This is the most common question I hear from people looking to buy a home here in Florida and moving from a different state.
A CDD is a Community Development District. The purpose of this law, created in 1980, is to promote housing development, through use of tax-free bonds that developers use to lower the initial cost of these residential communities.
Instead of the developer coming out of pocket to pay for roads, utilities, amenities, such as clubhouses, pools, tennis courts, etc, a tax-free municipal bond is used to pay for that. In other words, a type of loan/mortgage is issued to the developer and the CDD fee is the repayment of that loan.
A CDD fee has two parts :
- a bond portion that can be paid off by residents over periods of 10 to 30 years.
- an operation and maintenance portion that will last forever and can rise, according to price fluctuations or additions of new amenities that need to be maintained.
The amount a first-time homebuyer needs to pay depends on different factors, including the total cost of the public project, the number of residents living in the area and the repayment period. In general, these fees are paid over time periods of 10 to 30 years and appear as a special assessment on the tax bill, being collected by the county tax collector.
Don’t cross out also the possibility that a new bond can be taken out or the existing one refinanced. If the community decides for example to put in a new infrastructure, a new bond may be issued with approval. In that case, the neighborhood will be involved in the voting and hearing of the decision-making process.
If a homeowner sells his property before the bonds are paid off, the new owner becomes responsible for paying the remaining balance after the date of the sale.
How much are CDD fees? The range is from about $500/year to $4,000+ per year. Your Realtor ® can tell you what the fee is for a specific property or you can look it up in county tax records. If you have a mortgage on your home and use an escrow account for taxes and insurance, the CDD fee will be escrowed there as well. If you do not have an escrow account you will be expected to pay your CDD fees annually along with your property taxes.
What is the advantage/disadvantage of CDD fee ?
The main advantage of CDDs is that housing is initially less expensive, since major development costs are deferred and are financed through the use of tax-free bonds. It allows homebuyers to purchase a home in an aesthetically appealing community, that provides a wide variety of recreational and functional amenities within walking distances, while paying a comparable price to that of a home built in a less attractive area.
The main disadvantage is that housing costs are inflated over time as the bonds need to be repaid. One aspect you need to pay attention to is that CDD fees can increase. For instance, the developer can get additional municipal bonds to build a new school, pool, etc., based on the requirements of the community. As well, the cost of maintaining different areas of a development can increase according to price fluctuations, new amenities added, etc.
What is the difference between CDD fees and HOA fees? CDD fees should not be confused with HOA fees. HOA fees cover the cost of maintaining common areas and assets along with insurance, security services and the like, whereas CDD fees are meant to offset the cost of building different infrastructure elements.
Why should I move in a community with CDD fees ?Communities with CDD fees have amenities such pools, tennis courts, clubhouse, gyms.. CDD fees help build maintaining those infrastructures. If your family is going to take advantage of those amenities, you may find that CDD fees are less expensive sometimes that the subscription for a gym club or country club. It’s up to you to make all those calculations. But if you’re not going to use those amenities, avoid communities with CDD fees.