Most of us want a home but, well they're expensive. Okay, we'll buy a condo or townhome instead. What's the deal with those monthly fees? How come they're always making us pay $200 and higher, in addition to the mortgage, phone bill etc?
It's a common question and more than one customer has suspected that "somebody's making a profit off it." As a CPA, one of the things I've done is audit homeowners' associations. I had to do some studying to learn about how associations (nicknamed "AOAO's") work.
Homeowners Associations are not-for-profit. That is, they collect money from the owners and use it to maintain and operate the property. Take a look at a condo and consider the following:
There's an electric bill for lighting the lobby, the parking lot, hallways and elevators.
Does the condo have a resident manager? He gets paid a salary, and if he lives in the building, the association is probably paying the rent for his unit.
Does the condo have a security guard? Security companies charge $15 per hour and up for guards.
The more amenities a property has, the higher the maintenance fee will be. For example, swimming pools, large landscaped grounds, security cameras, meeting rooms etc. all add on to the cost of operating the common facilities - a cost that is shared by all of the owners.
While most properties include the basic services in the maintenance fee, others may include extras such as cable tv, electricity and central air conditioning. Check with your agent to see what's included in the maintenance fee.
Does your building need to be painted? For large high rises (say 20 stories or so) it costs about $100,000 to paint the building. Buildings are commonly painted about every 5-10 years.
Properties 20 years and older start to show their age and require more repairs and maintenance. Roofing, parking lots, elevators etc. are expensive to replace. Maintenance fees increase as associations plan and budget for major work to be done. If the repairs aren't made, the property falls into a state of neglect and property values decrease. We don't want that, do we?
Sometimes properties were poorly constructed and need major repairs not long after they were built. Maintenance fees might be increased to accumulate the necessary funds to make the repairs. In other instances, an association just has bad luck, maybe a storm causes damage to the property and again, maintenance fees must be increased.
Homeowners associations are generally audited each year by a certified public accountant. The accountant analyzes the expenditures and notes whether they appear to be proper. When your offer on a condo or townhome is accepted, you will receive a "condo document" package that includes the association's financial statements. Take a look at the documents and ask questions!