I am moving ahead with a first time home buyer (whom I mentioned in my previous blog: How Are Real Estate Taxes Determined) and she is asking: why do condo association fees/assessments vary so much from one building to another?
One condo has assessment fees of $250 a month while another condo of similar size in the same area has fees of $375. The simple answer is that not all assessments are created equal. Some include the cost of heat, central air or a parking space. Other assessments include budgets to pay doormen, building engineers, elevator and pool maintenance contractors and garage staff. Take a close look at the section in the real estate listing where it says “assessment include”.
Your typical Chicago three story walk up building will generally include water and scavenger in the assessments. Decide to look at high rises and you will often see that heat or air conditioning and maintenance of elevators, hallways and lobbies as well as common garages are included. Graduate up to a full amenity building and your assessment will cover on site property managers, doormen, building engineers as well as pool and exercise facility staff. Move to a downtown condo and you may be paying for an on-site business/conference room center, tennis courts or even climbing walls, squash courts and putting greens depending upon the location. 6033 North Sheridan Road is a good example of a full amenity building in Edgewater.
The hidden, yet very important component, within monthly assessments is what we call “replacement reserve funding”. This is an amount that is added to the basic operating costs to build up a reserve fund to cover major items that will need replacing in the future. Replacement items are often major such as roofs, elevators, brickwork/masonry tuck pointing, resealing garages, refinishing swimming pools, remodeling laundry rooms, rebuilding roof decks and more.
The best managed buildings will contract for a “reserve study” to be done every five years to assess the condition of the capital items so that a budget can be established to set aside money for future renovations or replacements. Most high rise condo associations often undertake professional reserve studies. Small, three story, walk up buildings or self-managed properties with anywhere from 3 to 6 or 9 units do not usually do formal replacement reserve studies.
Be sure to ask your real estate professional to find out whether a building is setting aside money for replacing capital items in the future. Although it may increase your assessments in the present, it is a much better route than waiting until a major element breaks and getting notified of a “special assessment“. As you can imagine, there is nothing “special” about such a fee and it can amount to a large chunk of change.
Before you make an offer, talk to your real estate professional to make sure you understand what is covered and, more importantly, what is NOT covered in your monthly condo assessment fees.