One of the first things you do when you start looking at buying a condo is research monthly fees. While high fees can be a major turn off (paying $1000 plus your monthly mortgage doesn’t really appeal to anyone), they aren’t always an indication of bad building.
In addition to amenities like pools, gyms, and doormen, condo fees typically cover payments for a reserve fund (a fund for major building repairs or improvements), a master insurance policy, maintenance, trash removal and utilities like water. Older buildings and those that offer a number of services and amenities tend to have higher fees. Condo fees for smaller, self-managed buildings tend to be lower.
How much fees will rise over time is a difficult question to answer, as it is largely up to the building’s condo board. For example, my condo building in Glover Park included 8 units. It was a new building so the fees initially raised from the $150 a month where they started, but they have been stable at around $230 for about 5 years (with small adjustments for inflation). One of the main reasons for this is the board president’s (me) desire to keep the fees low while still building reserves and bringing in enough money to eventually pay for the roof and other capital improvements. We aim to put about 25% our budget into reserves and generally put more than that.
Those reserves pay for trash, landscaping, a maid service, lightbulbs for the hallways, fire alarm monitoring, and snow removal. Last year we had an issue with the building as a result of builder error (of course it occurred after the builder warranty was up…how do the things that break know these things?!?) and instead of raising dues we created a special assessment where every unit owner had to contribute $150 for repairs, a one-time payment rather than increasing condo fees. Our rainy day fund remained intact and we still look attractive to buyers because of our low fees.
Beyond the monthly fees, when you are looking at a condo it is prudent to spend some time investigating the building and its financial history. During the condo document review period, potential buyers should take a close look at the financial statements and budget of the condo, as well as attempt to find out when the last time big capital improvements, like roof replacement, were completed. Some real estate agents also suggest speaking with a current condo board member to determine exactly what is in the plans for the building in the near future, and if the reserves will cover the costs.
