Alternate name: Condo fee, HOA fee, HOA dues
For example, condo homeowner associations can specify the design, color, and finishes that are required on the exterior of the home. They can dictate what landscaping must go in, what animals can be kept on the property, and even what color your curtains must be. Condo homeowners should take into consideration the CC&Rs when shopping for a home, as they go hand-in-hand with condominium fees.
How a Condominium Fee Works
At the formation of a homeowner’s association (or HOA), a set of rules or guidelines is set. These are known as covenants, conditions, and restrictions (CC&Rs). The purpose of the CC&Rs is to keep the value of everyone’s property high by outlining what condo owners can and cannot do. CC&Rs also give HOA associations the right to collect fees for common use. Before a condominium fee is assessed to individual owners throughout the complex, it must first be passed by the Board of Directors of the homeowner’s association, which is a governing body for the condominium complex. Each year, the HOA Board of Directors sets the fee and determines what it will cover. Since a homeowner’s association is typically set up as a non-profit, the board members are often volunteers and neighbors who pay their own HOA dues. In other words, they have a vested interest in the property. After the amount is determined, it is billed to the condominium owners, typically once a month. In exchange for paying this fee, condominium owners can expect their dues to cover the upkeep of the lobby, elevator, common areas, swimming pools, and parking spaces.
Disadvantages of Condominium Fees
When shopping for a home, buyers must take condo fees into consideration. A lender will subtract the condo fees from the total monthly amount a buyer is approved to find the actual amount of mortgage the buyer is qualified for. Here’s an example: After a review of a prospective buyer’s finances, the lender has determined that the buyer can afford a monthly payment of $1,700. A buyer looking at condos encounters price points at $245,000 and $320,000. The condominium fee for the $245,000 condo is $350 per month. The condo fee for the $320,000 unit is $100 per month. The lender will subtract each condominium fee from the total amount the buyer can afford to ensure the amount financed will pass underwriting. The mortgage on a $245,000 loan at 3% interest on a 30-year loan comes out to around a $1,350 monthly payment. Add in the $350 monthly condo fee and you get a $1,700 total monthly payment. In equation form, it looks like this: $1,350 monthly mortgage + $350 HOA fee = $1,700 total monthly payment The mortgage on a $320,000 loan at 3% interest on a 30-year loan comes out to around a $1,600 monthly payment. Add in the $100 monthly condominium fee and you’ll get a $1,700 total monthly payment. $1,600 monthly mortgage + $100 HOA fee = $1,700 total monthly payment Both mortgages meet the affordability test, yet, it’s interesting to see that a $350 monthly HOA fee means a buyer has to find a property at a price point $75,000 lower than if the condo fee were only $100.
How Much Does a Condominium Fee Cost?
A number of factors contribute to the total cost of a condominium fee. The size of the complex, how extensive the amenities are, how much landscaping must be maintained, and the cost of insurance are some of the many things an HOA board must consider when setting HOA fees for the year. While some homeowners associations charge just $35 for the use of a common park in the neighborhood, others can cost a homeowner upwards of $700 per month. The average condominium fee nationwide is between $200 and $300.
What Does a Condominium Fee Cover?
A condo fee will often cover items homeowners would need to pay for, anyway. It’s important to read the CC&Rs before buying into a property so you know exactly what the HOA fee is for. Typically, some expenses a condominium fee will cover include:
Maintenance and repair costs: When something in the common area breaks, it will need to be fixed. Insurance: This insurance is for the common areas of the complex, such as the swimming pool or fire pit. If something were to happen, insurance would be able to cover it. Utilities: Common areas will have utility bills to be split among the condo homeowners. A warm pool is nice, but it costs money to heat it.City services: Trash removal, water and sewer are often included in the condominium fee.Lawn care: Common parks and areas that require landscaping are taken care of by the condominium fee. Pest control: Pest control is covered by the condominium fee. Amenities and services: From the pool and fitness center to the doorman, any communal services that come with the property are covered by the condo fee. Contingency and reserve funds: A well-managed HOA will put away money that can be used for a number of emergencies. They will also have a separate, reserve fund to pay for future expenses. Staff: If your condo facility needs someone to take care of the maintenance, security, or amenities full time, your fees will go towards this. Community association management: While the board is a volunteer position, the HOA will often hire out a professional management company to take care of day-to-day operations. This includes maintenance requests, insurance, and utility payments, and other daily management tasks associated with the property.
It is important to note that while a homeowner’s association works to meet costs within the budget available to them, there are times where they will need to levy a special assessment. A special assessment is a cost on top of what you will pay for your monthly condominium fee, typically for an unplanned expense the contingency fund is unable to cover.
Criticism of Condominium Fees
Not all homebuyers are fans of a condominium fee. While it can seem easy to hand over maintenance of your property, there are also a lot of restrictions condo owners must agree to abide by. Some condo owners will wonder if their condo fees are being spent wisely or if the property is being managed well. Reading the CC&Rs (covenants, conditions, and restrictions) closely is essential. This is the document that tells you your new house color must be approved by the HOA and you can’t raise chickens in the common areas. Condo owners are responsible for this fee, even if they are unhappy with the management of the property. If left unpaid, HOA organizations are able to place liens against the condo owner’s property. Condo owners may also be liable for attorney’s fees.
