When you buy a condominium, you're typically responsible not just for paying your mortgage and property tax, but also for a monthly condo fee. This goes to maintain the common areas of the condo building or complex. Standalone houses that are part of a homeowners association can also have such fees, so make sure you understand what you'll be responsible for when you move into a new condo or HOA building.
Typical Condo Management Fees
When you purchase a condo, you're not only getting access to your own personal unit but also to shared facilities like sidewalks, stairwells, parking spaces and plumbing. Some condo developments also include additional amenities like laundry facilities, pools, lounges or game rooms.
All of this shared space and equipment needs to be maintained, so each owner within a condo development must pay a monthly condo fee or maintenance fee for this purpose. Condo fees usually vary from about $100 to about $700 per month, but some luxury buildings charge into the thousands of dollars in fees.
When you're thinking about buying a condo, make sure you understand all the fees involved so you can calculate the full cost of ownership relative to other options. Also make sure you understand what facilities you're getting access to for your money.
Reserve Funds and Special Assessment
Generally a well-run condominium association will take the fees that condo owners pay each month and set much of them aside to form a reserve fund to pay for future needed repairs. Then, when a condo building or other facility needs maintenance, the money will already be in the bank and available for that purpose.
If an emergency happens and there's not sufficient funds in the reserve fund to pay for the needed repairs, the condo association will usually need to levy what's called a special assessment to pay for the expenses. This is a one-time charge on top of the regular maintenance fees, generally levied on everyone in the condo. Depending on the rules set up when the condominium association was created, this will need the approval of at least the condo board and possibly also the vote of all of the residents.
If you're interested in how your condo association is managing its affairs, consider attending a board meeting or even running for the board itself. If there is a large number of special assessments, it may be a sign that fees are either too low or are being misspent.
Fees Vary By City
Condo fees on average also vary from location to location, so it's safe to assume that you'll pay more in fees in an expensive city like New York or San Francisco than in a generally lower-priced city such as Charlotte, North Carolina or Nashville, Tennessee.
You can find information from real estate information sites about typical condo fees for your city to use as a basis for comparison. If you see one development charging more in fees than its competitors, look to understand why. If you see a relative bargain in fees, make sure the building and surroundings appear to be well maintained.
Condo Vs. House
It can seem like buying a condo, where you must pay maintenance fees, is a worse deal than buying a comparably sized standalone house, which usually involves no fees. It's worth considering what value you get for the money, however.
For some homeowners, it's worth paying the extra bit in condo fees to know that much of the maintenance will be taken care of rather than having to pay unexpected amounts for repairs and dealing with the trouble of vetting contractors. Condos are also often located in relatively dense urban areas where it's not possible to buy a standalone house or where they're priced out of most people's reach.
Condo fees also usually pay for regular maintenance tasks like mowing lawns and removing snow, which can be time consuming and unpleasant for some homeowners to do themselves.
Condo Fees Vs. HOA Fees
Even some standalone houses that aren't condominiums are part of homeowners associations, abbreviated as HOA. These organizations work similarly to condo associations and often maintain shared areas around a neighborhood, such as parks or recreational facilities.
They can also charge dues and set standards for how homes may be maintained and decorated within the neighborhood. Different HOAs have different standards for how strictly they enforce such rules. If you fail to comply with the HOA rules, the organization could have the right to fine you and even put a lien on your property if you fail to comply.
Make sure you understand what you're getting into if you buy a property that's part of an HOA and that you can live with the standards set for how your home and property must be maintained. Consider talking to the owners of a property you're buying or other people who live in the neighborhood about how the HOA works and the rules that it sets for residents.
Condos and Co-Ops
Another type of shared ownership of a building or development complex is what is called the cooperative, or simply a co-op. This is more common in certain cities than in others. With a co-op, owners typically purchase a share in a corporation that owns the building or buildings, and with that share comes the right to a particular unit in the facility.
Co-ops often charge more in fees than condos, but they can also deliver more services in exchange for that fee. Boards also reserve the right to approve who moves into the building, which means that it can take time to find a unit or to find a buyer who meets board approval if you ever wish to sell and move. They also often restrict if and how you can rent out your unit if you're not living in it temporarily or permanently.
Co-ops also can be treated slightly differently for tax purposes, since you can only deduct the part of the fee you pay that covers property tax and interest on an underlying mortgage.
If You Don't Pay
If you don't pay your condo fees, it can have serious consequences. Your condo association board will likely send you a demand for the money and may follow up by putting a lien on your condo or suing you. You may also be barred from shared facilities until you come up to date on your fees. Naturally, your relationship with your neighbors may also be strained, especially those who are on the condo board.
You may also be charged additional late fees or attorneys' fees to cover the costs of recovering the late fees from you.
Paying Your Property Tax
Remember that property tax typically is not included in your condo fees. As with any mortgage you have on a condo, you are responsible for making regular property tax payments to the local municipality.
Like a standalone house, you can deduct mortgage interest paid on your condo and property tax through the state and local tax deduction on your federal income tax. You may also be able to deduct them from your state or local income tax if your state and municipality have income tax.
Condo fees themselves are generally not tax deductible, unless you own the unit as a rental property.
- Realtor.com: What Do Condo Fees Cover? A Lot More Than You Think
- Realtor.com: What Are HOA Fees? How These Dues Make Homeownership Easier Than Ever
- Trulia: Attack of the Killer HOA Fees
- Condo Fees: What You Need to Know Before You Buy a Condo | Investment Property Tips | Mashvisor Real Estate Blog
- Realtor.com: What Is a Special Assessment? Condo and Co-op Buyers Beware
- Nationwide: Condo Vs. Co-Op: What's the Difference?
- Bankrate: Changes to the State and Local Tax (SALT) Deduction Hitting Taxpayers Hard
- National Council of State Housing Authorities. "FHA Issues New Review Requirements for Condominium Loans." Accessed May 11, 2020.
- First Heritage Mortgage. "What Is a Non-Warrantable Condo?" Accessed May 11, 2020.
- United States Government. "Code of Federal Regulations: Title 24, Housing and Urban Development. Part 234, Condominium Ownership Mortgage Insurance." Accessed May 11, 2020.
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.