What are Condo fees?

Condo fees

Condo fees

Buyers often ask “what are condo fees” and have a tendency to shy away from condominiums because they question the value of paying condo fees.

We hear the concern that Buyers don’t want to pay condo fees and yet the fear is often based on misinformation, so let’s try to separate the myths from the facts.

First, understand that in condo ownership you typically own the space inside the drywall of your private living unit and perhaps your parking unit as well, plus a common share of ownership in the shared spaces such as hallways, lobby, amenities (gym, party room) and the exterior grounds of the building. To sort all of this out you need a mechanism to share the cost of the common area, so when the property was built the developer surveyed all the components of the building with a goal to divide the private living areas and apportion the cost of maintaining the common areas. This is your “registered size” and it determines your proportionate share in the cost of maintaining the total property.

These costs are not much different than when owning a home with the addition of some items such as management, security and a few items often found in larger buildings like elevators and pools. Otherwise they are similar items of maintenance that would normally would occur in a home. In fact one could argue that the cost of maintaining a larger property provides some efficiency of scale and saves money over owning a similar sized home aside from the often lower maintenance construction features.

Where the issues arise are typically in the deferred maintenance and replacement of items which are legislated to be spelled out in a reserve fund study. Every condo must have a reserve study completed which reviews the construction of the property and recommends a timeline and budgets for the repair and replacement of building components such as roofs, siding, and structural components. Because these are costly items to replace, this is an important document to study when purchasing a condo and determine what items are due for replacement and how much money is allocated in the reserve fund to pay for these items. Recall that a portion of the condo fee goes towards the reserve fund. If the study does not accurately predict the upcoming replacement reserves or the condo has not allocated a sufficient amount for these reserves then a shortfall occurs and the present condo owners could be required to top up the fund. This can have disastrous results when taken to the extreme and has occurred in buildings which were poorly constructed initially or had major failures of building components and owners were required to pay tens of thousands of dollars to repair them – often more than the equity they had in their home.

So we can see that analyzing the reserve fund study is a crucial aspect of purchasing a condo. Your real estate agent can be a tremendous ally in helping you to steer clear of projects that have the potential for this calamity.

For the positive side of condo ownership take a look at the following example: Take only two or three building components that you would replace in your home every 15 to 20 years.

Say, a roof has an expected life of 15 years at a cost of $8,000. Amortized over 15 years that equals a monthly cost of $44.00

You would paint and repair the exterior siding or other components (windows, doors) every 5 years at an average cost of $2,000. Amortize this over 5 years and it  runs $33 per month.

Add in grounds maintenance (lawn care and snow removal) at a typical cost of $200 per month for a modest home plus water and sewer utility costs at $120 per month.

This example illustrates that a homeowner is actually spending $397 per month compared to an equivalent condo – the homeowner often doesn’t  realize that they are spending it because his expenditures are sporadic rather than regular monthly condo payments.

The important point is when the condo board has been operating responsibly and abiding by the recommendations in the reserve study, they would have set the amount of their condo fees to cover building their reserve fund so there are no surprises to future owners. Where a condo board has set low fees then this act may prove harmful to future owners that may be responsible for “topping up” the reserve to pay for future repairs.

The lesson here is  to discount a condo due to higher apparent fees – these condos may simply be the properties that are the healthiest financially and well managed. When reviewing condo fees, dissect them to determine what is included and how much is allocated to the reserve fund. You may discover that you are quite happy to pay condo fees in order to have someone look after all these maintenance items for you. In the end, choosing a condo is more a lifestyle choice than a matter of cost and may be the best choice for you.

Sano Stante Real Estate has a wealth of experience marketing Calgary Condominium property. Call us to help you make the best real estate decision for your future.

Leave a Reply