After showing a bunch of condos over the past few weeks, I wanted to see how HOA dues affect the price per square foot and if I could find a correlation between the two. Because a buyer that can afford a $400,000 condo would have a hard time justifying HOA dues of $800 per month, but would have no problem paying $200 per month.
I exported data for 2015 in the city of Denver. Then I created and calculated an “HOA Factor”. This factor would represent how the HOA dues relate to a sale price and therefore the price per square foot.
The HOA factor is basically the relationship of sale price to HOA dues:
Price = $400,000, Dues = $200
HOA Factor = 0.5
Price = $400,000, Dues = $400
HOA Factor = 1.0
Price = $400,000, Dues = $800
HOA Factor = 2.0
I started with a sample of condos with a similar size range – 1,250 to 1,499 square feet – and graphed how the sale price per sq. ft. changed when the HOA Factor changed.
The data is clear: an HOA factor of 2.0+ has condos with an average price per sq. ft. of $133, whereas an HOA factor below .75 generates an average price per sq. ft. almost 3 times higher.
I repeated the above with 7 sq. ft. ranges and all turned out about the same – in 31 out of 35 examples, the price per sq. ft. increased as the HOA factor decreased.
What does this mean?
- Look at the HOA factor if you are considering a condo purchase. It is most likely affecting the price you are paying, and will also affect the future sale price.
- A higher HOA factor could result in lower appreciation and a harder re-sale; a lower HOA factor could do the opposite.
- If you live in a condo building, then consider trying to reduce the HOA dues. This could affect your future sale price and make for an easier re-sale – not just for you, but for all your neighbors as well.