Condo life: Fees balanced by amenities
Sunday, February 18th, 2007You have to compare it to cost of maintenance on a house, real estate agents say
By KRISTEN HAMPSHIRE
Special to The Tennessean
Published: Sunday, 02/18/07
The courtyard at The Enclave of Hillsboro Village is half the size of a football field. The urban condominium address features a clubhouse, fitness center and Internet cafe, not to mention a wine cellar with private bottle storage. A concierge will feed the dog when owners are out of town and help haul groceries to residents’ suites. Security cameras, on-site personnel and guarded gates provide a home-safe-home feeling.
But living the high life comes at a cost.
Condominium association fees cover insurance on all common areas of a building and finance the high-end services that new downtown developments offer. Yes, “common” includes the sleek pool you may or may not use, the manicured grounds and all that infrastructure you never see. And the 24-hour front desk — the staff doesn’t work for free.
“The definition of a condominium is common ownership, so everyone has to share those expenses,” says Newell Anderson, a real estate agent with Village Real Estate.
But Nashvillians who invest in condominiums have a greater priority in mind: convenience and location.
“If they are typical buyers, they are happy to pay the fees,” says Jane Anderson, also with Village, who is involved with The Enclave and 5th & Main developments. Figured on a price-per-square foot rate, and compared to the cost of owning a house, the monthly association fees are worth the price to some.
Costs can add up
Lisa Byrd listed her three-bedroom Williamson County home for sale and traded the maintenance responsibilities for an 1,880-square-foot Enclave condo with conveniences she’s willing to pay $290 a month for: the concierge, common areas and camaraderie. She figures it’s a deal.
“I always owned homes,” says Byrd, 50, who sells condos and wrote her own contract after working at The Enclave for three weeks. “I’m at the point in my life where I want a different lifestyle.”
As Byrd puts it, “The building is designed to take care and maintain people.” She doesn’t mind paying to care for the building that caters to her.
Condo fees in greater Nashville range from $200 to $700, or $0.15 to $0.35 per square foot for most downtown spaces. Simple arrangements such as town homes, which have fewer shared amenities, may cost $85 to $125 in association fees per month, depending on the location, says Scott Troxel, an agent with Keller Williams Realty. Fees are figured based on unit size: the more space you buy, the bigger your bill.
And, of course, “The more amenities, the higher the price per square foot,” Troxel adds. “But a lot of times, those amenities are why buyers go into a particular development.”
Newer condos such as Exchange Lofts, Church Street Lofts and Morgan Park Place charge a flat fee of about $45, then an additional fee, usually about $0.15 per square foot, says Tom Bristow, property manager for Ghertner & Co. His company manages more than 20,000 condos in Davidson, Williamson and Rutherford counties. Once buildings are sold out and condo association boards are fully elected, they may vote to raise the fees if they see a need to increase reserve funds, which is basically a condo savings account that helps defray the cost of future maintenance and repairs, Bristow explains.
In contrast, University Square on 19th Avenue South, which was built in the early 1980s, has an average fee of $1.50 a square foot. The development boasts the same amenities as newer condos — a pool, 24-hour courtesy guard, underground parking and workout room. But because repairs are inevitable as a building ages, the higher fee is necessary.
“We have to make sure the reserves are adequate to cover the costs,” Bristol says.
Many buyers understand before they apply for a loan that a mortgage isn’t their only monthly payment. But fees can work against buyers who are squeezing their budgets to purchase in a desired building. “Lenders take those fees into account when they approve someone for a mortgage,” Troxel says. “It’s tough when the property a condo buyer wants is at their price limit, and the association fee can really push them out (of a deal).”
Condominiums aren’t the only ones with shared fees. Typically, arrangements that involve zero-lot lines often form associations to cover insurance costs for shared areas. Jane Anderson has this setup and shares a lot with one other owner. “There is a set of condominium documents that cover this two-unit structure,” she says, though her fees include only liability insurance for the property.
Homeowners’ associations in housing developments also charge fees if the neighborhood has a common area or gate. “You’re probably paying less than $100 a month,” Anderson says.
The point of any association fee is to protect owners’ investments in a property. In a condo situation, operating costs to maintain high-end amenities get expensive. “When you see the budget for the salaries and maintenance considered (in the fees), they aren’t a whole lot,” Byrd points out.
Assessment can be shock
While the condo fee is predictable, the word “assessment” makes condo owners cringe. When a building faces major repairs and does not have the money in reserves to cover them, the association board votes on whether to enact an assessment. Basically, this is a bill for services, and the tab for individual owners can easily push five figures.
“You could have a pool with a crack in it, or wood siding on the exterior that is termite-infested,” Jane Anderson says. “Assessments can range from $1,000 to $15,000 for the year, per homeowner, depending on the degree and severity of the repair.”
Generally, the association board presents payment options; owners aren’t expected to write a check for the lump sum. “People who have lived in the building for the lifetime of the development understand what it costs to maintain a structure,” she notes. “But for the new buyer who just bought within the year, and all of a sudden they are faced with an assessment, the cost is surprising.”
All assessments are voted on by association members. New owners can avoid the “shock” that Anderson describes by getting governing documents, the past five years’ budgets and a history of association meeting minutes before purchase.
It’s also critical to find out how much a building has in its reserves. Usually, owners pay two months worth of fees upon move-in, and this money is invested in the reserves, which acts as a savings account for the condominium. “These reserves are invested, and in a best-case scenario, the money builds up over time and is available for exterior repairs,” Anderson says.
Stable reserve fund vital
Older buildings are more likely to pull from their reserves, and then some, to finance upkeep. And smaller developments bear a greater burden, dividing assessment sums by fewer units.
“You see some condo complexes where price points are attractive, then the association fees are — whoo!” Troxel exclaims. He saw one building raise fees from $120 to $300 a month because property management mismanaged funds and ignored repairs.
Bristow says an association may hike condo fees for a couple of years, just until expenses for repairs are covered. In University Square, a $2 million addition for exterior repairs bumped one-bedroom condo owners’ regular $309 fee to $1,406 for two years. “That is a rarity,” he says, adding that associations always vote on repairs before assessing residents with exorbitant fees.
Really, the key to avoiding excessive fees is to maintain a stable reserve. Older buildings that don’t adjust association fees regularly can allow their building bank accounts to dwindle. Then, when major repairs are in order, the money must come from residents through assessments or a sudden, drastic increase in association fees.
But for the most part, and especially in new buildings, condo fees will not increase each year. And because most of the new buildings will not need infrastructure repairs any time soon, new owners probably won’t face quick assessments. “If you buy into a larger development, it lessens the financial burden to individual homeowners,” Anderson adds.
Also, homeowners must decide what is more cost-effective: paying a condo fee or maintaining a house?
Costs can rival home maintenance
As more developments crop up in the downtown core and surrounding neighborhoods, buyers in the market for a condo lifestyle are drawn to the urban location more than anything, Troxel says.
“Some people have owned homes in the past, and they are tired of dealing with landscaping and exterior maintenance,” he says. This includes single professionals who travel and single parents who do not have time.
Troxel figured his maintenance fees on a four-bedroom home he has owned for the last 15 years. He added the costs of lawn maintenance, repairs and utilities. “It easily came in at the same level as most condo fees,” he says.
Of course, buyers must decide whether they would take advantage of building amenities. “If you never use a pool and you don’t want to pay for someone else to, that’s something to consider,” Troxel points out.
But understand, location won’t attract buyers down the road if the building’s amenities and exterior is not preserved. “For the most part, the cost (of fees) is very justified for all of the maintenance elements necessary to keep the building presentable now and to protect it for the future,” Troxel says.