Condo Fees: The Highs and Lows
You’ve found your ideal condominium, estimated your monthly mortgage payments, and have been pre-approved for a home loan. Before you make an offer, though, take careful note of the homeowners association’s (HOA) assessment fee. This additional expense can swell into a formidable financial obligation over time, so it pays to know how it works before you commit.
1) What do assessments cover?
Condominium owners are required to pay HOA assessments, or condo fees, usually on a monthly basis. The HOA uses these dues to cover building and grounds maintenance, such as landscaping, window cleaning, and garbage collection. Shared utilities and insurance, as well as fees for amenities, such as pools and recreation areas — elements you own in common — may also be factored into the cost.
2) What is a reasonable assessment?
“Dues can vary greatly depending on the complex and what is included,” says Shirley Mastenbrook, manager of business support for Fannie Mae’s Real Estate Asset Management division, adding that low fees in new condominiums may be just as much of a warning flag as high fees in older buildings. “With newer complexes, the builder may still be in control,” she explains. “They may set the condo fee low to attract buyers, but then it increases once the HOA takes over.” Comparing assessments among condominiums of similar age and construction can provide a better understanding of the going rates in a particular area.
3) Will these condo fees increase?
Fees may increase to ensure that the association can cover expenses, both planned and unexpected. “When you make your payment every month, part of it should go into a reserve account for future capital expenditures, such as replacing the roof or repaving the parking lot,” says Mastenbrook. “Keep in mind that if insurance goes up in an area, more funds go toward the HOA’s insurance policy—less to reserves.”
4) What is a “special assessment”?
A large or unexpected event, such as a damaged parking garage, may also require a one-time charge on top of the regular monthly assessment if the association lacks adequate funds in its reserves. “A special assessment can be the death of a complex,” says Mastenbrook. “It could be $3,500, it could be $10,000 or more. It all depends on the work that needs to be done.” If an owner cannot pay assessments, he or she runs the risk of foreclosure.
In its list of questions that homebuyers should ask the condo board, the National Association of Realtors recommends checking the status of the community’s reserves, asking how the funds are being invested, and inquiring about any current events that may be impacting the reserves.
5) Who decides on these assessments?
The HOA’s board of directors oversees the condo community’s budget, voting on assessments as needed. As stated in the Community Associations Institute’s “Introduction to Community Association Living,” owners always have the right to review the HOA’s financial documents and ask the board for specifics on how the community’s money is being spent.
The Community Associations Network lists condominium and homeowner association laws by state, which often determine a board’s scope of authority.
6) How can a condo owner protect his or her interests?
“Owning a condo is like being in a partnership, and you only have a small interest in that partnership,” says Mastenbrook. “It’s important to attend [HOA] meetings and vote.”
Consider the neighboring units as well. Assessments only work if all of the residents are able to meet these financial obligations, and any neglect in payment may result in a larger burden for the rest of the homeowners. Public records, the HOA or its property management company, or a professional with whom you are working should be able to provide insight on any payment issues the complex has experienced.
Ultimately, condominium ownership requires cooperation among all residents. Prompt assessment payments and responsible use of resources will help ensure a financially healthy condo community.