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Condos – Part II

CondosThis is part II of my introduction to condos.  Part I can be found HERE.  In my last post, I shared with you the legal definition of a condo, and how costs incurred in the project are divided among the unit owners.  In this post, I will discuss the pros and cons of condo living, monthly fees and why in some projects, they are so high.

Why Live In A Condo?

Condos and townhomes aren’t for everybody.  One saying that I’m fond of is “There is a home for every buyer and a buyer for every home“.  Some of the pros and cons include:


  • Fewer maintenance worries
  • May include amenities such as a pool, workout room, clubhouse, etc.
  • May have group activities for residents
  • Less costly alternative than purchasing a home


  • Potential for more noise from neighboring unit owners
  • Usually less square footage than a home
  • May have pet, parking, noise, or other restrictions
  • Management by committee on repairs and other costs

HOA Dues Defined

HOA stands for Home Owners Association and every condo project has one.  Larger projects may be professionally managed and have an executive board and committees, while smaller projects may be more informal.  By purchasing a unit in a condo project, you agree to pay your fair share of expenses incurred by the HOA on behalf of the complex. These expenses are collected monthly in the form of HOA dues and usually include costs to maintain the landscaping, utilities (water, sewer, garbage), insurance (structural and liability), general maintenance, management, and reserves for future upgrades and repairs.

When purchasing a condo, it is just as important that you research the financial aspects of the complex as well as the individual unit.  Your purchase contract should include a contingency clause that allows you time to receive and review a “resale certificate” (for resale units) or “public offering statement” (for new construction).  This packet of information is a report on the financial health of the project, and can also provide insight into what lays ahead.

Why Are The HOA Dues So High?

If you’ve been looking for a condo lately, you may notice that some projects have extremely high dues.  You need to take this expense into consideration when getting approved for a loan, since this cost is in addition to your monthly mortgage payment. Your loan officer may ask to review the financials on the entire project as well as your personal finances.  I’ve seen instances where a buyer is well qualified to purchase a condo, but the bank refused to loan money because they didn’t like the financials of the complex.

I’m not aware of any metrics that compare sales prices to HOA dues, but empirical data for my market area suggest that monthly fees between $200-$300 are the norm for condo projects with few or no amenities. There are exceptions to this of course, but you should fully research exactly what your HOA dues will cover and make an informed decision.  For example, some projects include cable TV and other utilities as part of their HOA fee.

As structures age, they require maintenance.  If the HOA has not been well managed from the start, it is possible that the reserves are insufficient to pay for the necessary repairs and/or upgrades.  When this happens, the HOA board has a few options.  They can:

  • Defer the maintenance or repairs until they have sufficient funds
  • Impose a “Special Assessment” to each unit owner to cover the repair costs
  • Increase the HOA dues to build up the reserve funds

I’ve seen examples of all three options and none are well received by the unit owners.  Here is a real example of a condo complex in my market area:

Back in the 1960’s, a condo project was built in Bellevue, WA.  At the HOA inception, the unit owners voted to keep the monthly dues low because they felt that since the building was brand new, they wouldn’t need repairs for a long time.  They felt that subsequent owners should shoulder the burden of future repairs, since it was likely that they’d be long gone by then.  It was the financial equivalent of the NIMBY rule. Fast forward 40 years, and you have a condo project badly in need of maintenance and repairs, but with insufficient reserves from which to pay. They can no longer afford to defer the maintenance, so they impose a special assessment of $50,000+ per unit owner to pay for these repairs.  In addition, they are now forced to raise the HOA dues to build up the reserves after seeing the error of their ways.  New buyers looking to purchase a condo in this project now face HOA dues upwards of $500/mo with no amenities!

ChartsTo compound matters even further, lenders won’t loan money on purchases here because of the poor financial health of the project.  Sellers have trouble selling, buyers can’t buy unless they have all cash.  This series of events creates downward pressure on prices and values, and I see it happening in several projects throughout the area.

How To Avoid This From Happening To You

Be an informed buyer!  Be proactive and actually read your purchase contract and resale certificate instead of just filing them away. Work with an experienced real estate agent (I had to put in a plug for my services somewhere, right?). Lastly, if you’ve made the decision to buy a condo, become involved on the HOA board and attend the monthly meetings to voice your opinion.

I used to live in a condo, and I loved it.  The benefits included no yard work, less maintenance, closer to the city and nightlife I enjoy.  Now if only I could sell my home…

What are your thoughts? Would you live in a condo? Leave me a comment.

When REALiTY BiTES, bite back!

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