Accounting for condo fees
Condo fees can spike at moment’s notice so be prepared.
Condominium fees have always kept me on the on the sidelines of the condo market. Every time I think I might sell my house and buy a condo the fees loom large and I shake my head. Sure, I know that houses come with maintenance costs. I set aside about 4% of the value of my house each year to cover those costs. Being the control freak that I am, I don’t like the idea of giving up the decision-making of what gets done, when, and for how much to someone else.
Condo fees are collected so each unit holder shares the overall costs of the building. Typically the fees cover things like utilities and insurance. If you live in a fancy-dancy building, it pays for your security and perhaps
even concierge service. A significant portion of those fees also go to building maintenance and improvement.
But did you know your condo fees can go up at any time? The majority of condo buyers aren’t aware of the fact that there’s virtually no limit as to how high their condo fees can go, or when they’ll jump. It’s up to the condo board of directors to ensure they’re collecting enough money to pay for current building costs and future improvements and repairs. If the condo board decides to re-carpet the building, you’ll have to pony up your fair share. If they think it’s time to freshen up the paint, repave the driveway, remodel the party room, you’ll pay.
I’ve had a few letters from people outraged on what their condo fees are paying for because they don’t use those services. One woman wrote me to ask me if her condo decided to add a gym that she never intended to use could she opt out of that payment? No such luck. Regardless of whether you use the common areas like the party room, the pool or that newly renovated gym, you’re still responsible for your share of the costs.
You might think the solution would be to look for a condo that has low fees to start. You would be wrong. Since condo fees take care of current and future issues—there’s some planning that needs to go into the management of a condo complex—low fees could mean that the maintenance reserve is underfunded. That could result in one of two things:
• The necessary upkeep and improvements that will help your condo hold its value won’t be done so you’ll end up living in a dump, or
• You’re just about to get hit with an increase in fees.
So how can you tell what you might be on the hook for when it comes to current and future condominium costs?
Make sure you review the condo’s documents—actually make your offer conditional on reviewing the fine print—before you sign on the bottom line. You’ll want to know how much they’ve been spending on building upkeep along with any plans for upgrades or replacements and whether there’s a solid reserve fund. And if the building looks like it’s in need of a major overhaul, run for the hills because when the time comes to replace those creaky elevators, you’ll be paying for it.