THE CDD FEE - WHAT ARE CDD FEES ?
The CDD fee, what are CDD fees? Today I’m going to explain exactly what the CDD is, and why it’s important for a home owner to understand when buying new homes in Lakewood Ranch, Florida.
So what exactly are the cdd fees? These are otherwise known as Community Development District bonds. They are important to understand when buying a home in Florida. They are not included in the property tax bill or local government fees, they are a separate fee (although they may be collected at the same time your annual property taxes are due).
Why are they important to understand when buying a new home in Lakewood Ranch? Perhaps this example will give you an idea of what CDD fees are, why they are used, and how they work.
WHY DO COMMUNITY DEVELOPMENT DISTRICTS EXIST ?
Let’s say you have a company called Awesome Lakewood Ranch Real Estate Development. You drive by a vacant parcel of land and decide that you would like to build the best community in Lakewood Ranch on that piece of land. You can already imagine the beautiful golf course and tennis courts buzzing with residents enjoying themselves.
You approach the local city officials, tell them your plan to develop the land, to build beautiful affordable new homes in Lakewood Ranch, and ask for their approval.
Lakewood Ranch, Florida government reviews your plan, decides if the new community development is a good idea, they determine whether it will provide needed housing to new residents, and won’t hinder the current city plan.
However, there is just one important thing, who is going to pay for the new roads, water and sewage, and all the other infrastructure required to build and support this best new neighborhood in Lakewood Ranch, Florida?
The city doesn’t want to have to pay for these expenses, because that would involve raising property taxes.
You are super smart and Awesome Lakewood Ranch Real Estate Development decides you can come up with a different solution that doesn’t require the city to pay for the infrastructure and still develop the community. This is a win-win for you, the real estate developer, and the city of Lakewood Ranch.
You go to the bank, you tell them you would like to borrow the money to build the roads and all the other infrastructure required for this new community.
You will pay the bank interest on the loan annually as well as the principal for the next 20 to 30 years. Your plan is to assess an annual CDD fee to each new home buyer in the new community, based on the assessed value of their home until the loan is repaid to the bank.
The bank reviews your plans for the new community in Lakewood Ranch, does some risk assessment of Lakewood Ranch real estate, the Sarasota, Florida housing market, and decides that it’s a good investment and approves the loan.
You decide the best way to manage collecting money and paying the bank is to form a Community Development District. The Community Development District or CDD for short, is a special organization independent from the real estate developer that is designated to manage the infrastructure build-out costs, loan payments, collections, maintenance, etc.
DO THE CDD FEES LAST FOREVER ?
So let’s fast-forward and five years later you have sold on the land in the community. Your job of developing the community is finished. The residents of the community will continue to pay an annual CDD fee, established and maintained by the Community Development District.
Okay, so you’re probably asking yourself, “Does this payment ever go-away when the bonds are paid off?” The short answer is, not usually. The reason is because roads, water and sewer systems and maintenance on other items covered in the fee are usually continual expenses that need to be incurred on a regular basis to keep the CDD community in tip top shape. Fees range somewhere between $300 and $7000 annually depending on the assessed home value, location and real estate development.
Now, don’t confuse the CDD and HOA fees. HOA fee’s are completely different and are used for different community related expenses above and beyond the CDD fee’s, like community swimming pool maintenance, community landscaping, private security, etc. The HOA is run by an elected board of residents to look after the interests of the community amenities and services.
The next article in this series, will look at some of the disadvantages of CDD fees. I will also share some stories of problems CDD’s have experienced and some important things to consider when moving into a new community with a CDD fee.
If you have any questions about CDD fees, new homes for sale in Lakewood Ranch, Florida, or Sarasota Florida real estate, please feel free to contact me at 941-225-8806 or my email Ken@FinePropertiesFL.com
About the author – Ken O’Brien is a licensed Florida real estate agent in Sarasota, Florida with the December 2020 real estate brokerage. He and his team focus on delivering the best services in the Sarasota, Florida and Lakewood Ranch, Florida real estate markets.