Why are some HOA dues so high in certain Silicon Valley townhouse or condo communities?
If you are shopping for a Silicon Valley condominium, townhouse, loft or other property that’s part of a home owners association or “HOA”, you may find yourself flabbergasted at some of the dues being charged in San Jose, Los Gatos, Saratoga, and all over Santa Clara Valley. Today we’ll go over what may be happening in them to cause this problem.
What HOA dues cover
HOA dues may cover a number of things, and if it’s a luxury complex with luxury amenities, those dues will be high:
- common areas, such as driveways, parking, pool, fitness center, rec room, elevators, landscaping, golf course membership, etc.
- insurance: regular homeowners or blanket insurance but perhaps also earthquake or flood insurance
- reserve account funds for planned improvements may have run too low and need bolstering (repainting, termite work, reroofing, repaving, pool plastering etc.)
- covering the defaults from units where the owners are in or about to be in foreclosure
- some dues cover water, garbage, and possibly other utilities
- special assessments for balcony or elevated wooden elements repairs
- special assessments from unforseen insurance demands
Today most HOAs in California have underfunded reserve accounts. Ideally they’d have 70-100% of of the target number allotted to date, but 75% of all HOAs in the Golden State aren’t keeping up. To those boards, it seems silly to tie up today money that may not be needed for 20 years.
In the last few years, insurance has become an increasing problem for HOAs. Many insurance companies no longer want to write policies in California due to the fire risks, so we are hearing of condo and townhome communities loosing their insurance over the types of roofs or the t ypes of electical panels installed. If the insurance policy is canceled due to concerns over one of these issues, or over the fire zones, it may cost several times more in the new policy. Often that means going to the California Fair Plan and then adding a wrap around policy.
HOAs that are forward looking will try to get ahead of insurance cancelations by refoofing or addressing the electrical panels or whatever issue is in their control that may be an obstacle to regular insurance. Fixing these things is expensive – expect a large special assessment – but in the long run it’s cheaper than paying the high risk pool insurance costs.
Related reading:
Is Your Electric Panel Safe? (on this site)
Does your HOA have enough in reserves? (this site)
What do HOA dues cost in Silicon Valley?
Depending on the age of the property and the amenities, the dues may run between $400 and $500 on the low end (newer, no amenities) to close to a thousand on the high end (The Villages retirement community has extraordinarily high dues but they may include membership in the golf course too). I’ve seen some in Menlo Park closer to $2,000 per month!
“Normal”HOA dues woud be anywhere from $500 to $600 per month for a typical condo or townhome community.
Dues over $700 per month will deter investment buyers. Dues over $800 per month may deter most buyers
There are several things to beware of when buying a condo or townhouse.
First, and perhaps most importantly, you’ll want to learn about the finances:
- how well funded are the reserve and operating accounts?
- are special assessments planned?
- how many of the members are in default, because this may ultimately cost you with special assessments. Right now that’s not a big problem, but between 2008 and 2010 and a little later, it was an issue.
Second, you’ll want to check out the grounds and common area items to see if it looks like the community is being well maintained. Do the buildings have peeling paint, patches of grass without lawn, and overgrown shrubs? If so, those are “red flags”. If there are elevated wooden elements (balconies, stairs, walkways), do they look well maintained? There should be an inspection of a representative sample from each community and that should be a part of the HOA paperwork. Check it out – repairs can be costly.
Finally, if you’re serious about purchasing a home in that community, read the minutes, newsletters, the reserve account, budget, and the rest of the Home Owner Association paperwork. Yes, it’s tiresome and probably 2-3″ thick but it’s important. (Imagine buying the home and not reading these but later discovering they don’t allow dogs – and you have a large lab! Bad all around. ) The HOA docs will give you insight on the budget and whether any special assessments may be needed down the road.
It’s also wise to hire an expert to analyze these things for you. Most Realtors don’t have the training or skills to interpret them, but a specialist does. CA Datasource is one such company and we’ve had goood experiences with them.
