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Understanding Community Development Districts (CDDs)

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  • Written on July 24, 2024 By Stanley Martin Homes

When searching for a new home, particularly in planned communities or newer subdivisions, you might come across the term Community Development District (CDD). This form of municipal government can impact your homeownership experience, influencing everything from neighborhood amenities to annual living costs. Here's a detailed guide to understanding CDDs, how they compare to Homeowners Associations (HOAs), and what you need to consider as a potential homebuyer.

What is a CDD?

A CDD is a governmental unit created to serve the long-term specific needs of its community. Established under state law, CDDs are primarily found in fast-growing regions and fund and maintain community-scale infrastructure and services, including roads, sewer systems, streetlights, and recreational facilities.

A CDD is governed by a board of supervisors, usually elected by landowners within the district. Early in the community's development, these may be representatives of the developer, but as more homes are sold and more residents move in, homeowners typically take over these positions.

CDDs vs. HOAs

While both CDDs and HOAs are involved in community management, they serve different functions and are funded in distinct ways:

  • Governance: An HOA is a private association of community residents or a managing body, whereas a CDD is a governmental entity that can issue bonds and levy taxes. CDDs are typically used for large-scale developments with 300+ units and will typically remain under developer control for years whereas HOAs are generally turned over to the homeowners as soon as land development is completed and most of the homes are built.
  • Costs: HOA fees are collected to maintain common areas and enforce community standards (like lawn care, building colors, etc.). CDD fees help pay for the district's infrastructure and maintenance.
  • Flexibility: HOA fees are generally more flexible. The association's board can adjust them based on the community's needs and budget. The operational component of the CDD fees can fluctuate based on the district's annual budget and maintenance needs. However, the bond repayment portion of the fee is generally fixed until the bonds are fully repaid. It's important to note that while the fees can decrease once the bonds are paid off, they rarely disappear entirely as ongoing maintenance costs continue.

How are CDD Fees Paid?

CDD fees are typically included in your property tax bill. This fee consists of two parts: the operational costs of maintaining the amenities and services and the repayment of bonds issued by the district to fund infrastructure development.

Impact on Home Prices and Affordability

When purchasing a home in a CDD, it's essential to factor fees into your overall budget. While properties in CDDs often come with higher price tags due to enhanced infrastructure and amenities, the additional annual CDD fees can add to the overall cost of living in these communities. Prospective buyers should carefully evaluate whether the benefits of enhanced community facilities justify the additional costs.

What Do CDD Fees Cover?

CDD fees cover the cost of constructing and maintaining community infrastructure. This can include:

  • Physical infrastructure like roads, bridges, stormwater systems, and utilities.
  • Community amenities such as parks, swimming pools, sports courts, clubhouses, and public spaces.
  • Long-term community services like street lighting, landscaping, lakes, and management of conservation areas.

Living in a CDD can offer benefits; however, the financial implications of CDD fees require careful consideration. As a prospective homebuyer, it's crucial to understand these costs fully and how they fit into your long-term housing budget. With the right information, you can make an informed decision that balances both your financial and lifestyle goals.