Condo HOA Fees, Explained

Condos are a relatively new type of residence. The first condominium entered the market in 1960 in Salt Lake City, and soon after, Congress passed laws allowing federal funding for condo development. That opened the floodgates and today there are about 17 million privately owned condo units in the U.S.

For many people, condos are a perfect blend of privacy and community. When you buy a condo, you get a privately owned residence in a building or townhouse with shared amenities and common spaces. While it’s your job to maintain your home’s interior, the condominium board maintains the building’s exterior, grounds, parking spaces and shared grounds.

In exchange for the freedom from costly and time-consuming maintenance and repairs, condo owners pay monthly condo fees. If you’re not expecting them, your condo association bill might be a surprise. Worse, unlike the fixed monthly mortgage payment of a single-family home, condo fees can vary—and may rise sharply with little warning.

What are condo fees?

Condo association fees are your share of the costs of maintaining and improving your building and the condo community. They are often – though not always—proportional to the size of your unit in relation to others in the building or community; you pay higher condo fees for a three-bedroom unit than a one-bedroom.

If condo fees seem outrageous, keep in mind that financial experts recommend setting aside between 1% and 4% of the purchase price of your home each year for upkeep and repairs with a single-family home. That figure serves as a baseline for evaluating your condo fees.

What do condo fees cover?

Besides routine repairs and maintenance, condo fees also cover your share of the community’s amenities and services. These may include trash and snow removal, groundskeeping, security and upkeep of parking areas.

Many condo boards offer insurance for exterior areas and common spaces; the insurance may even cover flood and earthquake damage. Owners need only insure the interior and contents of their home. Depending on the building, they may also include certain utilities such as water and sewer in your condo fees.

Upscale condominiums offer perks such as indoor and outdoor swimming pools, fitness centers, concierge services, valet parking, club facilities and resident events (think happy hours, Sunday brunch, summer cookouts and holiday parties). Condo fees cover these extras.

Property taxes are one thing your condo fees do not cover. Unlike co-ops, in which the co-op board negotiates and pays property taxes for the entire building, condo owners pay their own property taxes. For IRS purposes, condo fees are considered personal expenses, which means they are generally not tax deductible.

How much do condo fees cost?

Condo fees vary widely depending on the size and location of the building, as well as the amenities and services the condo association provides. The typical range is between $100 and $700 per month, although luxury buildings in major metropolitan areas charge thousands in condo fees each month.

Size, location and amenities all factor in, but there are other variables with a sizeable impact. Depending on the age of the building, roof replacement, hallway and lobby renovation, other capital improvements may come up sooner rather than later. These are major projects typically amortized over time.

Anthony S. Park, a New York City real estate attorney and author of “How to Buy Your Perfect First Home,” recommends looking at the condo’s financial statements. “If the building doesn’t have a big reserve, which is basically a savings account, it may try to build reserves by charging condo fees that are higher than otherwise necessary.”

“Big projects need big money, so condo associations can either build those costs into the condo fees and save for them just like you or I would for home improvements—or they can use assessments,” Park said.

Assessments are added fees tacked onto your monthly condo fees. A well-managed condo association should have adequate reserves to cover major projects and repairs without special assessments, but that’s not always the case. The financial statement offers clues about how the board manages its expenses and obligations.

If you choose condo living, condo fees are a fact of life, but most people consider them fair trade for a maintenance-free lifestyle. That’s one reason why over 20% of Americans live in condominium, co-op or HOA-governed communities. It’s also nice to know that your building and common spaces will be consistently tidy and in good repair so property values don’t slip.

The downside is that condo fees aren’t always predictable. The condo board can vote to raise your monthly fees or impose special assessments depending on routine costs and planned and unplanned major expenses. Condo fees are also factored into your mortgage qualification, which may lower the amount you can borrow for your home.

Condominiums aren’t for everyone, but if you’re thinking of buying one, do your homework. Review the condo’s financial statements and ask about the frequency of special assessments. And remember that condo fees aren’t constant—they usually increase over time due to inflation and the costs of maintaining the property—so be sure to leave room in your budget for the additional costs.