Comparing Condominium Fees

I'm often asked how one condominium's fees stack up against other clients in our portfolio, and that's a very tricky question to answer.

Certainly there is a relationship between resale value and condominium fees. That underlies the stewardship of all condominiums by its board of directors. I usually illustrate the difficulty in answering the question with a real life example.

Several years ago I managed two virtually identical properties. The only essential difference between them was the strategies their boards adopted in the first few years following construction. Within two years these two properties had entirely different fee structures because of decisions made by their boards. One had taken an extremely conservative approach to spending, opting not to pressure-wash siding or wash windows for a number of years. As a result, they had allocated more money to their reserve fund.

The other property had higher maintenance standards year-to-year and had much more volunteer participation. While their reserve fund wasn't as abundant as the other property's, visually the property was more appealing, and resale values and actual resales didn't suffer at either property. The condominium fees at each of these properties were reasonable to cover the annual operating expenses and to set aside money for their reserve funds.

Rather than comparing fees with another condominium, it makes more sense to look at the realistic operating costs of a property and the adequacy of the reserve fund. Provided that condominium fees are not set at an unreasonably high level, and the board takes a prudent approach toward unanticipated, one-time expenses, the resale market of units should be healthy. In other words, a major roof repair should not be included in a condominium's operating expenses. The operating expenses are intended to cover annually occurring costs that are more or less predictable.

I am uneasy when boards suggest building contingencies, 'special project funds,' or miscellaneous expenses into an annual operating budget. I work with many boards throughout their budget year to build a 'wish list' for the coming year, but always recommend that the expenses contemplated in the annual operating budget be fully explained to the owners.

The intention of a condominium's operating budget is to charge no more or less than the cost of operating the property. If operating surpluses start to build, it's an indication that owners are being overtaxed, regardless of the board's good intentions for the surpluses. Similarly, a condominium that operates from year-to-year with an operating deficit will have to raise condominium fees sooner or later. Those are the realities of condominium economics.