Question: I'm looking at buying a downtown condo, but man, those fees are crazy! What do you consider a reasonable rate per square foot?
Various factors can contribute to condo maintenance fees – building amenities, utilities, location, age of building. But the definition of what's "reasonable" is always very subjective.
So I will give you my subjective opinion: The amount we pay for condo maintenance fees is generally way too much these days, especially in downtown Toronto.
Just a few years ago, 50 to 65 cents per square foot (psf) was acceptable for the average condo situation. More recently, we're seeing price of between 70 and 80 cents psf for many buildings.
Condo fees in older buildings at the Queens Quay waterfront and elsewhere in downtown Toronto run anywhere from $700 to $800 per month for units that are just over 1,000 square feet. That averages to about 75 cents psf.
Building age becomes a factor in condo fees. Older buildings require more repairs in general, along with modernization of common-area decor such as hallway carpets and lobby areas. These costs ultimately gets passed on to condo owners in fee increases of course.
But newer buildings can have their own issues. The rise in condo fees in some new builds is attributed to sub-par building materials and construction (we've all seen the widely reported stories of glass falling from balconies, some of which have led to class-action lawsuits from condominium residents and others affected).
When you purchase a condo, the fees may be perfectly reasonable in your view. But that doesn't mean they won't increase at a very unreasonable rate in future years.
So how do you avoid getting hosed on condo fees?
A lawyer's review of a condominium status certificate will come in very handy. This certificate is a snapshot into the overall financial health of a condominium. Your lawyer will be able to review the information in the document and give you an opinion of the financial health of the condo.
In my opinion, the two most important pieces to look at within a status certificate are the Reserve Fund (and study) and any Special Assessments.
The Reserve Fund refers to the amount of money the condo corporation has in the bank to deal with both regular and unforeseen maintenance and repairs. The actual amount that should be in the Reserve Fund is largely dependant on the size of the building (i.e. number of units) and the age of the building. The older the building, the more money they should have.
Complementary to the Reserve Fund is the Reserve Fund Study. These are projections of how the Reserve Fund will look in future years. If the study doesn't indicate appropriate planned increases to the fund in future, that's a red flag.
Any Special Assessments to a building can be a cause of concern. Such assessments are additional payments or a levies that a condominium board has to impose on residents when shortfalls or unexpected expenditures occur, and there isn't enough money in the Reserve Fund to cover for it.
These are particularly of concern for smaller condominiums or lofts, where the burden is spread across fewer owners. I once had a client who had a beautiful authentic hard loft conversion. Because the building was a old former factory, there were issues with the roof and a Special Assessment was issued because of shortcomings in the Reserve Fund.
Since there were only 28 units in the building, each owner had to ante up almost $10,000!
While there are no guarantees with the future health of any building, some due diligence can save you a lot of headaches down the road. Under no circumstances would I proceed with purchasing a condo without a lawyer's review of the status certificate.
Finally, consider that a condo fee of $475 per month is equivalent to about $100,000 in purchasing power with today's mortgage products. You can buy a lot more house if you don't have condo fees to worry about.
Ricky Chadha is a broker with Royal LePage Estate Realty in Toronto, and specializes in applying social media and other digital tools to the business of real estate. You can find Ricky on Twitter @your416 or at his website RickyChadha.com.
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