Properties that are included in a homeowners’ association (near 90% in Orange County) are subject to association transfer fees when the property is sold.
Along with everything else in the real estate contract, the payment of these fees is negotiable between the buyer and seller. Many times, neither party has any idea of the dollar amount of the fee until it appears on the closing statement (“HUD-1″), but by that time, it’s too late to do anything about it.
The standard California Association of Realtors purchase contract form has a section that specifies which fees are to be paid by the buyer or the seller. Usually, buyers fill in the form asking the seller to pay for many of the fees. If there is a counter offer, the seller may ask the buyer to pay some of those fees. There is one line for “Transfer Fee” and another for “Document Fee.”
The “Transfer Fee” is charged to cover the cost of the association accounting office to change the name in the billing record, verify the balance of HOA dues, fines or special assessments that are outstanding on the property, and cover the costs of issuing new keys or membership cards to the new buyers. Some associations also do an exterior property inspection to make sure that the home conforms to all architectural standards.
The “Document Fee” is charged to provide copies of all the required disclosures including the CC&Rs, Articles of Incorporation, By Laws, Budgets, Financial Statements, and Minutes from the Board of Directors meetings for the last 12 months.
The Davis-Sterling Act is the section of the California Civil Code that covers the operations of HOAs. HOAs, as non-profit corporations, are prohibited from charging more than their actual cost of administrating the transfer and providing the necessary documents required in a sale of a home within the HOA.
However the contracted services of an outside management company is not subject to this limitation! In a 2007 court case, the Court of Appeal ruled that management companies are allowed to make a profit on transfer fees charged in escrows. Since it was decided that they could legally do this, many of them seem to be taking gross advantage by charging what I consider unconscionable amounts! In a recent closing I had, the seller was charged $500 for the documents and to verify that the account was in good standing. In addition, since we needed these quickly, the seller was charged an additional $75 “rush fee.”
What you can do to minimize this cost if you live in a community that has an outside management company :
- Approach the Board of Directors (in advance of being in escrow!) and request that next time they renew the contract with the management company that this fee be limited to a reasonable number! (Currently, I feel that $200 – $250 should be more than adequate, especially if they can provide the bulk of the documents in electronic format.)
- Gather the documentation yourself – this may save you part of the cost of the document fees. Copies of the large documents that rarely change such as CC&Rs, Tract Declarations, By-Laws & Articles of Incorporation may already be in the file you got when you bought the property. The current documents, such as the latest budget, audited financial statement, reserves report, and the minutes of the last year’s board meetings should come to less than 100 pages, and it wouldn’t be unreasonable to pay 10¢ – 25¢ per page for these.
- Write to your representatives to include some limits to the transfer fees charged by “for-profit” management companies in the next revision of the Davis Sterling Act.
Thanks for reading!
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