As anyone thinking of buying a condo should know, the list price is not the only dollar figure to take into account: You’ll want to look at how much you’ll be paying in monthly homeowners’ association fees, which go toward upkeep and repairs to the commonly owned areas (such as landscaping, walkways, and roofs) and any amenities (such as a pool or community room).
In fact, it appears that buyers are well aware of this issue, as evidenced by a recent Orange County Register story about a condo in Laguna Woods, California that’s listed for $1 — but not selling, due in part to the monthly $1,718 maintenance fee. (And the fact that it’s tiny, and located in a retirement community.)
Lenders are similarly attuned to the burden that monthly fees add to a homebuyer’s debt, and reject many loan applications for reasons that have more to do with the condo association’s finances than the individual borrower, according to a report by Annamaria Andriotis of SmartMoney.
A common mistake among buyers, however, is to believe that the fee amount alone tells the story — as in, lower amount = good, higher amount = bad. It’s not that simple.
For instance, Jim Adair of RealtyTimes describes a situation where the board of a condo association in Toronto went to court to get new maintenance charges imposed on the residents, who’d been refusing to raise them for years, while ignoring needed maintenance and repairs in their aging building. With the court’s help, fees were raised to a backbreaking $900 a month. Owners who then tried to sell discovered that unloading units that were saddled with both high fees and neglected physical conditions was nigh on impossible. Slightly higher fees for the years leading up to this would have been a much healthier approach.
Then there was a recent Washington Post report out of Virginia, where a condo complex called “Shadowood” so overused its power to tack on extra fees — for everything from calling the management office to having the wrong color blinds — that a Fairfax County judge permanently enjoined it from imposing fees not already listed in the development’s original master deed (which decision was upheld by the Virginia Supreme Court). The basic fees, however, were between $287 and $324 a month; which an unwitting buyer might have concluded were reasonable, without doing any deeper digging.
Of course, high fees can spell trouble, too. As industry expert Paul Grucza noted in the recent new edition of Nolo’s Essential Guide to Buying Your First Home, “Shrinking hourly wages have seriously impacted people’s ability to pay their dues and assessments. A delinquency rate of between 5% and 7% is average and realistic, but I’ve heard of associations where up to 70% of the homeowners can’t pay what they owe. That puts a huge burden on the other homeowners — they’ll likely either have to pay more themselves or watch the property decline.”
The bottom line: You’ve got to dig. Find out not only what the monthly fees are in whatever condo unit you’re thinking of buying, but look into related issues like:
- how many owners are actually paying those fees (more than 15% in arrears is a serious problem)
- how much the association has in its reserve account (close to nothing is all too common, and means there’s nothing to rely on if a sudden repair or emergency need comes up)
- when the condo association can impose special assessments or other fees, and any recent history of its doing so, and
- whether any financial disputes or lawsuits are brewing.
Reviewing the master deed or “Covenants, Conditions, and Restrictions” (CC&Rs) will be a good start, but you will also want to talk to other owners, review minutes from recent board meetings, and follow up on any disturbing information you uncover.