Dear Egghead: What are the red flags of condo fees?

Dear Egghead: I’m shopping for a condominium. I’ve noticed that some complexes have condo fees of just $350 or so, while others have fees exceeding $1,600, which seems outrageous. How do I know whether a condo fee is reasonable or not?

ANSWER: Condo fees cover maintenance and repair of common areas — cutting the grass, trimming trees, maintaining parking lots, and paying for certain utilities. These fees are in addition to your mortgage payment, and in some cases make the complex unaffordable. The average condo fee in the U.S. is $290, and fees tend to be higher in highly populated metro areas, where the cost of living is generally higher. Fees are sometimes lower at newer complexes because the upkeep can cost less than complexes with aging infrastructure.

In a perfect world, condo fees would be directly proportional to the amenities offered. A bare-bones condo complex should have a much small fee than one offering fancy fitness centers, pools, tennis courts, and other perks. And still, a modest condo fee can often cover your expenses for hot and cold water, trash removal, and sometimes even electricity.

Sometimes larger condo complexes can keep fees down because they have more unit owners contributing — there can be an economy of scale. And at many complexes, the fee is higher for units with more bedrooms or square footage, which is only fair.

But an excessively high condo fee, when considered against comparable properties in the area, can be a huge red flag. Perhaps the condo’s directors have mismanaged the funds, or have not charged enough in the past, and now much make up for shortfalls in the budget. A properly managed fund will have reserves set aside for special costs such as new roofing and other exterior maintenance.

If you make a purchase offer on a condo, you should receive a copy of the association documents, which will show whether reserves have been set aside for these special assessments. In the case of inadequate reserves, you can expect that the fees may rise sharply in the future to cover unexpected costs. In most states, you’ll have three to five days to back out of the sale if the condo docs raise concerns. Beyond the financial concerns, condo docs outline the rules and regulations enforced at the property, which can be a deal-breaker, such as restrictions on outside fixtures, and your ability to rent the unit to a different occupant.

Another potential issue with condos is whether there is on-site management, or if management is outsourced to an off-site provider, which can impact your ability to get issues resolved.

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