We administer assessments on hundreds of thousands of planned and existing properties across the United States, including residential master-planned communities and commercial (non-residential) projects. As such, the information provided herein is general in nature, may not apply in all circumstances, and shall not be relied upon for any purpose whatsoever.
Assessments are typically created by developers of large master-planned communities (also called “subdivisions”). Traditionally, 100% of the costs incurred for streets, utilities, signage, common areas, open space, and other infrastructure improvements were simply included in the original sales price of the home. This put the burden directly onto the shoulders of the initial buyers, who then had to (a) finance these costs within their mortgage, and (b) then pass the resulting costs – now higher, due to the mortgage interest on the costs – along to the next buyer. In addition, the higher sales price caused the buyer to pay higher closing costs, higher monthly mortgage payments, higher homeowner’s insurance, and higher property taxes – all of which are correlated to the sales price.
Modernly, real estate developers began looking at assessments as a way to fairly and equitably spread out these infrastructure costs over the useful life of the improvements. In essence, each property owner benefitting from the infrastructure would only pay for a portion of the infrastructure costs.
Instead of shouldering 100% of the initial infrastructure costs up front (and having to include the costs in their mortage, and then passing the resulting expenses along to subsequent buyers) each buyer pays a reduced cost up front.
By delaying payment for infrastructure costs until they choose to sell their property, the property owner benefits from any increase in property prices.
• If a home increases in value 5% per year, and the homeowner owns the home 7 years, at closing the homeowner realizes 35% appreciation, and then pays a 1% assessment.
• Importantly, if the home decreases in value, the amount of the assessment decreases.
The assessment obligation is created from a type of deed restriction recorded in the real property records. Every buyer of real estate takes title “subject to” all such restrictions. This is the same process by which a home buyer agrees to pay HOA dues. (The primary difference between Assessments and HOA dues is that Assessments are generally reimbursements for infrastructure that was put into the community (such as streets, utilities, etc.), and/or the resulting lower initial price, whereas HOA dues are typically for ongoing maintenance and repairs within the community.)
In addition to commonly being used to apportion infrastructure costs, a portion of each assessment is allocated to non-profits within the community, for uses such as clean air, open space, shelters and more. This helps build stronger communities, which studies show can translate into better home values.
Summary: Assessments are commonly used to spread infrastructure costs out over time, and to benefit the community through sustained funding for clean air, clean water, open space or other community benefits. A buyer takes title to real estate “subject to” all deed restrictions and matters filed in the deed records, including the obligation to pay the assessment.
We hope you have found this information helpful. If you have general questions, please do not hesitate to ask. If you have questions regarding your rights and obligations under the law, or questions of a legal nature, you must consult with and rely solely upon legal advisors of your own choosing.