What do condo fees really cover?
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Version 0 of 2. Condominium fees are similar to taxes in that almost no one likes paying them. And much like taxes, few people know what they get for what they pay. Anyone who lives in a condo contributes toward the building’s common expenses. These monthly fees are in addition to a mortgage payment. Disgruntled owners grumble their fees always seem to go up and they never cover enough. They can feel like they have no control over increases in the amount they pay. Heather McCabe owns a 2,200-square-foot condo a couple blocks from a beach in Miami. Her $1,868 monthly fee covers water, sewer, basic cable and access to a pool, gym, front desk and valet. But McCabe isn’t convinced she’s getting her money’s worth. “We pay five-star fees for three-star amenities,” McCabe said. McCabe’s condo fees are higher than the national average. Using the Census Bureau’s American Community Survey data, Zillow looked at condo fees across the country. The median condo fee nationally was $290 per month. It is $400 per month in the Washington region. If utilities are separated out, the median condo fee nationally drops to $240 monthly and $88 in the Washington area. Zillow found that 65 percent of condo fees in the D.C. region include water costs and 76 percent include electric costs. But Jessica Evans, a real estate agent with the Love Live DC Real Estate Team, says there is no general rule on how much condo fees should be. “If I had a general rule, it would be a wide range,” she said. “For a one-bedroom [condo in the District], you pay between $300 and $500 a month.” More than 73 million Americans live in 350,000 shared communities such as condominiums, co-operatives or homeowners associations across the country, according to the Community Associations Institute’s most recent data from 2018. The population has increased sharply since 1970 when just 2.1 million people lived in 10,000 shared communities. And many homeowners who live in these communities are unhappy with how much they pay toward common expenses. A 2018 survey by CAI found a third of respondents felt their monthly fees were too high. Evans says condo fees are uppermost on buyers’ minds. She often works with first-time buyers who are stretching financially to get into a home. “I find that type of buyer definitely is concerned about their bottom line and what that total monthly payment number is going to be,” she said. “Condo fees can actually affect someone’s purchasing power, in the sense that the amount the lender will give them does depend on what the condo fee is.” Condo vs. co-op: Know the differences before buying one High fees affect sellers as well. “When [condo fees] get to be significantly above average, we see prices go down,” Evans said. “We see where it definitely impacts the sales price.” Condo fees can vary by community. Some fees include utilities such as gas, electric and water. In some buildings, owners share the cost of amenities such as maintaining a swimming pool or staffing a front desk, whether they use them or not. Because expenses in one building often differ from another, it is difficult to compare fees. Utilities tend to make up a large portion of a condo fee, but other expenses can add to its total. In older buildings, repairs can cause fees to grow. The size of the building also plays a role. In bigger buildings, costs can be spread among more owners than in smaller buildings. But Evans says it’s wrong to assume because a building has a lot of amenities its condo fees will be high. “Higher fees don’t mean more amenities,” Evans said. “It does add up, the maintenance of those things, but the majority of [D.C.’s] buildings have very few amenities. Most of the buildings with a lot of amenities are newer so the fees are lower.” The Foxhall Condominium on Massachusetts Avenue just south of American University has some of the highest condo fees in the District. Its monthly fees range from around $1,400 per month for a one-bedroom condo to around $3,500 per month for a three-bedroom unit, which is the equivalent of a mortgage payment for some. The full-service luxury building was built in 1971 and has 110 homes. The monthly fee pays for a doorman, a 24-hour front desk, a gatehouse staffed by a security company, a building engineer and maintenance staff. Rather than hire a management company to oversee operations, the Foxhall pays for an on-site executive manager. The monthly fees also cover the costs for water, gas, electric, sewer, cable television, an indoor heated pool, a part-time lifeguard, an exercise room and landscaping for the 7 1/2-acre grounds. Like that condo you see? Before buying, make sure the association also measures up. Three years ago, the Foxhall undertook a $3.7 million renovation to its common areas. In addition to refurbishing the lobby, corridors, swimming pool, locker rooms and gym, the building installed high-speed Internet and upgraded its fire-alarm system. Many condo associations, when faced with a costly renovation, would either take out a loan or levy a special assessment on owners. A special assessment is a one-time charge that in some cases can be spread out over several months and is in addition to the monthly fee. The Foxhall didn’t need a loan or a special assessment to pay for the project. Over the years, it had set aside a portion of the monthly fees collected to build up a healthy capital investment reserve fund. Most associations typically contribute some portion of the monthly fees toward a separate account called reserves. Reserves pay for large projects or unexpected expenses. The foresight of Foxhall’s board gave owners some predictability to their expenses. Although the owners paid more each month, they didn’t have to worry about getting hit with a special assessment. The board has also kept the fees relatively stable. Until this year when fees were raised 2.9 percent, monthly fees had increased only 1.42 percent in the previous five years. The Garfield Condominium on Connecticut Avenue is another building that saves up for its projects. Board president Jeff Norman said the association puts roughly $370,000 annually into its reserve fund, which is around $1 million. “We’ve never had a special assessment,” said Norman who pays $780 monthly for his one-bedroom, 850-square-foot unit. “One of the things we tell people is, ‘yes, the condo fees are high but on the other hand we are paying all the expenses up front.’ New roof, new boiler, new AC system, new carpeting in the hallways, new lighting system — they’re all paid out of reserves.” New condos — a great option for first-time buyers — are in greater supply in the D.C. area this year Although some owners assume their condo board just picks a number out of the air when setting the monthly fees, board members say it takes a lot of math and difficult decisions. “I think the condo fee discussion fits into the larger fiduciary responsibility of the board,” said Nicko Margolies, board president at the Rockledge, a 41-unit building in Adams Morgan with monthly fees ranging from $206 for a studio to $463 for a two-bedroom. “I would consider that probably the most important role of the board. Owners are trusting us with their homes and their investments. We’ve got to make sure we’re good stewards of their contributions and keeping our community a great place to live.” Gabrielle Gallegos is board president at 4200 Cathedral Avenue where monthly fees range from around $750 for a one-bedroom to around $1,200 for a three-bedroom. “There are two things that drive the condo fee,” she said. “One is the amount you put into your reserves. . . . The other part is driven by your expenses.” After determining its expenses, a board decides how much to set aside for future projects. Most boards use a reserve study, which estimates the useful life and replacement costs of major building components such as a boiler or an elevator. Even with this guidance, condo boards often struggle with how much of the monthly condo fees to contribute to reserves. Some boards keep contributions to its reserve funds low to keep fees low. “They’ll think, the roof will need replacing in 20 years,” said Tom Skiba, CAI’s chief executive officer. “Am I going to be around in 20 years to bear that burden and pay that expense? Maybe, maybe not, so what happens quite frequently is that people will under-fund reserves and then what happens is you get to the point where something does break, something does need replacement and you don’t have the money in the bank.” Do your homework if you’re considering a condo purchase McCabe faults the former board at her building in Miami for applying “Band-Aid” solutions to serious issues. She said the association didn’t have a reserve fund for many years because it failed each time it was brought to a vote. In 2014, the board had a reserve study done and started putting money toward a reserve fund. They now have about $1 million in reserves. “The last board wasn’t getting things done, but the current group is financially prudent,” she said. Evans said low condo fees should be a red flag for buyers. “I don’t like to see really low condo fees because sometimes low condo fees mean they’re not collecting enough for reserves and for future maintenance,” she said. The Sterling, a 16-unit building in Adams Morgan, is unusual in many respects. The association doesn’t pay for snow removal. Instead, owners take turns shoveling the walkways. They also take care of their own landscaping rather than pay for it. “It’s a cohesive group that is more personally involved,” said board member Suzanne Windle. And perhaps most unusual of all, the condo fees have remained the same since 1995. “The history of the building is such that for any really large improvement the unit owners as a collection prefer to do a special assessment, which is what most buildings abhor,” Windle said. At its annual meeting, the owners voted 15-1 in favor of levying a special assessment to upgrade the entrance door and its security system at a cost of $30,000. Each owner will pay about $1,900 to cover the cost in addition to their monthly fees. Some condo owners lament that if they owned a house, they wouldn’t be stuck paying high condo fees. But they forget about the ability to spread costs for home repairs among a group. “People are covering a lot of costs and work that would otherwise fall on each other,” Margolies said. “I know where my money goes when I pay my condo fee and I know it’s worth it.” Windle lives at the Sterling, owns an investment property at another building in Adams Morgan and rents out a house she owns in Georgetown. She knows first-hand the costs of owning a single-family house. “People view their condominium as being what is inside their walls,” Windle said. “They don’t think about anything that’s behind the walls. They don’t think about the exterior of the building. They don’t think about the roof. They don’t think about the boiler. Those are the things that are prohibitively expensive and have to be dealt with. And those people who have not been homeowners aren’t aware of those issues.” Brenda Riddle loved her home in Baton Rouge with its swimming pool, outdoor kitchen and yard with flower gardens. But in 2014, she and her husband Charles sold it and moved into a condo in New Orleans. “It was a lot to leave but it got to be too much,” said Riddle, 66. Their new home has a 24-hour concierge, valet parking, a rooftop pool and a fitness center. Their monthly fee covers water, sewer and trash removal. At $967, Riddle thinks it’s a bargain. “It’s worth it,” she said. “We were spending more – between time and money – taking care of our house. It’s the convenience. You walk in and everything’s done.” Gallegos hears from owners who complain the fees are too high. They tell her it’s her duty as board president to keep condo fees low. She politely but firmly disagrees. “The board’s fiduciary duty is to maintain the building to the benefit of everyone,” she said. “Our fiduciary duty is not to make the condo affordable.” For condo owners who don’t like how high their monthly fees are, there is a solution. “Buyers may not realize they have a say in these things by joining the condo board,” Evans said. “I almost always recommend to my clients that they join the condo board.” |