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June 24, 2005
DEVELOPER "LOW BALLING"
I was asked the question the other day from a reader - "I live in a fairly new association (8 years old) and we do not have fancy amenities. I pay $175 per month for assessments. Yet the brand new development being built by the same builder across the street, with very similar structure, and very similar amenities, are being offered with assessments at $125 per month. What's up?" I answered that there could be several reasons for that. One possibility is due to what I call "developer low-balling". At least in California, there are DRE (Department of Real Estate) recommended budgets that characteristically are set too low for continued operations. The developers use those budgets to estimate expenses. Sometimes the developer will bear some of the initial operating costs (like landscaping, irrigation, insurance costs, etc.), until the project is built out. If they spend extra to keep the lawns and common areas very green during the sales period, and pay the costs, homeowners are hit with an increase immediately when the last units are sold. Sometimes the owners cannot afford to keep all of the irrigated landscape green and have to make changes to plants that need less water. Sometimes components are not listed on the original reserve study because they either were not built out when the study was first done or were added later to make an area look nicer, and these things were not apparent when the preparer did his or her inspection. So, it is very common for assessments to increase considerably (there are legal limits of course) in the first 2 or 3 years after the developer relinquishes control. Illegal?? Not really. Misleading - yes, quite. But it can be a combination of things, some within the developer's control, some not. It's kinda like when you sign a contract for a remodel job and the costs just escalate - seemingly for no good reason. (I always secretly estimate for myself another 25% add on to any bid for any work on the house.) That's life in the world of property ownership.
Posted by Beth Grimm at June 24, 2005 9:45 AM