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July 11, 2007
PREPARE TO BEWARE - Are HOA Transfer Fees Onerous ... Or Not?
You are trying to buy a home in a common interest development (condo, townhome, or single family home with shared amenities or common areas), either your first home, primary, vacation home or rental, or investment property. If you (the buyer) do not ask for an estimate of “good faith” settlement costs at the earliest possible moment from your lender or broker, you may get the surprise of your life down the road a ways. If you are the buyer, or the person refinancing, and you scraped together the down payment, and think all additional costs can be “wrapped into” the loan and amortized over 30 years, think again. And if you are the seller calculating the firm “bottom line”, and subtract the commission only from the amount of proceeds needed to get there, you may end up very disappointed. Alternatively, if you overestimate costs, you are more likely to be happy when the transaction is completed, as you will then come out better than you thought. It's better to feel good than be enraged and in the mood to sue, as was the case of the Browns and the Berrymans mentioned in the blog from July 10.
It is the seller's responsibility to get many disclosures and documents to the buyer, and at seller's cost. A seller can ask the HOA to do it. This saves the seller the work in getting together the documents and the risk in missing some important required document. Using title companies and lenders that offer professional services in a sale closing is advantageous for those reasons. Lenders and title companies take steps to obtain the documents to be placed in escrow and require buyer to initial or sign off on the documents in escrow, so do not think you can avoid having to pay the HOA fees if you copy your own set of documents you got when you purchased and hand them over to buyer.
Fees, fees, and more fees, count on it. Sellers of condos generally have to pay the commission and some closing costs, often the home warranty cost, and the HOA fees for documents and transfer of title. Purchasers generally have to pay closing costs. This varies somewhat even within different jurisdictions in California, but the truth remains, the fees add up. Seller and buyer pay alot for fees. However, in the overall scheme of things, the HOA transfer-related fees are a relatively insignificant expense compared to other costs. Purchasers pay about 8-10 times more for "closing costs" (which include lender and title fees) than the seller pays for HOA fees. Don’t get me wrong, I definitely am not recommending that you avoid using professional resources like title companies to try and save money; you can get yourself into much more costly trouble by avoiding professional help.
Now, just to compare a few things. I recently had reason to examine a good faith closing estimate on a transaction where a piece of property sold for approximately $400,000, with financing of approximately $300,000. These were the fees that were charged (not including the broker fee, appraisal, and the 2 title insurance policies that were required):
LENDER FEES: Tax service $68, credit report $12.50, processing fee to broker $695, processing fee to lender $575, cost of insurance certificate $125. ESCROW FEES: messenger courier $85, email docs to title $50, loan tie in $150, escrow fee $359.50, notary fee $80.00, recording fee $80, home warranty fee to need demand $130 (now mind you, the buyer is not paying for the home warranty - the seller is, but the cost charged to “need demand” is $130 and the policy itself only costs $319).
So there you have it - approximately $2500 in costs not counting points, broker fees, appraisals, warranties and title insurance policies. These costs can easily add $5000-$10,000 or more to your costs depending on the value of the property you are purchasing.
$225-$250, the average cost of the fees related to transferring ownership information within the association, which does require administrative time and work, does not sound so bad anymore, does it? It’s all relative to your mindset and expectations. Maybe it would be a good idea to adjust those accordingly.
Posted by Beth Grimm at July 11, 2007 9:17 PM