thing to think about is the present value of HOA payments. In this particular case, at a 4% mortgage rate, the present value of the payments over a 30 year mortgage was over $71,000. In other words, the same buyer could afford to purchase a house that is $71,000 higher in price if they find one without the HOA fee.
At 4%, for every $100 spent on an HOA, a buyer can pay almost $21,000 more for a house using a 4% plain vanilla 30 year mortgage. That’s something to think about.
There are pros/cons to HOAs. Owners without an HOA are usually on the hook for their own maintenance, water service, snow removal, yard work, higher insurance premiums, etc. In our experience, buyers have an aversion to HOA’s not only because of the fee but due to the intrusion that comes in the form of fines and warnings. Many would also prefer to do the work themselves or control costs by hiring their own contractors.
On the flip side, neighborhoods with well run HOA’s are often in much better condition than properties without an HOA. You also won’t find yards not being maintained or filled with junk, derelict homes, and other eyesores that mar the neighborhood quality.
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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties. We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate.
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More about the author
Osman Parvez
Owner & Broker at House Einstein as well as primary author of the House Einstein blog with over 1,200 published articles about Boulder real estate. His work has appeared in the Wall Street Journal and Daily Camera.
Osman is the primary author of the House Einstein blog with over 1,200 published articles about Boulder real estate. His work has also appeared in many other blogs about Boulder as well as mainstream newspapers, including the Wall Street Journal and Daily Camera. Learn more about Osman.
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