Many condo owners have an inadequate understanding of the cost of living. This can lead to an inaccurate perception that condo fees are too high.
Condo living can be less costly than other forms of housing. Luxuries such as building amenities, 24 hour security and full service management which are not prevalent in other forms of housing can make condo living more costly.
Evaluating condo fees and determining the proper level of condo fees for a condo corporation requires extensive analysis
What Condo Fees Cover
Condo fees include hundreds, possibly thousands, of operational items which can be categorized in the following way:
- Utilities – which can be 40% or more of total expenditures
- Reserve Fund Allocation
- Repair and Maintenance which excludes in- suite owner responsibilities
- Management and Staffing
- Concierge and Security
Higher Condo Fees are Often Justifiable and Reasonable
Condo owners are not immune to the rising costs that affect all home owners. This must be reflected in condo fees.
Higher condo fees can save money for condo owners, support desirable amenities and facilitate social activities.
Condo fees are a function of decisions made by past and current condo boards and residents. While specific expenditures may not appear justified with hindsight, they are nevertheless a financial obligation on the condo corporation.
There are valid reasons why some condo corporations have higher fees than others.
- In-suite electricity is paid by the condo corporation. When paid through the condo corporation this becomes one less bill to be paid by the condo owner. This approach can result in condo residents using more utilities than in comparable buildings where electricity is paid directly by residents.
- Cable and Premium Cable Channels are included. When paid individually these fees can double.
- Extensive and costly amenities must be maintained. Swimming pools have high water, heating, equipment and maintenance costs. All amenities require heating and air conditioning, cleaning, regular maintenance, repairs and periodic refurbishment. Underground parking garages must be maintained and require periodic replacement.
Higher Condo Fees Can Result from Poor Decisions
Nobody saves when a condo corporation delays or eliminates regular maintenance and repairs to its infrastructure. This only serves to increase problems, damage and cost.
Yet this is the approach taken by some condo corporations in return for a short term reduction in condo fees.
In a new building, developers may not have disclosed realistic costs for maintaining the infrastructure.
A condo corporation cannot indefinitely maintain condo fees at a depressed level. It can be done by eliminating necessary maintenance work or not adequately maintaining infrastructure. This may result in temporary savings for a number of years during which time condo owners appear blessed with lower fees. At some point windows must be repaired, leaks sealed, heat and air conditioning systems maintained and level of amenities adjusted. Delaying this work delays the inevitable and typically increases overall costs.
Eventually temporary savings disappear and are replaced with larger annual increases, higher fees and/or special assessments.
Reserve Funds and Special Assessments
The Reserve Fund is money set aside to maintain the current infrastructure. This is one of the foundations upon which condo living is based. Those who benefit from living in a condo building are expected to pay their share of costs.
One risky approach to reducing condo fees is to reduce contributions to the Reserve Fund. This has the anticipated effect of passing costs along to future owners and threatens the continued viability of the condo corporation. It succeeds in the short term because condo boards avoid necessary increases in condo fees regardless of future consequences. The burden of these future expenditures falls on those who become condo owners in the future, possibly through a Special Assessment. Those who have sold properties prior to a Special Assessment or increase in condo fees benefit at the expense of others.
Reducing Condo Fees
Reduced condo fees are the result of doing many things well over an extended period of time.
Good condo boards focus on good management.
The best way to reduce condo fees is to identify better ways to manage the most expensive or time consuming aspects of condo operations. Good management by the board is the most effective path to lower condo fees.
One way to start is by identifying areas where the most money is being spent. It is these condo operations that generally offer the greatest potential for making a positive financial impact.
- Utilities – When residents pay their individual electricity costs there tends to be a significant reduction in utility use. When the condo corporation pays this bill residents are more likely to treat utilities as if they were free. Implementing individual suite metering or sub-metering can reduce condo fees.
- Management and Staffing – Some condo corporations pay for one or more full-time management employees plus a superintendent. Other condo corporations are satisfied with what they consider to be comparable services using one part-time manager and superintendent. They may rely on technology to help reduce expenditures by what can be hundreds of thousands of dollars.
- Concierge and Security – 24 hour concierge and security requires at least four full-time employees. Condo corporations providing this service only during weekday business hours, and supplementing with enhanced electronic security measures, may only require a single employee while potentially saving hundreds of thousands of dollars.
- Some condo corporations include cable as one of the provided services. Even at bulk discounted prices, which can be half of what individuals pay for comparable services, this can amount to nearly $200,000 for a 300 suite building. New options for integrated offerings that may include cable, Internet and phone services plus Wi-Fi in common areas at more economical pricing are now available. Residents can then choose the programming of their choice from cable, Internet and streaming options such as Netflix at nominal cost.
There are trade-offs. Reducing condo fees requires saving money in ways that may not be acceptable to all condo residents. Good condo boards understand the desires of their condo owners and their willingness to pay for condo corporation services, amenities and social activities.
Creating market value – higher resale prices for condos – by reducing condo fees is a myth. Quality condo buildings sell for a premium. This premium is based on quality of the suite and building. Stability and reputation for good management are also helpful in creating value. Condo fees, if relevant at all, is farther down the list.
Regardless of the choices, a condo corporation must monitor their budget to ensure they take in enough in condo fees to pay for all expenses.
This is the third of a three-article series on condo fees