March 2010

Are you worried about lowball prices and distressed sales crushing property values in your community? Can you mandate that properties be sold for "no less than..."? Probably not. Would that even be a good idea? Probably not. Here's why.

Why Setting Minimum Home Prices Isn't Allowed

For eons, courts have looked unfavorably on homeowners and neighbors placing restrictions that would affect the sale of property in their communities, most notably when those rules have come from deed restrictions that prevented homes from being sold to certain people.

The most famous case involving restrictions on sales of homes is the 1948 case Shelley v. Kraemer, in which the U.S. Supreme Court held that a restrictive covenant barring "people of the Negro or Mongolian Race" from owning a home in St. Louis was unenforceable. Though Missouri's highest court had upheld the restriction as an agreement between private parties, the U.S. Supreme Court held that it violated the equal protection clause of the U.S. Constitution and was unenforceable.

But what about less offensive covenants that don't raise equal protection issues? Would it be OK for an association to implement a policy restricting the sale of association units below a certain price?

"The board can't set property prices," says Robert DeNichilo, an attorney at Neuland & Whitney APC in Rancho Santa Margarita, Calif., who specializes in representing community associations. "There are a couple of issues with that. I don't believe it's going to be held to be a reasonable restraint on property, so it won't be enforceable. It might also be a restraint on the alienation of property and interference with contracts. It's also unlikely an association's CC&Rs would have anything in there allowing a board to set property prices. So it's not something boards can do."

David Regenbaum, founder, chairman, and CEO of Association Management Inc. in Houston, which manages 239 communities with about 62,000 units, agrees. "I don't think it's legally binding," he says, "and I don't think the board has any right to get involved in that issue."

Why Minimum Prices Are Counterproductive

Even if your association could attempt to prevent unit prices from dropping below a certain level, your efforts would probably backfire.

Property sales in your association would stagnate. "Aside from the fact that it's probably not legal, I don't think it's a good idea," says DeNichilo. "Lowering the prices increases the pool of potential buyers, which means more people to potentially buy and pay assessments to your association. Setting minimum prices for your units would create a smaller pool of potential buyers. Your owners won't be able to sell because there won't be a market for those properties at prices that are higher than market rates."

If you're already dealing with delinquent owners, that problem will worsen. "Most associations don't care what their units sell for," says Bill Worrall, vice president of The Continental Group, which is based in Hollywood, Fla., and manages 1,300 condominium and homeowner associations totaling 310,000 residential units. "They just want them to sell so they can receive maintenance fees from somebody. They're begging for someone to take over units."