Why Are My Condo Fees So High?
So many factors can contribute to high condo maintenance fees – amenities, location, age of building and utilities included. But what should you be paying? In my opinion, maintenance fees are higher than they should be, especially downtown Toronto.
It wasn’t too long ago when 55 to 65 cents per square foot was the norm for the ‘average’ condo building. Now, it is not uncommon to see 70 cents or more per square foot. I have even seen some waterfront condos with maintenance fees as much as 92 cents! That being said, if having a spa, dry cleaners, restaurant, convenience store and valet parking in your building is important to you, than it may be worth every penny.
Older buildings usually have higher fees, as they require more maintenance, repairs, updating of décor in common areas, or replacement of amenities whose useful lifetime has expired. All these costs are the responsibility of the condo owners. (Who are part owners of the condo corporation that runs the building). Also, any lawsuits, or special assessments may affect the monthly fees, if the reserve fund cannot comfortably absorb the cost. Special assessments are additional payments or a levies that a condominium board has to impose on residents when shortfalls or unexpected expenditures occur, and there isn’t enough money in the Reserve Fund to cover for it. The Reserve Fund is a contingency fund to cover unforeseen repairs, maintenance or anything that is not normally budgeted for.
Newer buildings may start out low, but inevitably, they increase considerably in the first few years.
There are a couple of reasons why this happens. First, there may be poor materials or workmanship that needs to be replaced/fixed quickly. Sometimes a builder, or a sub-contractor, will cut corners and cause problems later on. The condo corporation is responsible for correcting these problems, if they have no recourse against who is responsible. Of course, it is impossible to know if there may be future problems, however, you can mitigate problems by researching the builder’s track record.
Another contributor to sharp increases in new condo fees is not as well known. Builders, when estimating condo fees for a new condo are required by law to include 10% for the Reserve Fund. It is widely accepted that 10% is, to say the least, inadequate for normal operation of a condo, so, when the Reserve Fund Study is conducted 10 months after the condo corporation is formed (and every 3 years after that), they will most likely increase the Reserve Fund portion 2 to 3 times the amount estimated by the builder when selling the units. Keep in mind, the builder is not doing anything legally wrong, but it can be surprising to an uninformed. (That’s what this blog is for!) So, be prepared for a sharp rise in monthly fees in the second or third year, due to the Reserve Fund study.
One other thing to consider when purchasing a condo is the number of units in a building – or buildings if they share the same amenities. A small condo with 50 units will get hit much harder by special assessments and repairs than a condo with 300 units, as the burden is divided up between fewer owners.
I always insist that a buyer has their lawyer inspect the Status Certificate when buying a condo. This Certificate is a snapshot of the overall financial health of a condominium. Your lawyer will be able to review the information in the document and give an opinion of the financial health of the condo, as well as check for any special assessments, or even the contemplation of a special assessment, or rulings against the condo corp. that may affect your costs.
Another thing to pay attention to is what is included in your condo fees. A monthly fee of $600 that includes heat and hydro, would most likely equate to less monthly expenses than a $500 monthly fee that does not include these utilities. Also, keep in mind that the number of parking spaces, size of the balcony, or any areas you have exclusive rights of use will contribute to your fees. These are all included in the calculation of your share.
Condo living offers a certain lifestyle that is very appealing to many, and if you need to be right downtown, or will use the amenities available to you, than it is absolutely worth it! That being said, consider that a monthly maintenance of $485 is equivalent to approximately $100,000 of purchasing power in today’s mortgage market. (It cost around $4.85 to mortgage $1000) You can get a much more expensive “freehold” home when you have condo fees!
Call me @ 416-450-4503, or fill out the Form below, and I will help you chose what is right for you!
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