What You Need to Know: HOA Fees
According to the Community Associations Institute, there are nearly 310,000 association-governed communities (this includes homeowners’ associations, condominiums, cooperatives and other planned communities) in the United States, representing approximately 25 million individual housing units. The general role of a homeowners’ association is to maintain a community’s common areas—roads, parks, landscaping, recreation centers, swimming pools, clubhouses—and homeowners are required to pay association dues to fund the upkeep and contribute to the association’s reserve. On Oahu, homeowners’ association (HOA) fees can cost anywhere from $9 to $3,000 per month, depending on the services and amenities covered by the association. “If the building has a lot of amenities, it will require more upkeep,” says Century 21 All Islands realtor-associate Mathew Ngo. “It’s the cost of maintaining the building.” Ngo says that luxury communities, such as the Hokua and Trump Tower condominiums, will have the highest association fees because of the types of amenities that they offer, including 24-hour security and concierge services. In addition to those types of services, HOA fees also often include water and sewage, and, occasionally, Internet, cable and electricity.
In addition to factoring the dues into your overall monthly payments, Ngo says that there are a number of potential HOA-fee pitfalls that buyers should be aware of:
• “HOA fees will always go up, they’ll never come down,” says Ngo, who points to inflation and increasing costs beyond the association’s control, such as increased sewer fees.
• Buildings constructed in the 1970s or earlier have undergone, are undergoing or will need to undergo large, big-ticket maintenance projects, including elevator modernization, air-conditioner chiller repairs and, for buildings close to the ocean, the prevention of spalling, or the flaking of concrete building exteriors that results from exposure to salt water. Because these are expensive repairs, buyers will want to ask if these upgrades have already been completed and, if not, does the association have enough money in its reserves to cover these projects. “One of the things I like to look at is the reserve report,” says Ngo, “which will show when were the last upgrades for particular common-area elements. It’s vitally important to look at these because you don’t want to buy into a building where, for the first two years, everything is fine, but in the third year you get hit with a special-assessment fee.”
• Newer projects typically start with low HOA fees, and almost always go up within a year or two. “After they go through a fully cycle of a fiscal period, the maintenance fee will likely increase,” says Ngo. “The Moana Pacific had a 15-percent increase within a year.”
• Be sure to factor in the size of the HOA community you’re thinking of buying into—the more owners, the less you’ll have to pay.
• Ngo also suggests looking at the HOA community’s owner-occupancy rate. “In the Waikiki market, you have a lot of buildings with very low owner occupancy,” he says. “Typically, those buildings, especially if they include electricity and air conditioning [in the fee], you’ll see high maintenance fees.” That’s because, according to Ngo, renters often only pay fixed rent and are not responsible for utilities, so they don’t feel a need to conserve energy. “I’m not a big fan of having electricity and AC included in the maintenance fee,” says Ngo. “But you can’t help it because a lot of those buildings were built in the 1970s and they only have one meter.”
• Find out if the association is generating income, either from shared laundry facilities, parking garages, or leased retail, commercial or office spaces. If the association is making money, then HOA fees will be lower, says Ngo, who says a good example is the Waikiki Banyan, which rents out stalls in its parking garage and also makes money from office- and commercial-space leases within the building. According to Ngo, until last year when the Waikiki Banyan increased its HOA dues by $20, the association had not raised fees in 11 years. Another example: Mt. Terrace in Hawaii Kai, which generates revenue from having cell phone towers on the top of the building. “I always look at it as, OK, these are the expenses,” says Ngo, “but what kind of revenues do the buildings generate?”