What You Need to Know When the HOA Takes Over from the Developer

This article is Part 3 in our series about Home Owners Associations (HOA’s). Part 1 was called “Meet the New Boss - Your HOA“, and Part 2 was “What You Need to Know about Your Home Owners Association“. We are grateful to Joe West, CEO of the Community Associations Network, for his assistance in preparing these articles.

As if Home Owners Associations (also called Community Associations) and condo associations didn’t have enough issues to deal with, at some point in their lives also have one colossally important matter to work on. That would be the handling of the community’s transition from Developer run to HOA managed. How that process is handled will impact the community for years and years to come.

We talked with Joe West about some of the issues to be aware of in the transition. Here is a summary of his responses:

TR: Many communities take over primary responsibility for the management of a development, presumably when all of the units are developed or and sold – correct?
Joe West: The transition from developer controlled HOA or community association is governed by documents developed by the developer. It can vary from state to state, there is nothing universal controlling. Usually it revolves around a target percentage of the units being sold.

TR: What should the association do to manage the process successfully?
Joe West: It is critically important to be smart about this transition. The first thing the association needs to do is to hire a competent attorney and an auditor who have experience in this field. This will cost money, but you have to do it.

The board and your advisors need to find out if the developer did everything they were supposed to do under the documents and state law, and didn’t do things they weren’t supposed to do
1. Violations. In many cases you will find the developer allowed violations of their own documents (precedents). I saw one developer who violated every rule on the books, including allowing two owners to build a volleyball court on the common area, which also happened to be protected wetlands. The association needs to get those issues under control fast.
2. A good audit is needed. More times than should happen, funds have been comingled and the books are not up to snuff. You have to make sure that money residents paid in for assessments didn’t go to pay for items the developer should have paid for themselves. Sometimes it is just that the developer used his trucks to plow snow and paid himself, but you need to make sure everything is documented and on the up and up. An association needs to start off on a sound financial basis.
3. Reserves. You need a professional reserve study to tell you the condition of the property’s common areas like roads and clubhouses and provide you with a plan on how you’re are going to handle the repair and replacement of these items in the future.
4. Get organized. This is so critical it’s not even funny, getting things going the right way at the beginning. Your board has to get started on the right foot, with competent people in critical positions. If there are outstanding issues, work on them right away. If you let things slide there will be nothing but hard feelings when you have to enforce them later. We often see an initial board that is passive, then an active association board comes in and cleans things up - that often leads to court troubles that could have been avoided. Errors are hard to undo, so be brave and do it right the first time.
5. Set up effective communication from the start. Effective communication and transparency with your residents is key. Get your newsletters, website, and other communication active early on. Try to keep your communications upbeat, simple and frequent. Don’t put out a newsletter that is basically a list of “Don’t do this” items

TR: How do you assess the condition and performance of most HOAs?
Joe West: Most HOAs and condo associations I see are doing a good job. You don’t hear about them because they are quietly running well - they have competent, hard-working officers who attend to their responsibilities, often with good management and other professionals (attorney, CPA, reserve analyst). Leadership is the key to success. Elect good people and you get a good association, one that’s a nice place to live – elect not-so-good people, and you get problems. Of course many associations are being hurt by delinquencies and foreclosures of their residents. They are having a hard time right now, cutting or postponing major repairs because revenue is tight, but that’s happening for people who don’t live in an association also. The key here is that if you’re looking at moving into an association, pay real close attention to their financial condition

TR: How can associations find advisors and other help.
Joe West: Organizations like ours (Community Association Network), Community Associations Institute, and HOA Talk.com are good places to start. There are several law firms in F and CA that put out great newsletters you can sign up for online. Online classes for board members are also a great idea.

TR: What is another problem you see with ineffective associations?
Joe West: Apathy is a major problem in many associations. Associations are most successful when the owners take an active interest in what’s going on and who they elect to govern their community. It doesn’t take a whole lot of time, even if you serve on the board, but it is especially important when the association is new and transitioning to owner control.

Thanks Joe, I am sure that our readers will find this very helpful!

January Real Estate Dribs and Drabs

As 2010 begins most experts predict that record numbers of foreclosures will continue. That being the case, home prices will probably go nowhere until that distressed inventory is cleaned out.

Rentals are the way to go. The Wall Street Journal reports that apartment vacancies hit a 30 year high late last year, and landlords are scrambling to fill them. Reis, Inc., a research firm, said that rents fell 3% last year, led by declines in west coast cities. Conclusion - you might be better off renting than buying. Particularly in a lot of active adult communities, there are plenty of places to rent.

Miami Dade County just went online with foreclosure auctions. In a somewhat amazing step, Miami-Dade county has started online auctions as a way to clear out a mountain of foreclosed properties. Auctions are risky, but they can offer bargains. The County is hoping to attract better prices as more people have access to information about these homes.

Walkability is better according the NY Times article “Street Corners vs. Cul-de-Sacs“. The Walk Score from C.E.O.’s for Cities, rates the number of destinations that are within walking distance of a home. 100 points is perfect (The White House on Pennsylvania Ave is a 97), 50 is average, most homes in the suburbs get low scores. The study concludes that homes with better Walk Scores lower crime, improves quality of life, and raises property values. Makes sense to us. Rate your home at Walkscore.com.

Existing Homeowners to Be Eligible for Tax Credit

Nov. 5, 2008. Much to the glee of builders, bankers, and real estate agents, the bill to extend the tax credit for new home buyers was passed by both the House and the Senate. President Obama is expected to sign the legislation very soon.

But wait, there’s even better news! Under the new law existing homeowners, not just first-time buyers, will be eligible. The legislation is expected to help keep recent economic momentum going, perhaps not at Cash for Clunkers levels, but positive nevertheless.

The National Association of Homebuilders (NAHB) was very pleased with the news. NAHB Chairman Joe Robson commented: “We commend lawmakers for acting in a bipartisan manner to extend the first-time home buyer tax credit beyond its Nov. 30 deadline and expand it to a wider group of home buyers. The tax credit has proven to be a powerful economic incentive. Today’s action by Congress will further stabilize housing and the economy by creating new jobs, stimulating home sales, reducing foreclosures, cutting excess inventories and stabilizing home prices.”

The new law continues the $8,000 credit for new home buyers who purchase their homes by April 30 and close on them by June 30, 2010. A new twist is that now existing homeowners buying a new home as their principle residence are also eligible for a tax credit, $6,500 in their case. The new bill expands income eligibility to individuals making up to $125,000 and $225,000 for couples. Existing homeowners will have had to have lived in their old homes for at least 5 consecutive years out of the last 8.

Bottom Line:
If you were thinking about buying your retirement home but were on the fence, and you have income you would like a credit against, this might be just the incentive to pry you off. Buy early and avoid the rush!

A Rough Week for Active Adult Communities

It’s been a rough couple of days in the retirement real estate market. Fortunately, not all the news was bad, depending on your perspective. Here are few news stories crossing our desk:

- Prices are falling in many active adult communities, which is stimulating sales to at least some degree. According to a report in the Press-Enterprise, Hanley Wood Market Intelligence, a real estate research firm, prices in Del Webb’s Solera Diamond Valley recently ranged from $170,000 to $291,000. Back in January 2008, similar houses were priced from $246,000 to well over $300,000.

- Hanley Wood also points out that active adult developments are selling about two and one-half times the rate than in more mainstream developments. The conclusion that some draw is that reduced prices are attracting buyers who want to strike - while the market is cold.
- Most forecasters believe that nationwide, prices may now be at the “pre-bubble” levels after a spectacular growth and a similarly drastic correction. The important housing price/median income ratio is at its lowest level since the mid-1990’s, while median prices are at about 2003 levels.
- Sunrise Senior Living announced last week it is selling 21 assisted-living facilities. Sunrise is selling because it needs funds to pay down debt.
- KB Home, according to a Reuters report, is being investigated by the U.S. Securities and Exchange Commission over possible accounting and disclosure issues. The home builder has other legal woes as well - homeowners have filed a lawsuit against KB and other parties, saying they falsely inflated selling prices in Nevada and Arizona.
- More people 55+ are moving into active adult communities but still continue to work. For instance, Del Webb reports that 50 percent of residents at its Sun City community near Las Vegas still work full- or part-time. According the company, that’s an 8 percent increase from 10 years prior. The explanation some have for this phenomenon is that baby boomers don’t want to/ are afraid to retire totally, but they do want to improve their lifestyles. Many builders of active adult communities are responding by including flexible layouts that can include home offices.
- Some top active adult communities owned by companies experiencing financial difficulties are being snapped up by stronger outfits. Province, a 2006 Best Active Adult Community in 2006 located near Phoenix, was just acquired by Meritage.

Bottom line:
Here is the Topretirements take on these developments.
- Prices are falling - it’s a better time to buy than it was a few years ago
- Some companies are having big troubles. Be careful about who you buy from
- Maybe, just maybe, better times are ahead of us

August Home Sales Break Streak, Inventories Decline

August home starts were positive. Unfortunately sales of existing homes including single-family, townhomes, condominiums and co-ops declined 2.7 percent in August, breaking a four month streak of increases. That led to a seasonally adjusted annual rate of 5.10 million units in August from a pace of 5.24 million in July. Lawrence Yun, Chief Economist for the NAR commented: “The decline demonstrates we can’t take a housing rebound for granted.”

There was some overlooked good news in the numbers, however. August 2009 sales remain 3.4 percent above the 4.93 million-unit level in August 2008. Existing inventory of homes, which has been a big part of the housing crisis, fell 10.8 percent to 3.62 million existing homes available for sale, an 8.5 month supply. That is a big improvement from a 9.3-month supply in July. Unsold inventory totals are 16.4 percent lower than a year ago. The national median existing-home price was $177,700 in August, down 12.5 percent from August 2008. Foreclosures, short sales, and the government incentives for first time home buyers were major forces in the market. Distressed sales accounted for about 30% of sales in the month, first time home buyers were also 30% of the market.

Housing Starts Increase in August - Hallelujah

The Commerce Department released August construction numbers last week to the great joy of economists and builders. Overall, construction of new homes and apartments increased 1.5%. Advanced construction permits also increased (2.7%). Construction levels are now almost 25% ahead of where they were in April.

The good news in construction was mostly confined to some odd sectors. Apartment building construction soared 25% (from very low levels). And the northeast, which hardly ever has any good economic news, saw new construction go up 24%. Most other regions were flat or down slightly (the South). As bellwethers of the economy, the positive data lends credence to economists’ opinions that the recession has now officially ended. Now lets see real estate prices recover a bit so people can sell their houses and move to where they want to live in retirement.

PS. Your editor had an interesting chat with a builder friend today. The builder specializes in buying run-down or under-improved houses in nice neighborhoods, then totally fixing them up and selling them, hopefully at a profit. He has no work now, and one reason is that there are too many nice houses on the market at reasonable prices. So although he could buy a fixer upper, chances are he will never get his money back.

Home Prices Are Now at 2003 Levels

Some say it’s a good thing: declining real estate prices are an indication that demand and supply are finally catching up with one another. Fueled by foreclosures and distress sales, at least homes are selling - even if prices aren’t what sellers would like to see.   Year over year price declines slowed in the 2nd quarter of 2009 - the first quarterly improvement since the current slump began.  Even better, economists are pumping fists and high-fiving over the month to month price increases that showed up in many markets during July.

The Zillow Real Estate Market Report for the 2nd quarter of 2009 was just released, and it shows a 12.1% decline in prices from the comparable quarter of 2008. Predictably, the worst hit metros were those who showed the biggest price run- ups and overbuilding in 2005-2006. Florida (-23%) and California (-19%) were hit the hardest hit. Pennsylvania, on the other hand, only experienced a 3.8% decline in prices. As an example of the worst markets Fort Myers (FL) took a 29% haircut in prices, El Centro (CA) a 37% decline, and in Las Vegas prices were off 35%.
For more details check out the Zillow Real Estate Report.

The S & P Case-Shiller Index for the same period, released on August 25, showed very similar results. Its widely watched U.S. National Home Price Index recorded a 14.9% decline in the 2nd quarter of 2009 vs. the year earlier quarter.  That represents an improvement over the 19% decline experienced in the 1st quarter. According to that index, prices have now reached where they were in 2003, and are off some 30% from the 2006 peaks.  Las Vegas and Detroit continue to be the worst hit markets, whereas Dallas and Denver have now recorded several months of positive returns.

Buttressing these favorable (or less bad) reports was news that The Conference Board Consumer Confidence Index ® rose in August - always a good sign for the economy.

Sunshine Harder to Find in Florida These Days

Along with California, Arizona, and Nevada- Florida is one of the hardest hit states in the nation when it comes to the real estate bust. In the Sunshine State these days the usual optimism is harder to find; many are starting to talk about a need for change.

The foreclosure rate in Florida is frightening; 268,064 properties were foreclosed in the first 6 months of 2009. Put in perspective, that’s 3 times the number of condos and houses sold during the same period. Over the winter Lehigh Acres near Fort Myers became a household word when the collapse of its real estate market got national headlines.  Although prices of homes have recently stabilized and some experts even believe prices are now at reasonable limits, there is plenty of fear and even anger.

Florida, where construction is one of the most important industries, is in recession. Unemployment has gone over 10% (10.6) and people are beginning to leave the state. The state’s fiscal coffers are bare - layoffs and cuts are frightening the state’s employees, universities, and residents. Conservationists are scared about recent initiatives which will relax restrictions on growth.  In short, optimism is in short supply in a state based on unbridled quantities of it.

The New York Times has a thoughtful article, “On the Mat, Florida Wonders Which Way Is Up” today. Many believe that Florida has to change in significant ways if it is going to succeed in the coming years. It even quotes Florida author Carl Hiaasen, who says of Florida that “…we need to do something bold”.

How to Find Your (Bargain) Retirement Dream

If the old cocktail party conversation was about how much your house had gone up in value, the new one could be - what a great 55+ bargain you found in this distressed market.  Home prices are down, big-time, in most markets. Smart buyers are out there now looking for the best deals.  This article will talk about possible strategies that you might follow to buy a house at a bargain price - and without getting burned in the process. Our emphasis is on the “nearly new”, homes that are 1 or more years old.

There are several ways to buy your retirement home, whether it is in an active adult community, a 55+ development, or in a mixed generation town:

1.  From the development sales office. Generally this means you are buying a brand new home, perhaps one that hasn’t even been built yet.  You will probably pay the highest price, but you also get the best guarantee - and a new home.

2. From the existing owner. You might get a very good deal, but you also carry plenty of risk and no guarantees.  Extra due diligence is called for without  any professionals involved in the transaction.

3. From a real estate agent.  There are many advantages. Although you will probably pay a little more, that could easily be more than made up because of the broad selection of properties you are shown, their experience, and their market expertise.

4.  At foreclosure. Perhaps the biggest bargain opportunity, along with the highest risks. You are buying as is - if  you buy a lemon you better be prepared to open up a lemonade stand.  You can buy foreclosures from banks, agents, or even at auction.

5.  Short sales. In this type of  sale the home is in danger of being foreclosed, and is worth less than the mortgage.  You might get a good deal by buying before it is foreclosed on, but you must be patient and persistent. Most short sale deals fall through because the banks or servicing agents don’t agree to the terms.

Existing homes often the best bargains.
There are several advantages to buying an existing home rather than a brand new one:

- The house is broken in, obvious defects have been repaired
- Additional amenities and improvements have been added
- The owner wants to sell fast and willing to negotiate. You will probably pay less
- The developer’s price chart is out the window
- The neighborhood is built out; you can tell what it’s really like, and promised amenities are either there or not

Buying from the developer also has advantages:
- You will normally get a strong guarantee
- You get to design the final stages of the house, choosing exactly the features and design you want
- Some people like living in a brand new home where
no one else has ever lived

Finding the bargains out there
Our good friend and Topretirements member OldNassau had some wonderful suggestions for finding the bargains out there. Here they are:

1. Copy the name (e.g. “Ashton Lakes”)
paste, with ” ” and the state or nearby city, into Google searchbar.
add “resales”.

Either specific homes or local real estate agents will pop up.

Browse through these listings and you will find a lot of possibilities

I have found that resales are not only often cheaper than the same model, new, but have owner-added amenities.

2. For real bargains and the best buys in active adult communities, go to Trulia.com. Type in the community and/or city and you will see all kinds of ways to search for properties: You can select various price reductions (10%; 10 - 20%; 20+%). You can even specify $/sq.ft, or type of sale (bank, foreclosure, owner…). Usually these search options are displayed clearly, but Advanced Search also brings them up. You can get other really helpful information at AOL Real Estate - including the markets with the most sales, the best value, the most foreclosures, etc.

3. Another suggestion: after the development name, type “lawsuits”. Or “HOA”. There are many possibilities.

Point is: don’t depend on the in-house panegyrics. Use all the tools and you should be able to find your dream retirement community - at a great price. Good luck!

For further reference:
“Mint Condition, Low Miles” (NY Times)

What do you think? Please post your opinion in the Comments section below. And be sure to see additional thoughts from Old Nassau on the same topic!

Housing Market Recovers Some Ground

The consensus appears to be that we are at or past the bottom, at least for many real estate markets .  Inventories have been going down a bit and prices correspondingly up in places like San Francisco and Boston, and that is definitely a good thing.  NPR has both a web article and a podcast, “Housing Market Shows Some Signs of Recovery” that gives a good explanation of what is happening.  It cites figures from the widely regarded Case-Shiller Home Price Index as well as anecdotal remarks from various buyers and industry figures.

Meanwhile another interesting article comes to the same conclusion about inventory declines.  In “U.S. Housing Nearing Bottom…“, Mark Zandi, an economist with Moody’s Investors Service shows an extremely interesting chart. The chart displays a map of the U.S. that color codes markets where prices are out of whack - either too high or too low. Sure enough, the most battered markets (such as Las Vegas, a lot of California, and South Florida), those where prices have been hammered by foreclosure sales,  now appear to be undervalued. What goes around, comes around?