Jon Anderson: Big Units, Plus Big HOA Bills, Mean a Tough Sell

For performers, the winning combination for success is singing, dancing, and acting. In condos, it’s location, selling price, and HOA dues.  In every condo purchase, the topic of HOA dues comes up.

For buyers comfortable in the digital age, that topic and resulting self-editing arrive when listings and HOA dues pop onto computer screens. That’s because condo buying adds a cost that’s not factored into single-family home purchasers. For single-family buyers, a monthly nut equals mortgage, utilities, insurance, and taxes. There is no maintenance component – each owner can neglect or maintain as they see fit. In a condo, maintenance is a monthly fee.

Many non-condo people are uncomfortable paying a monthly HOA fee because it typically adds hundreds of dollars to monthly budgets reducing what they can ultimately purchase. Almost everyone has a budget, so it’s an important consideration. Unreasonably high HOA dues crimp the buyer pool even more.

Me? I’m OK with reasonable HOA dues. One check a month and I don’t do a gosh-darn thing outside my front door. I don’t pay separate utilities, cable, internet, window washing, or even regular exterminator spraying – in my case, it’s all rolled into the monthly HOA dues.

But not all condos charge reasonable fees, especially when compared with similar buildings. The results aren’t good.

We know that, while a building and land can appreciate in value, HOA dues are fees that are not recouped at resale (the same as the costs associated with new water heaters and lawn mowing don’t add to single-family home appreciation either).

And yet, knowing all this, some buildings in Dallas have HOA dues so high they have a negative impact on unit value. There seem to be two types of buildings with high HOAs – new luxury buildings crammed full of amenities (few use) and some older buildings with fewer amenities whose costs/dues are well above the norm.

For example, in December 2015, I wrote about Park Towers on Fairmount at the Katy Trail. After years of neglect and artificially low HOA dues, the chickens came home to roost. After close to $4 million in special assessments, HOA dues were raised by 38 percent on average. Today, owners pay 97-cents per square foot per month. There are currently two penthouses on the market at 2,855 and 2,613 square feet that are saddled with an additional $2,769 and $2,580 per month in HOA dues. Their current selling prices are $849,000 and $645,000 ($297 and $247 per square foot). They represent relative high-rise bargains (especially the renovated one) except for the HOA dues which eat a lot of potential mortgage room.

Another example is 3525 Turtle Creek, the 1957 high-rise that marked Dallas’ entry into tower living. There are three units for sale that are all in desperate need of renovation. They’re big – really big – encompassing 3,671, 4,069 and 5,123 square feet. The smallest at 3,671 square feet, unit 17B had tried unsuccessfully to be auctioned in 2017. Its current list price of $745,000 equates to $202 per square foot – almost unheard of in today’s high-rise world. Aside from factoring in the one-time renovation, a new owner is still left with essentially $1 per square foot in HOA dues. That’s $3,670 in HOA dues even before mortgage and taxes.

For added history, 17B came to market in May 2008 for $890,000 before being sold in December 2015 (after six and a half years and $273,000 in HOA dues). It returned to the market days later listed at $940,000 and has since dropped nearly $200,000 and paid $144,000 in HOA dues. That’s a property whose cost structure has been unwanted by buyers for almost 11 years and that has so far cost the owners $417,000 in HOA dues, to say nothing of property taxes, while losing $145,000 or 16 percent in value.

I’m sure a few listing agents are clutching their pearls, but here’s the thing – it’s not a secret. When 3525’s unit 17B was going to auction, I sat in the unit one afternoon to talk to prospects about the renovation possibilities – to a person, the HOA dues were brought up as the biggest stumbling block, a sentiment echoed by the auctioneers. I recently sat with a serial renovator of multi-million dollar properties who said the 3525 Turtle Creek penthouse is a stunning renovation opportunity, but the $5,120 in monthly HOA dues was a deal-killer.

What both of these building’s current listings have in common is that they are oversized units, which exacerbates the monthly HOA bill. In both buildings, smaller units sell faster, in part because the monthly total is easier to swallow.

Before you think that all old buildings have high HOA dues, look at 3701 Turtle Creek built in 1962 with HOA fees of 61-cents per foot, or 1966’s Athena at  66-cents (both all including utilities). So it is possible to maintain an older building while keeping HOA dues under control.

Moving into the 1980s, The Claridge’s HOA dues run 68-cents per square foot, while 1998s Mayfair charges 70-cents per foot. Heck, even Museum Tower and all its amenities only charges 87-cents per foot on units costing between $700 and $1,000 per square foot.

I think those living long-term in overly high HOA dues buildings become numb to the slow creep of costs (judging from the antiquated décor of most listings). It’s like a scuff mark on a wall you stop seeing until you get ready to sell and suddenly touch-up. Unfortunately, HOA dues can’t be touched-up for sale.

And who knows? Owners may see the value in their high HOA dues and are mystified at others who can’t. But what should be obvious to residents is seeing neighboring buildings with more efficient cost structures appreciating more quickly in value and selling faster.

These condo owners need to wake-up and overhaul their costs not only to attract new blood to their buildings but to also rebalance the equation so units appreciate and sell in tune with the overall market.

All units sell eventually. How long it takes and for how much money are variables that are impacted by HOA dues. In very large units with seemingly reasonable list prices, outsized HOA dues are often a deal-breaker.

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Remember:  High-rises, HOAs and renovation are my beat. But I also appreciate modern and historical architecture balanced against the YIMBY movement. In 2016, 2017 and 2018, the National Association of Real Estate Editors recognized my writing with three Bronze (2016, 2017, 2018) and two Silver (2016, 2017) awards.  Have a story to tell or a marriage proposal to make?  Shoot me an email [email protected]. Be sure to look for me on Facebook and Twitter. You won’t find me, but you’re welcome to look.