Wednesday, October 29, 2008

Is $700 in HOA Fees "Cheap"? Let's Discuss

An anonymous reader left this comment on the West Ocean Two Auction Results post:

I guess you must have never owned a nice home. I easily payed [SIC] between $1000 to $1500 per month to maintain my home which included lawn service, pool service, utilities (which should be very minimal in a condo) and ongoing maintenance. Therefore $700 per month seems pretty cheap to have all this taken care of for you.

Okay, I'll bite.

First, why would start off your comment in such a condescending, dismissive tone? I think your perspective is an interesting one, and one that could have started a worthwhile conversation about the merits and disadvantages of high HOA fees. But yikes.

You are correct in your guess that I "have never owned a nice home." And as you've established, you clearly have. And your home was SO nice that you "payed" $1,500 a month to maintain it. We are all very impressed.

And although I've never owned a "nice" home, I've lived in plenty of them (the one I grew up in and rental situations) and I understand that there are significant maintenance costs involved (especially with a pool). This is why I always tell my readers to factor in those costs when calculating a housing budget. My basic calculations do not factor in broken water heaters.

I welcome your unique perspective, especially because there are certainly some advantages to HOAs (insurance included, some utilities, some basic repairs covered) but I strongly disagree with your claim that $700 per month in HOA fees is "cheap." I think that is utter nonsense and you have failed to convince me otherwise. When compared to a large 2,500 square foot house with a rock pool and 1/4 an acre of lawn, sure, I guess $700 a month for a condo seems like a smoking hot deal. But those aren't legitimate comparisons.

This is because lawn service, pool service, utilities and ongoing maintenance costs in condos are split by hundreds of tenants, making a paltry 40% - 50% discount from the maintenance costs of a large, private, detached home with a pool and yards a total, unabashed rip off. Yes, there are more individual units to maintain in a condo complex, but with new construction and a collective HOA system, costs should be much, much lower to make any kind of rational sense for a homeowner.

Second, without knowing more about your "nice" home, I'll have to assume that with an $18,000 annual maintenance bill, it was quite large.

Condos at the West Ocean Two, as you know, are not.

They are about a third of the size of a "nice" home (with shared walls and no yard to boot). Given that fact alone, condos SHOULD have lower operating and maintenance costs! Much lower. But $700 for a condo compared to $1,000 for a home ain't what I consider "much lower."

There is no doubt pools are expensive for homeowners to heat and maintain. For argument's sake, let's say you plunked down $600 per month maintaining your pool. Do condominium pools cost more to maintain than similarly sized home pools? No, they do not.

Plus, everybody in the building pays into the HOA, meaning that $600 a month for ONE POOL is split between hundreds of people. Your monthly share for the pool should be about $3. The HOA is probably charging you $150.

Third, each condo does not have an individual yard like a house does, so the primary landscaping costs for a building are minimal. Even if groundskeeping cost $2,000 per month for the entire building, again, that's split between several hundred people. Your share is about $10 a month. The HOA is probably charging you $350.

I agree with you that condo utilities are "very minimal," but your argument is that utilities are an additional cost in a home, but are "taken care of" in a condo. If all utilities were, in fact, included in the HOA, I might buy your premise. But they are not.

Some of the nicer places do include WiFi Internet now. But WiFi costs $30 a month--how much is your HOA charging? $80? My point is, I'm not quite sure how paying utilities--regardless of how minimal--ON TOP of exorbitant HOA fees is a good deal.

Here's a little perspective: Assuming 200 people live in a building, and the average HOA payment is $800 (the range at West Ocean Two is $700-$900), that's $160,000 per month, or $1,920,000 per year.

You're telling me with a straight face that it costs 1.92 million per year to heat a pool, mow the lawn, and wax the lobby floors? Really? Nobody's getting fleeced here?

I mean, if $800 per tenant was the bare minimum West Ocean Two needed to keep the place running, then how do buildings with older construction (ostensibly requiring more repairs) do it on a paltry $300 a month?

Because that's all it costs.

You see, maintenance costs should be significantly cheaper in a high density building than a home. I mean, that's part of the allure of condo living: avoiding the high costs and hassles associated with home maintenance. I get that, and I see why some believe HOA costs are worth it to live a low-maintenance, "lock-and-walk" lifestyle.

But slapping down $700-$900, considering you still have to pay utilities, share a pool with hundreds of people, and have no valet or maid service included, and still have to pay for any upgrades, is hardly avoiding the high costs and hassles associated with home maintenance.

Frankly, I think people pay the $700 to $900 a month at West Ocean Two to feel cool. Plain and simple. I mean isn't coolness what consumerism is all about?

People buy Porsches and brag to their friends that an oil change set them back $325. Overpaying for something so rudimentary has become a sort of status symbol, a way to feel cool when coolness for the little people is just a credit card swipe away. These chronic overpayers feel cool to have such expensive (albeit foolish) tastes, and feel even cooler when they can criticize others for not having had the pleasure of such fine things.

You know, kind of like someone posting a comment about their house being so nice it set them back $1,500 a month just to keep the lights on.


  1. Good post. I would love to buy a condo but the fees are ridiculous--ESPECIALLY when so many of the condos for sale are conversions. No parking, no pool, no clubhouse, no one to sign for my FedEX, no grass for my tiny decorative dog to poop on and they still want 300/month. Forget it. I'll wait until I can afford a house.

  2. LBisoverpriced,

    That's a good point. At least West Ocean Two has SOME services! Most of the condos I look at provide a few potted plants in the lobby and plastic lawn chairs near the community BBQ and demand $300+ per month.

    Where does all that money go ? To unit #213's garbage disposal?

    There's a reason condos have always been cheaper than houses, but ridiculous HOA fees have essentially eliminated that pricing advantage with very little return.

  3. Things like this are so discouraging!!! The fact that people are STILL bragging about this sort of stupidity tells me that we are YEARS from the bottom, and that means that I have to wait...and wait...
    And add to that some more sad news...Gosh I hate to say this...okay I'll just spit it out: You remember that ridiculous house from your "see no reality" post? 655 Ultimo? sold. And you won't believe what that idiot got for it. Take a look at the socalmls, cause its not on redfin yet. Those imbeciles who bought it overpayed all of the estimates by 200k. I'm going to drive by later to see if I can get a peek at what the truly stupid look like. I can imagine pulling up and seeing some wealthy Hong Kong executive unloading cash piles from a moving van. Okay, there's my rant.
    On a lighter note, check out the cutest little postage stamp in Long Beach:
    They must be so clever! How could they possibly fit 3 bedrooms AND a bathroom in there???? Neat-o!

  4. oh, also, I know you are always on the lookout for fun properties to comment on. Maybe you will enjoy this one:

  5. While I agree the HOA dues at West Ocean are high for the area, there are a few unique factors associated with these two buildings which potentially contribute to this discrepancy: 1. 5 high speed elevators; 2. Staff- 2 fully staffed 24 hour security desks, full time building engineer, full time onsite property manager, building engineer, custodial staff (6+ employees, not all full time); 3. Window washing (should be done multiple times per year); 4. Common area HVAC and electrical costs (2 gyms, banquet hall, 2 conference rooms, media room, billiards room guest suite, hallways, offices, etc.; 5. Increased property damage and liability insurance costs associated with high rise construction. There are probably more that I could list, but I guess my point is that high rise buildings have inherently higher maintenance costs than low rise or mid-rise structures of comparable square footage. Realistically, the maintenance costs for this type of building are more accurately compared to a commercial high rise (minus the costs associated with "exclusive use" areas). I can’t say there are any residential buildings in the general area to compare to West Ocean with respect to HOAs, since the VUE in San Pedro isn’t yet certified for occupancy.

  6. Michael,

    Thank you for your post. See, Anonymous, THAT'S how you present a differing viewpoint.

    That was a rational, reasoned, convincing justification for West Ocean Two's comparatively high HOA fees.

    When you include all of the ancillary costs you mentioned, I can see how that would add up. I’m not saying anyone’s getting rich from HOAs, just that actual value gained is way off the mark.

    I know some people that like paying high HOA fees because they feel like they have no worries, no lawn mowers, etc. But our anonymous poster's position was that paying $700-$900 ensured everything is "taken care of for you," a point with which I disagreed, and disproved. There ARE still costs on top of HOA fees, not to mention special assessments, which hardly makes an extra $324,000 over the life of the loan "cheap."

    I think Anonymous would agree with this: "Cheap" is in the eye of the beholder. If an individual feels that he/she is getting their money's worth, then how can I begrudge them that?

    It's their money, afterall, and just like the $325 oil change guy, they can do whatever they want even if I think it’s foolish. Frankly, I believe it would be a considerable challenge to actually get your money's worth every month.

    I suppose if they use the pool every weekend, the gym four days a week, play billiards often, use the conference room weekly, enjoy their ocean views (also worth some money) etc., can get the media room before any of the other 200 residents claim it, then they are probably getting bang for their buck. But who really does that?

    But, again, if someone FEELS there is value in $900 a month, then I shouldn't talk trash.

    So, Michael, thanks for posting such a smart comment. I was hoping to have this very conversation.

    Also, you mentioned no nearby residential buildings compare to West Ocean, but aren't AQUA's HOA fees comparable? Look forward to your thoughts.

  7. Katy,

    That poor knife catching fool on Ultimo. However, the purchase reinforces the delusional belief that the neighborhood is above the law (of gravity). Just what we need.

    After 200+ on the market, somebody paying close to full asking sets off my fraud alarm bells. But you never know. Maybe this area really IS immune from the market crash.

    Either way, I have to congratulate the flipper on a job well done. He used top of the line materials (albeit with odd staging) and he's walking with almost $400,000 (minus rennovation costs).

    I severely underestimated the foolishness of the homebuying public.

  8. El Bee,

    Good point- I forgot about Aqua. Like a traumatic experience, as much as you try to block it from your memory, it just won’t go away.

    One difference to note about AQUA is that it contains 500+ units, whereas West Ocean contains... I'm not sure the exact number, but somewhere between 250-300 units.

    Nonetheless, seem pretty comparable. Although, I wonder if that multimillion dollar flood claim at Aqua a few years back has caused any increase in the HOA dues?

  9. Michael,

    What particularly concerns me is special assessments levied on top of HOA fees. Not everyone factors that in (and it's another example of everything NOT being "taken care of" with an HOA fee).

    My aunt and uncle live in a nice condo community in Orange County and, unlike a high-rise with only ONE roof, each unit has its own roof. When it came time to re-roof the entire community (or re-pave the driveways), for some people it meant having to TAKE OUT LOANS for the special assessment. Ouch.

  10. If you think 700+ is bad for dues at West Ocean; folks at Villa Rivera now pay 700+ after their recent upgrades and still have no AC. Their windows are paper thin and parking is on the beach. If you can afford it, West Ocean is a great place to live.

  11. Anon,

    No AC, seriously? And I thought WO2 was a gyp.

    I've consistently heard nothing but awful things about Villa Rivera. But they at least have a valet, don't they?

    Even if they did, given the issues with VR and comparable HOA, West Ocean seems to be a better alternative for the money.

  12. No valet and overflow parking is on the beach.

  13. I pay $600 a month at the Promenade Lofts. This is based on sq footage though. This seems to be a little high for the amenities we have. Don't get me wrong, I love living there. However,We do not have a pool or hot tub. We do have a community room and a gym though. Have any of you heard of a cap on HOA's when it comes to charging by the sq ft? I don't think it would be unreasonable to ask for a cap of $400 dollars on the HOA fee. Do any of you have some insight into my thoughts? I have toured the West Ocean buildings, and they have some pretty nice ameneties. I was considering proposing this to the board. Any feedback would be greatly appreciated. I would love to have some comparisons that have similar ameneties as we do that have a lower HOA fee. Thanks a lot!

  14. Excuse me? This person is delusional. The insurance factor: you think your hoa is going to come to rescue by helping you out with a disaster? Think again. They have to post a $10k deductible. This is a moot point at best. Second, HOA's are scams. The boards are always corrupt to some degree, as are property management and the lawyers that represent the hoa's. Condo ownership is stressful, fruitless, and financial suicide. Believe me, I know. Paying for someone else to harass and govern you ain't money well-spent. Most HOA boards have neglected maintenance for years, and rely upon fools like me who didn't do their due diligence to come in and bail out the boat. Everything taken care of? Like what? You can hire a gardener for $25 bucks a month in LBC. $700 for maintaining a pool that isn't even heated the whole year through? Really? And what an ass for criticizing you for not owning a home? You're brilliant for NOT being a homeowner. You didn't drink the Kool-Aid like this poor person who can't fess up that he got screwed. And i wonder what his most recent "emergency assessment" set him back? Drip by drip, he'll get bilked as long as he owns. And the kicker? If he ever plants the wrong flowers or leaves his garden hose unfurled, he'll get fined over and over until he corrects it, plus 10% every month. And heaven forfend he gets behind to the tune of $1800, because then he'll get a lein and a judgement slapped on him, and there goes his "nice home". And to make matters worse, if he has substantial equity, he's a sitting duck for the HOA attorneys chomping at the bit to acquire his property. Think I'm exaggerating? Go to one of many great blogs online regarding "deed-restricted properties". It's a dirty little real estate secret none of your real estate buddies will discuss. I can promise you that:)

  15. ohhhh, amazing!!!!