Use of HOA and non-HOA comparable

[Fresh Start]

There seems to be a trend in some newer neighborhoods where HOA and non-HOA newer construction is side by side. It's the second time this month I've run into a case like this, where all things being equal between the sales, some have HOA and others do not and all within blocks of each other.
The subject immediate neighborhood is mostly Q3 homes in the range of 1 mil - 1.5 mil, surrounded by parks and green space. Recent sales are very limited as well as active and pending listings. The subject has no HOA, a few of the recent sales and active listings do have HOA. After speaking to the agents, the HOA fee is $125/per month for the closed sales. With this, they get Free regularly scheduled FRONT SIDE LANDSCAPING SERVICE, upkeep of the general area, access to private community pool, and tennis courts. This is not a gated community, but that seems to be a pretty sweet deal nonetheless. Both the homes with the HOA and without are selling in the same price range and aside from the HOA, they are very comparable in all terms, including zoning.
Now I normally try and keep the two (HOA and non-HOA) sales from mixing in the same report, but I'm considering using the HOA sales as comparable's, and I'll explain my reasoning and hopefully hear what other's think.

As mentioned, aside from the HOA and the amenities, the subject and all sales, (HOA and non-HOA) are very similar in all terms of comparison. The vast majority of the homes in the immediate area are well cared for and maintained. landscaping fee's in the area for single homes run from $100-$150/per month. Now if it's typical to spend this much per month for landscaping, then the HOA and non-HOA are not that different. However, the HOA homes are getting all the other bonuses; ie. community pool, tennis courts. At this point, it seems things are looking more similar, with the HOA homes possibly having and edge with the $125 fee. BUT the biggest obstacle I see is about CHOICE, the HOA homes, the HOA association is mandatory. Even though the non-HOA homes are probably spending about the same amount monthly for landscaping, they are free to choose not to do so if they wish. Is this enough to make them separate or not? It's hard to quantify CHOICE, mathematically, the upkeep boils down, but it's hard to boil down freedom of choice.

Would be great to hear others opinions on this, keep in mind, this is an area with very limited sales and listings.

 

[Terrel L. Shields]

So what is the tangible benefits (well, perhaps intangible) benefits of the HOA? Is it not expressed as the HOA fee? If so, then why not treat it as 'rent'? So if the home would rent for $3000 a month and sell for $1,000,000 then the GRM is 333.3, right? OK, if $125 represents the value of the HOA, then the HOA contributes 333 x 125 or ~$42,000, of course the problem is finding rentals for million dollar properties.

 

[Fresh Start]

So what is the tangible benefits (well, perhaps intangible) benefits of the HOA? Is it not expressed as the HOA fee? If so, then why not treat it as 'rent'? So if the home would rent for $3000 a month and sell for $1,000,000 then the GRM is 333.3, right? OK, if $125 represents the value of the HOA, then the HOA contributes 333 x 125 or ~$42,000, of course the problem is finding rentals for million dollar properties.

Thanks for the response Terrel, I think I see where you're going with that thought process. The only issue I see possibly is that the tangible or intangible benefit of the HOA expressed as a fee results in almost the same benefit for both the HOA and non-HOA home, if you consider the expression of the benefit ($$ amount) being quite similar. The only difference is one has an option to pay the fee and the other does not. My question is, specifically in this scenario, does the fact that one is obligatory and one is not as far as the fee is concerned (since they are both about the same) to maintain the landscaping, cause them not to be comparables?

 

[Fernando]

I would use first 3 comps with similar HOA fees and if you want, 4th comp with no HOA fees.
Some HOA fees are low like under $50/mo which I think is minor especially for homes over $1,000,000. Such low HOA fees have few common amenities.
Then again, some people refuse to pay any HOA fees.

 

[shrubberyvaluation]

Thanks for the response Terrel, I think I see where you're going with that thought process. The only issue I see possibly is that the tangible or intangible benefit of the HOA expressed as a fee results in almost the same benefit for both the HOA and non-HOA home, if you consider the expression of the benefit ($$ amount) being quite similar. The only difference is one has an option to pay the fee and the other does not. My question is, specifically in this scenario, does the fact that one is obligatory and one is not as far as the fee is concerned (since they are both about the same) to maintain the landscaping, cause them not to be comparables?

You seem to be overthinking this. Would a typical buyer in your market consider either or and how much different does the market value the differences if so.

 

[Terrel L. Shields]

There is a value to the HOA fees although I personally don't regard them as favorable over not dealing with the common problems of an HOA. But the last HOA I dealt with was $210/month. But it was a gated community, it had access to tennis, pool, and an 18 hole golf course as well as slips available for boating. Those amenities are "off site" if you will but do calculate into the land value if no where else. Lots here were about $200k each, whereas other nearby non-HOA lots near the lake run perhaps $80-100k. Clearly, the buyers look at the amenities. In the sale I appraised, the buyer was selling another property in a smaller HOA on the lake and buying this one because of the access to golfing. And his purchase was designed with a golf cart garage which they wanted.

 

[Sadie]

There seems to be a trend in some newer neighborhoods where HOA and non-HOA newer construction is side by side. It's the second time this month I've run into a case like this, where all things being equal between the sales, some have HOA and others do not and all within blocks of each other.
The subject immediate neighborhood is mostly Q3 homes in the range of 1 mil - 1.5 mil, surrounded by parks and green space. Recent sales are very limited as well as active and pending listings. The subject has no HOA, a few of the recent sales and active listings do have HOA. After speaking to the agents, the HOA fee is $125/per month for the closed sales. With this, they get Free regularly scheduled FRONT SIDE LANDSCAPING SERVICE, upkeep of the general area, access to private community pool, and tennis courts. This is not a gated community, but that seems to be a pretty sweet deal nonetheless. Both the homes with the HOA and without are selling in the same price range and aside from the HOA, they are very comparable in all terms, including zoning.
Now I normally try and keep the two (HOA and non-HOA) sales from mixing in the same report, but I'm considering using the HOA sales as comparable's, and I'll explain my reasoning and hopefully hear what other's think.

As mentioned, aside from the HOA and the amenities, the subject and all sales, (HOA and non-HOA) are very similar in all terms of comparison. The vast majority of the homes in the immediate area are well cared for and maintained. landscaping fee's in the area for single homes run from $100-$150/per month. Now if it's typical to spend this much per month for landscaping, then the HOA and non-HOA are not that different. However, the HOA homes are getting all the other bonuses; ie. community pool, tennis courts. At this point, it seems things are looking more similar, with the HOA homes possibly having and edge with the $125 fee. BUT the biggest obstacle I see is about CHOICE, the HOA homes, the HOA association is mandatory. Even though the non-HOA homes are probably spending about the same amount monthly for landscaping, they are free to choose not to do so if they wish. Is this enough to make them separate or not? It's hard to quantify CHOICE, mathematically, the upkeep boils down, but it's hard to boil down freedom of choice.

Would be great to hear others opinions on this, keep in mind, this is an area with very limited sales and listings.

IF there is a difference in the sales prices that cannot be related to any other amenity, then a location adjustment would probably be warranted. Ugh, why do developers do this? It could be as new construction there is not difference, but down the road, there is.

 

[Sadie]

I think the access to the pool and tennis courts is a pretty big deal. But again why do this? It creates a neighborhood of haves and have nots.

 

[Mark K]

Both the homes with the HOA and without are selling in the same price range and aside from the HOA, they are very comparable in all terms, including zoning.

I think this is your answer. Selling for the same $$....The buyers must think its an equitable arrangement.

Re; your question about choice is an interesting one but if the market doesn't seem to care, why should we as appraisers.

Take the Joe Friday approach..."Just the facts, Ma'am".

We have a similar situation in this area. One area has a minimal HOA fee of $75/quarter for common area maintenance, signs, landscaping on common areas, etc. A neighborhood with very similar homes has a mandatory $150/month fee but it also covers all lawn mowing, snow removal, clubhouse facility, and other minor things. Both areas sell for about the same $$ and I've used comps interchangeably between the two. In the beginning of my appraisal business I tried to analyze the situation but eventually decided that it was nothing more than a distinction without a real difference as far as buyers are concerned.

 

[J Grant]

. Both the homes with the HOA and without are selling in the same price range and aside from the HOA, they are very comparable in all terms, including zoning.

There is your answer...if the sales are similar prices, then the HOA fee has no or minimal impact on price, and it would be incorrect to do a rote formula about it. If a buyer would consider either one as a substitute for teach other, then either one could be a comp, and simply explain why In general preferable to use HOA sales for like but the market is not always so neat and tidy.