Looking at the recent trends in the Palm Springs condo market, one clear tendency has emerged. There are increasing cases where the financial documents of the HOA (Homeowners Association) are hindering loan approvals more than the appraised value or condition of the property itself. Lenders assess not only individual units but also the overall management of the building by the HOA, including delinquency rates, reserve fund ratios, ongoing lawsuits, and the proportion of commercial space. If these criteria are not met, the property may be classified as a non-warrantable condo, leading to loan denial or unfavorable interest rate conditions. This is based on the condo project review standards set by Fannie Mae.

The average HOA fee for the entire Palm Springs community is estimated to be around $370 per month. However, there is significant variation by type. Standard condos or gated communities range from $250 to $600 per month, golf course communities average $570, and 55+ senior communities average around $300. Typically, management fees include maintenance of the building's exterior, master insurance, management of common facilities like golf courses or pools, landscaping, and contributions to the reserve fund.

The Palm Springs condo market is characterized by low-rise buildings in mid-century modern style, along with newly built gated communities. Due to the prevalence of low-rise buildings, it is common for individual units to share walls, and the HOA often takes responsibility for exterior maintenance, resulting in a relatively high proportion of management fees allocated to exterior upkeep. In this structure, the amount of reserve funds available becomes an even more critical variable.

During the loan approval process, the HOA's budget, accounting audit reports, actual balances compared to reserve fund goals, and the percentage of units more than 60 days delinquent are all reviewed. In communities like golf course developments, where operational costs for amenities are significant, the budget can be particularly complex, necessitating a review of whether clubhouse or golf course operating costs are managed separately in the accounting.

If you are considering Palm Springs for retirement living, 55+ senior communities tend to have lower management fee burdens, but the simplicity of the facilities means that when remodeling is needed in the future, special assessments can increase significantly. Conversely, golf communities, while having higher management fees, often have more systematic plans for facility replacements.

In high management fee communities like golf developments, the process of verifying whether sufficient reserve funds are accumulated is directly linked to loan approval. California mandates a reserve study every three years under Civil Code 5550, and following the Surfside condo collapse in 2021, SB 326 requires buildings with three or more stories to inspect exterior elevated elements like balconies and decks every nine years. The first inspection deadline was January 1, 2025, and HOAs that miss this deadline can face fines of up to $5,000 per violation. In markets with aging complexes, the results of these inspections may impact future management fees and reserve fund obligations.

Items to check before signing a contract include:

• Recent 2-3 years of HOA financial statements and reserve studies
• Delinquency rates and ongoing lawsuits
• Compliance with SB 326 balcony inspection requirements
• Distribution of operating costs for amenities like golf courses or clubhouses

When comparing properties, it is more accurate to compare management fees among communities of the same type. Comparing golf communities, standard condos, and senior communities side by side based solely on management fee numbers can lead to misjudgments about actual value. Focusing only on property prices and management fee numbers can cause you to overlook financial health factors. To realistically assess loan approval potential and future special assessment risks, it seems prudent to examine HOA documents as thoroughly as the property information. This article is not investment or legal advice, and consulting a professional before making any contracts is recommended.