ASSOSIATION BUY IN

Started by JohnC46 • 26 replies • 325 views

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JohnC46 (South Carolina)
Posts: 14,265

Posted:

We are considering that when one buys a home in our association they pay the association a buy-in fee above and beyond such sale price. I feel a fair price would be a % of the sale price or an amount of monthly dues. This is open for discussion. We are small patio home with no amenities and our dues ae=\re $100 per month and not s
an issue.

Yes it would become a negotiating point between the seller and the buyer that is not the the associations issue as the association would be paid.

Does you association have such a plan in place how does it work?

Thanks

KerryL1 (California)
Posts: 14,550

Posted:

I'm glad JohnC asked this question. I've seen a few references to HOAs that charge a certain fee to new buyers that to goes into reserves. Also would like to hear what a reasonable charge would be. A % of the sales-price? Various names these fees?

SheliaH (Indiana)
Posts: 6,964

Posted:

We don't have one, but I think it's a good idea (our annual meeting is coming up in two weeks and I may suggest the board look into this).

In some communities, these are called transfer fees and the money goes into reserves, which I think is the best reason to have them. As to what's reasonable, that's subjective and depends on who you ask, but I would think 1% of the sales price or the total amount of assessments for the year ($1200 in your case) would be a place to start.

This is something that may also require your documents to be updated to allow these, so ask your association attorney to have a look at them to see if this is something that can be done via board resolution or require homeowners to approve an amendment to the Bylaws or CCRs. If amending the documents is required, you'll need to poll the homeowners about this - some may be ok with it, while others may squawk because they think the fee might discourage sales.

You need to be clear as to why this fee is necessary - you don't have any amenities, but if you're responsible for sidewalks, streets, landscaping, etc. and your reserves are underfunded (like most are), this is one way to help bump them up and perhaps avoid special assessments.

You could also talk to local realtors or your property management company (if you have one) and find out if there are communities similar to yours that have these fees and talk to their board about their experiences as well as the amount paid - that could give you some ideas on how yours could be computed.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

CathyA3 (Ohio)
Posts: 6,299

Posted:

We're condos, and the "buy in" fee is called a "capital contribution" fee. The amount is two months' worth of the monthly amount assessed against the unit.

Importantly, *this amount is set in our Declaration/CC&Rs*. It's not negotiable by buyers. At best, the membership would have to amend the CC&Rs, which is a time-consuming process and it costs money. And the membership would have no incentive to do this - why should they spend money so that new buyers don't have to pay for something that they did when they bought their homes? You could also make the case that it would be discriminatory since it favors new buyers over existing members. Since our state treats this fee as an assessment, all members are assessed according to par value/percentage of ownership - so discriminatory assessments are absolutely off the table.

So, TL/DR: if this fee is set by the CC&Rs, it's not negotiable. If it's set by state law, it is also not negotiable and would have to be changed by the lawmakers. New buyers also have few allies in this fight.

(And personal opinion: if you're having qualms about a charge that can be a small fraction of your closing costs, you may want to take a hard look at the true cost of home ownership. Realtors, sellers, and new home builders often paint rosy pictures of Carefee! HOA! Living! Reality is different. Houses fall apart. If they're not maintained well, they fall apart faster. A friend once referred to a home as a black box you keep throwing money into. She was 100% correct.)

TerriS6 (California)
Posts: 3,284

Posted:

When you have a bad board that squanders assessments, it's a crime to give them more money to waste.

DouglasK1 (Florida)
Posts: 2,046

Posted:

Just personal opinion but unless there are costs to the association related to a property changing ownership I don't think associations should charge a fee. It is just another junk fee that makes homeownership more difficult for people to achieve.

Set the regular dues to an amount that will adequately fund the association (including reserves) and don't rely un an irregular funding source that puts more of the burden on newcomers.

Escaped former treasurer and director of a self managed association.

TimB4 (Tennessee)
Posts: 21,062

Posted:

We were told by an attorney that any buy-in fee, disclosure fee, transfer fees, etc. needed to be in CC&Rs or applicable laws. Otherwise, the Association could not collect such fees.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Quote:

Posted By DouglasK1 on 02/01/2024 7:05 AM
Just personal opinion but unless there are costs to the association related to a property changing ownership I don't think associations should charge a fee. It is just another junk fee that makes homeownership more difficult for people to achieve.

Set the regular dues to an amount that will adequately fund the association (including reserves) and don't rely un an irregular funding source that puts more of the burden on newcomers.

The thing is: the association's expenses are what they are. It doesn't matter what label you put on the money that owners pay, it all comes from the same source (ie, the homeowners). If there's less money coming into the association's coffers via transfer fees or whatever you call them, then more has to come in via regular assessments. The only thing that would change this is if the transfer fees ended up in the PM's coffers instead - although if the PM is making less money this way, they'll make it up to some extent with what they charge the association via their annual contract.

It all comes out of homeowners' pockets, one way or the other.

I have no problem with charging buyers a *reasonable* fee for costs the association may incur as a result of the transfer of ownership. These costs do exist, the current membership paid when they bought their homes. As long as all owners are treated consistently and nobody is treating these fees as a cash cow (and yes, I know, we've heard stories), this should be fine. What would not be fine is suddenly deciding that the fee will be eliminated for new buyers and that current members, who paid this fee in the past, have to make up the shortfall. This clearly favors new buyers at the expense of the existing membership - what incentive would the current membership have to go along with this?

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By JohnC46 on 01/31/2024 8:37 PM
We are considering that when one buys a home in our association they pay the association a buy-in fee above and beyond such sale price. I feel a fair price would be a % of the sale price or an amount of monthly dues. This is open for discussion. We are small patio home with no amenities and our dues ae=\re $100 per month and not s
an issue.

What is going on that has caused this interest in imposing a "capital contribution fee"? This should be distinguished from a general "transfer fee." The wording used can matter a great deal, depending on one's state. South Carolina law does indeed have a lot to say about this. See https://blog.lawfirmcarolinas.com/can-my-south-carolina-hoa-or-condominium-charge-a-transfer-fee. From my reading over the years, I think the latter organizes things well.

What is the status of your reserves?

Per the covenants, my last condo imposed two months of dues on buyers, paid at closing, and required to be deposited in the reserve account. The fee was disclosed well before closing in the required disclosure paperwork. Buyer and seller could negotiate the purchase price accordingly.

MarkM19 (Texas)
Posts: 1,459

Posted:

JohnC,
Our community charges a $300.00 fee that is called Capitol Improvement Fee. It is not a negotiable fee and goes straight to the HOA. When I was elected to the board many years ago these fees were going into the reserves. We were also contributing to our reserves the total amount required by our last reserve study. This had our reserves at a healthy 135%. I worked with the board to have these fees moved into a separate account called Capitol Improvement account. We now use these fees for additional items that the community has requested. We added additions to our playgrounds, additional Shade structures in our pool area and are in the process of getting a pickleball court added.

These Funds can add up quickly in a community of our size (1450 SFHs) when the market was hot which now it is not, we had 35 to 50 closings per month. My view is when a new owner buys into a community they are becoming a member, and they should pay for some of the great things that made them want to buy into our HOA. I think this fee should be reasonable and a small based on other closing fees. I personally think a percentage adds too many complications to the process. In Texas home sales are not disclosed. I also think a fee of $1200 could cost the community sales if disclosed.

JoeN6 (Virginia)
Posts: 94

Posted:

We have a “ move in /out fee” ( condo) this pays for the accumulation of trash that might occur at the dumpster enclosures when a tenent moves in/out or a seller sells and moves out . When we sub metered electricity there was an electric billing fee deposit which was a handsome amount . No new owner wanted to pay for the last users possible exhorbitant electric bill which wouldn’t be sent to the unit until the seller was long gone .

15 years ago when our area had the price bubble and area homes had high turnover many hoas tried to pinch the sellers for a % of their capital gain . By the time these fees could beachhead the bubble burst. Reliance on buy in / out fees to fund a reserve won’t provide during slow buyer markets .

LoriM15 (Florida)
Posts: 1,009

Posted:

We charge a $2500 capital contribution fee when purchasing in our community. The only exception is if you sold a property you owned in the community in the previous 90 days - so those people who may be moving from one property to the next.

Why do we charge a capital contribution fee? Because we can, and we use that cash for improvements to the property. In reality, we don't keep those funds in a separate account but we can easily trace the amounts that were contributed each year. Every dollar that comes in with new owners is one less dollar that has to paid by existing owners.

In the other community where I own a condo, they keep the capital contributions in a separate account. They recently used part of the fund to help pay for an upgrade to one of the facilities, and they were planning on using the rest of it to pay for new pickleball courts until that illegal move (adding more land to the community without a vote of the members) got shut down.

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By MarkM19 on 02/01/2024 8:08 AM
We now use these fees for additional items that the community has requested. We added additions to our playgrounds, additional Shade structures in our pool area and are in the process of getting a pickleball court added.

I wonder if owners there were aware that instead of adding these things, instead their assessment could have been reduced.

I continue to have concerns about the legality of adding certain amenities. When there's that much extra money floating around, I wonder about whether the board was budgeting and setting the assessment properly in the first place.

This is a "just sayin'." I do not want boards to get into the habit of thinking "extra money" at the end of the year means they should go spend it on new amenities as opposed to reducing the assessment for the following year.

MarkM19 (Texas)
Posts: 1,459

Posted:

EllN,
The only push back I would say is home sales very based on many things that are out of boards control. Interest rates being the main one but Seller's expectations, job changes and of course jobs lost. This year I feel we will be lucky to see 10 to 15 homes this year. I personally would never be a part of rebates to owners based on the number of homes sold.

So many things go into the annual budget and none of those things are going down. Luckily, we have large CDs that are all getting nearly 5% interest which is helping with the increases. We are very fortunate that our dues have been the same for the 6 years I have been on this board. That may change in 2025 but we are constantly looking at how we can do everything we can to minimize this.

AidylP1 (California)
Posts: 108

Posted:

Quote:

Posted By TimB4 on 02/01/2024 7:27 AM
We were told by an attorney that any buy-in fee, disclosure fee, transfer fees, etc. needed to be in CC&Rs or applicable laws. Otherwise, the Association could not collect such fees.

I agree with Tim unless the fee is spelled out in the CCRs. the answer is NO.

DouglasK1 (Florida)
Posts: 2,046

Posted:

Quote:

Posted By CathyA3 on 02/01/2024 7:59 AM

The thing is: the association's expenses are what they are.
Of course, so create the budget and set the annual assessment to cover that

It doesn't matter what label you put on the money that owners pay, it all comes from the same source (ie, the homeowners). If there's less money coming into the association's coffers via transfer fees or whatever you call them, then more has to come in via regular assessments.
Right, for most associations all income comes from owners, and generally by equal measure (some condos with square footage based assessments differ), I just think everybody should pay equally.

The only thing that would change this is if the transfer fees ended up in the PM's coffers instead - although if the PM is making less money this way, they'll make it up to some extent with what they charge the association via their annual contract.

It all comes out of homeowners' pockets, one way or the other.

Obviously, and IMO, equally. Not newcomers getting taken advantage of by existing owners

I have no problem with charging buyers a *reasonable* fee for costs the association may incur as a result of the transfer of ownership. These costs do exist, the current membership paid when they bought their homes. As long as all owners are treated consistently and nobody is treating these fees as a cash cow (and yes, I know, we've heard stories), this should be fine. What would not be fine is suddenly deciding that the fee will be eliminated for new buyers and that current members, who paid this fee in the past, have to make up the shortfall. This clearly favors new buyers at the expense of the existing membership - what incentive would the current membership have to go along with this?

I see the point of existing owners who already paid a buy in fee if it is eliminated, but the OP is about creating one that doesn't already exist.

Escaped former treasurer and director of a self managed association.

LetA (Nevada)
Posts: 2,679

Posted:

For Condos what Cathy says makes sense. When I hear fee fee fee fee fee fee fee I want to roll my eyes and scream sometimes.
Something I've learned a long time ago, people want to feel and see value. Changing a fee just for the sake of charging a
fee is ridiculous. It's like the car dealers here in Nevada, They charge a dealer doc fee anywhere from $399 to a thousand or more
dollars. What do you get for that dealer doc fee? Absolutely nothing. You then get individually charged for the documents like title
and registration "30 day tag".

Condos are a different animal because of the routine maintenance condos require. I would certainly hope that any HOA that charges
whatever fee you call it, you should include gate remotes, transponders, and parking decals, permits included with the initiation fee and not
change them separately.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

In talking to my BOD of five, three are for doing it, one is for not doing it, one is undecided. I was for 6 months of dues ($600.00) but we are now looking at a Capital Improvement Fee of three months of dues ($300.00) to be paid by the buyer. Off to our lawyer to find out legally/properly how to do such

I understand in SC you can implement such but it is all in how you "word/call" it.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

We thought about this at one time ourselves. It quickly got voted down. Especially when your HOA is in the business of attracting buyers. How does it read they have to pay additional fees when they don't at another home?

If your HOA can't afford things it needs, it should be looking within itself to raise the money not out. (Unless bank loan). I would take this as a sign your dues are too low to support the HOA needs.

Former HOA President

MarkM19 (Texas)
Posts: 1,459

Posted:

John,
I agree with where you are going with this fee.

When I got on our board over 6 years ago the community was still being built our and as a board member, I think I may have heard every complaint on the books. Not once have I heard of anyone complaining about this Capital Improvement assessment. During this time, we have had over 600 homes be built and sold in the HOA.

In my opinion the only hurdle you may face is what do we get for that fee? Since you mention you have no amenities this may come up. I will have a good answer for that if it happens. I think this is something like an initiation fee that is paid when you join a club.

TerriS6 (California)
Posts: 3,284

Posted:

Quote:

Posted By MarkM19 on 02/02/2024 4:50 AM
John,
I agree with where you are going with this fee.

When I got on our board over 6 years ago the community was still being built our and as a board member, I think I may have heard every complaint on the books. Not once have I heard of anyone complaining about this Capital Improvement assessment. During this time, we have had over 600 homes be built and sold in the HOA.

In my opinion the only hurdle you may face is what do we get for that fee? Since you mention you have no amenities this may come up. I will have a good answer for that if it happens. I think this is something like an initiation fee that is paid when you join a club.

Joining a club is voluntary, and you know what you're getting in return.

MarkM19 (Texas)
Posts: 1,459

Posted:

Terri,
Buying a Home in a HOA is also voluntary. When buying a Home in a HOA you should also know what you are getting into. If a fee of $300.00 makes you take the time to realize that an HOA has a separate set of rules that owners should be aware of it would be a positive thing.

TerriS6 (California)
Posts: 3,284

Posted:

Quote:

Posted By MarkM19 on 02/02/2024 6:15 AM
Terri,
Buying a Home in a HOA is also voluntary. When buying a Home in a HOA you should also know what you are getting into. If a fee of $300.00 makes you take the time to realize that an HOA has a separate set of rules that owners should be aware of it would be a positive thing.

Becoming a member in the HOA is not voluntary. It is completely separate from the home purchase,

TerriS6 (California)
Posts: 3,284

Posted:

You don't have to sell your house to resign from the tennis club.

MarkM19 (Texas)
Posts: 1,459

Posted:

Terri,
You are correct you cannot resign from an HOA. You can choose not to buy into a HOA. If this fee is implemented it would be on your closing documents. I know that is a little late for most first-time buyers who just can't wait to get the keys to the home they are purchasing. In my opinion a good realtor should inform the potential buyer of the HOA dues, rules and extra fees associated with this home. I know most do not want to risk a sale by disclosing any negatives of a home. I also think this could be an incentive to buying into this HOA. If new owners are paying this fee existing owners will not be subsidizing new owners who may not know or be willing to follow the rules of the HOA.

Once again, I want to say that with over 600 homes sold during my time on this board, we have received Zero complaints about our $300.00 fee. I am not sure if other HOAs in our City also have this fee, but most developers tend to copy what others are doing in hot areas.

TerriS6 (California)
Posts: 3,284

Posted:

As long is there is recourse for homeowners if a board can't justify the charge or misspends the funds. In CA an association has to justify an assessment/charge, it has to be spent during the period for which it was assessed, and directors are fiduciaries. Otherwise, it is just more 'tax and spend.'

TerriS6 (California)
Posts: 3,284

Posted:

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