Condo fees = unpredictable expenses

They are popular, actually – very popular. In some markets condos fly off the shelf very quickly.  It looks like in big urban centers like Toronto, Vancouver, and Ottawa condos have been extremely popular during the last few years. They appeal to both younger buyers (singles and professionals) and older couples nearing retirement age.  An added bonus like “city view”, gym or swimming pool in the building, and security system, offered by the modern condos, makes them attractive and often preferable to the traditional single family home.

Some describe condos as a “box in the air”. Why? Because that is what you actually own – a box in the air. Everything inside that box is yours, everything else, even the walls (dividing and external), do not belong to you… Tell this to some people and they start rolling their eyes.

As a rule, common areas of the development, such as stairwells, dividing and outer walls, fitness centers and party rooms are shared and each unit owner holds an interest in these spaces. Because someone has to take care of these common areas and make sure the grass is cut and the snow removed, the condominium association has to collect certain fees on regular basis. Like anything else, the condominium is a business and needs resources to maintain the building, pay the guy who opens the door when you walk in, pay for insurance, etc.

And that is where the tricky part with condo fees starts.

One of the things home buyers often overlook is the condo fee coverage. Usually condo fee would include:

A/ only general maintenance, water, security and landscaping, or

B/ in addition to the operating expenses, it would cover also your hydro and heat.

I have seen condo fees as low as $150 to as high as $850 per month. You have to remember that fees are calculated based on two important factors – the need of the condominium to fund various projects and to maintain healthy reserve fund, and the size of your home. On average condo fees are from $0.35 to $0.55 per square foot. Your 720 square foot two bedroom apartment in downtown may carry a condo fee of $360 (720 X 0.50 = 360). However, if you want (and can afford) to live on a posh address like 1 Post Road in Toronto, be prepared to pay from $0.85 to $1.0 per square foot condo fees (and this does not include heat and hydro).

Then, which option is a better – A, or B?

Many people fall into to the trap of thinking that having one single fee that takes care of most utility is better. Let’s look into it.

Paying more than what your fair share

Your condo fee is based on the size of your home. So, no matter what your personal consumption of electricity, heat or water, your bill will be the same as you neighbor. Even though you may spend a few months away from home, you still have to pay the condo fee, which includes heat and electricity you never consumed. By including hydro and heat the corporation evens out the consumption for everybody. There is no point in buying high end appliances, which would use less energy, because you will not benefit from it. The condominium as a whole may, but not you, the one who consumed less. The fact that you spent over $5,000 to purchase modern and energy efficient washer, dryer, refrigerator suddenly may feel like a waste of money. It may not be fair, but it is a convenience for the condominium. The problem is that you do not have a choice to get these utilities in or out of the condo fee. If you don’t like option B, where you may pay more than your fair share, then look for another condo building.

No control over fee increases

The condo owner has virtually no control over when and by how much the condo fee will increase. I am yet to see a case when condo fees decrease. Lately, while refinancing some condo properties in Ottawa for mine clients, I see significant increases in condo fees over the last 3-5 years. In one case, the fee jumped from $160, when the condo was purchased, to $280 just in 3-years.

One unpleasant surprise condo buyers may experience is to have a condo fee increase shortly after they move in. Imagine that you are on a tight budget and have been arranging your finances based on your current condo fee of $225. A few months later, the fee goes up to $275. Since this is a recurring cost, a $50 fee increase would be similar to a half a point increases to your mortgage rate.  How would this affect your financial health? And what if the very next year the condominium decides to upgrade the windows and the cost comes to more than what management has planned for. All unit owners need to shell out another $1,200 or so. You can’t say no. You may think that the windows are just fine the way they are, but it doesn’t matter, you have to contribute your share to the fund.

As you can see, owning a condo has its own wrinkles. The city view and the gym you never use may become quite pricey at one point.

If you are shopping for a condo in Toronto, visit the CondoFees.com website. It offers a very helpful tool to check condo fees per square foot In different areas and what they cover. I don’t know how current and accurate is the presented information, but it is good starting point.

Before you buy a condo, ask the following questions:

• When was the last time when condo fees were raised? If they have not been increased for 2-3 years, expect one soon.

•  Are there any big renovation/upgrading projects that the condominium will be undertaking in the near future? Such activities often cost more than what was budgeted and the additional funds can only from one source – the condo owners.

• Request and review the disclosure statement of the condominium. The size of the reserve fund may tip you off about potential unexpected cost to you in the future.

After all, if you don’t understand something, don’t sign that agreement; ask your professional team – the real estate agent, the mortgage broker, or the lawyer for help.