How do developers determine HOA fees initially?

Question

Extremely new to Re devlepment here...upon my own studying I noticed that HOA is a huge component in determining the for-sale price in development projects. I'm wondering if anyone can share their experience in determining the HOA for a residential condo project? Do you get a quote from a management company? Do you look at how much neighboring communities are quoting for HOA? Thank you.

Julia Hwang · Answer

@Jason Hsiao & @Bob Razler Thank you for sharing your insights! I wish there were a handbook somewhere that states everything you need to do to make it as a developer. It's been quite a learning curve figuring out the pieces. This community has been nothing but helpful.

Jason Hsiao · Answer

It's not sexy or any kind of brilliant insight but yeah you quote it out @Julia Hwang. I've done it before where I literally asked for the CC&R's and bylaws of other other condo buildings, see what they included to understand what I need to provide in the market that I'm in and then quote out all the services: landscaping, utilities, look at their budget/reservers, and get insurance quotes. Chances are you will need an E&O coverage in case the HOA officers or management company miss something. A lot of people forget to get that.

Bob Razler · Answer

Hello:

It will vary state by state as some states may have requirements for certain reserves, etc.

That being said, the developer will generally set up the community first with the amenities that they feel they want/need for the target market of the homes (clubhouse, community pool, gatehouse, tennis courts, etc.), then they determine the services that will be included to homeowners (lawn maintenance, trash pick up, gatehouse security, cable service, community activities, etc.).

Once you have your community planned out in that way you generally work with a Community Management company who will take all the amenities and services you plan to offer and put together an annual budget based on the costs of operating such a community (not the cost of the construction of the amenities, that is part of the development), the reserve requirements, etc. and they determine an annual fee per lot/home.

You would also work with them to determine any initial capital contributions per buyer at the time of closing.  Your management company and a good HOA attorney will be able to work all of this out.

Hope this helps.

Bob