The Phoenix condo market faces an unexpected hurdle: buyer confusion over HOA fees is causing many to overlook potentially good deals, according to veteran real estate agent Chris Dunham of Brokers Hub Realty, who argues that a deeper analysis often reveals these fees offer better value than commonly assumed.
“We’re having a lot of struggle getting condos sold,” Dunham says. “A lot of people aren’t liking the higher HOA fees.” However, he argues this resistance often stems from a fundamental misunderstanding of what these fees cover and how they compare to single-family home expenses.
While buyers might balk at a $2,000 monthly HOA fee on a $700,000 condo, Dunham says this reaction overlooks the comprehensive nature of these payments. “Those fees typically cover all the costs associated with living, the electrical, water, sewer, garbage, you have a fitness center, you have a swimming pool, the exterior maintenance and all that kind of stuff,” he explains.
When compared to itemized expenses for single-family homes, the math often tells a different story. “If you’re living in a house, you’re going to pay separate for gas and separate for water, trash and sewer, separate for electric. You’re going to have a gym membership, you’re going to have to maintain your pool, you’re going to have to have a landscaper,” Dunham notes. “Whereas in a high-rise community, all that stuff’s rolled into one payment, and mathematically, it’s often the same or a little bit less.”
Despite the potential long-term value, HOA fees create immediate challenges in the lending process. “The lenders have to count the HOA fee towards the debt,” Dunham explains, even though these fees replace multiple separate expenses that wouldn’t be counted the same way for single-family homes.
This accounting quirk can affect buyers’ debt-to-income ratios and lending qualifications, even when their actual monthly expenses might be similar or lower than a comparable single-family home. “It still comes as a ding to the buyer, because they have to assume that cost,” Dunham says.
The combination of misunderstood costs and financing challenges has significantly affected the Phoenix condo market. “If I did 50 deals a year, because that was one of my niches, I would probably do 12, you know, I’d say eight to 12 high-rise condos per year as well,” Dunham recalls of previous years.
Additional factors compound these challenges. “There’s a lot of unwarrantable buildings right now,” Dunham explains. “When COVID hit, a lot of them stopped. They didn’t continue moving forward with the warrantability paperwork, so then whenever I was showing a condo, now it’s the first thing I asked my lender, ‘Hey, is this warrantable? Can they finance?'”
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