What Do Condo Fees Really Pay For?
Many people think paying condo fees is a "waste of money". They couldn't be more wrong.
Well, we're in the dog days of summer. I have no idea where that expression comes from and I refuse to Google it (I feel like I just Google everything these days) but we're entering what is typically the slowest time of the real estate market apart from Christmas. But give it a couple weeks and once Labour Day hits, everyone gets into "back to school" mode and things start gearing up for another busy fall market.
This is also when I meet with buyers to decide exactly what they're looking for so when listings finally start popping up again, we're ready to roll.
Whenever I start talking about larger, more "livable" condos, the comment about "should we just look at houses" inevitably comes up. With the price-gap starting to narrow between large 2-bed condos and entry-level semis on the east-end, it's hard not to think about it. And the discussion about condo fees isn't far behind. I cringe when I hear anyone say "I don't want to waste money paying condo fees" so I'm secretly writing this blog so I can send it to any future buyer who feels this way and hopefully show them how condo fees are actually used.
So let's break down a few of the major expenses that come with running a condo building and where the majority of your condo fees go...
1 - Reserve Fund:
The biggest and arguably most important chunk of your condo fees go towards your building's reserve fund.
By definition, the reserve fund is "used to pay for major repairs and replacements to the condominium’s common elements. A portion of the owner’s monthly common expenses fee is deposited into the reserve fund every month. The reserve fund is intended to ensure that the corporation has enough money to pay for future repairs. The reserve fund is used to pay for major renovation or repairs projects. If condos didn’t have reserve funds, they would need to raise large amounts of money when they need to do major projects." - The Condominium Authority of Ontario.
So basically any major repairs that your condo will anticipate over the next 30 years is amortized into a monthly fixed amount and set aside for when those repairs are eventually required. And every 3 years, a new reserve fund study is performed by an engineer to make sure those numbers are still accurate and the monthly contribution is adjusted accordingly.
The reserve fund covers things like the building's roof, major garage repairs, elevator replacements, hallway renos, lobby updates, window replacements - any major repairs or improvements. Even things like updating your building's lobby or redoing the hallways are factored in and budgeted for because nobody wants to walk into 20 year old condo and have it "feel" like a 20 year old condo. So those costs are estimated and budgeted for and saved up over years and years until it's time.
On average, a typical condo will allocate anywhere from 15% to 30% of a building's annual budget toward their reserve fund based on the recommendations from the engineers. I.e., 15-30% of your condo fees go straight to the reserve fund.
I'm looking at the budget right now for a popular downtown condo building that a client of mine is considering and they are allocating $441,145 of the current year budget towards the reserve fund, out of a $2,000,000 budget - or about 22%. Another building nearby allocates $346,897 out of their $1,427,977 budget - or about 24%. This is obviously not an exhaustive list but I've seen tons of condo budgets and these are pretty accurate representations.
2 - Concierge:
One of the biggest perks of living in a condo is having a concierge. Someone to sign for packages (which seems to be their biggest task nowadays), someone to provide a level of security for the building, and someone who you can approach if there's any issues you notice.
But that service is not cheap.
Full-time (24-hour) concierge service for condos can range anywhere from $200,000 to $300,000 per year. If you consider an average sized condo building with 350 units, each unit is paying on average somewhere between $47 and $71 per month for that full-time concierge. In a boutique or smaller building, that cost per unit goes up.
Some condos have started to rethink their need for full-time concierge service and it's a delicate balance. Yes, it's expensive but many residents strongly feel it's totally worth it. Some buildings have opted for part-time concierge services - maybe only during business hours to allow for packages to be signed for, or sometimes only 18 hours a day, or just during the week. It's a struggle that many condo boards face every year when it comes to review the upcoming year's budget.
3 - Property Management:
I'm on the board of one of the condos I own and even though it feels like we "run" the building, the day-to-day operations of managing a condo building are almost always handled by an outside professional property management company. They handle and coordinate all the repairs and maintenance of the building, deal with collecting condo fees from owners and the buildings accounting, deal with complaints from residents (and there are always plenty of complaints, trust me), as well as advising the board on anything and everything it takes to run a building.
The costs can vary depending on the size and complexity of a building but property management fees can range from around $70,000 to $200,000 per year.
A big factor in determining this cost comes from whether the property manager is on site every day, or only on site part-time and working remotely the rest of the time while managing other buildings in tandem. If you want a dedicated property manager working full-time on your building exclusively, it will certainly be at the top-end of that range.
4 - Utilities:
One of the most difficult budget line items for a condo board to forecast each year are the utilities. Hydro, gas, and water rates change year to year and estimating the actual consumption in a building is part science, part art.
Just about all newer condos have hydro and/or water and/or gas metered separately for each residential unit. I.e., each resident pays for their own personal utilities separate from the condo fees. But even still, there is a significant expense that goes towards "common element" utilities - the lights and heat/AC in the lobby, hallways, gym, party room, parking garage, etc are all still paid for out of your condo fees, even if you pay for those separately for the usage in your own unit.
Hydro can run anywhere from around $150,000 per year to around $250,000 per year.
Gas is probably in the $100,000 to $150,000 per year range.
Water somewhere in the $100,00 to $150,000 per year range.
So utilities can run anywhere from $350,000 to $550,000 per year for your typical 350 unit condo. Certainly a very large line-item and one that is usually under the most scrutiny. It's no wonder so many condos have undergone LED retrofit projects and enacted other efficiency controls to try and reduce their hydro consumption in the common areas.
5 - Repairs and Maintenance:
This is another difficult line item to predict because, well, you really don't know what will need repair and maintenance throughout the year. Sometimes stuff just breaks and sometimes stuff runs forever. But even still, it's safe to assume something will always need fixing throughout a building, and other things do require on-going maintenance - think landscaping, plumbing, wear and tear repairs, etc.
A tough one to approximate but it's safe to say you're looking at around $100,000 to $200,000 per year for general building repairs and maintenance each year for an average building.
6 - Other "Contract" Expenses:
Condo boards try their best to smooth out most of the annual costs by having fixed-cost contracts for various services: Things like garbage removal, HVAC maintenance, elevator maintenance, condo insurance, cleaning staff, window cleaning....the list goes on.
Each building is different but these fixed contracts can run anywhere from $200,000 to $500,000 (or more) depending on the size of the building, the level and frequency of the service, etc, etc.
These services are essential to keep a building looking good and running smoothly.
I think I'll end the breakdown there but I think you'll see that a lot of expense goes into running a building so before you complain that condo fees are a "waste", think of all the benefit you get from not having to deal with any of these things yourself.
So what are considered reasonable condo fees for a building?
Most buildings calculate condo fees on a per square foot basis - so the larger your unit, the higher your condo fees. So it's best to look at per square foot fees for an apples-to-apples comparison.
Here's where I land:
Under $0.55/sq ft - very inexpensive and realistically, it's pretty difficult to run a building with fees this low (although not impossible).
Between $0.55 and $0.65/sq ft - Very good. In this range, you should be thrilled about your condo fees and as long as the building is running smoothly and is financially in good shape, you're in the sweet spot!
Between $0.65 and $0.75/ sq ft - Average. This is typically where I'd say most buildings lie, and generally allows a building to be run comfortably.
Between $0.75 and $0.80/sq ft - Above average. No need to be alarmed but this is probably on the high-end of average for condo fees. As buildings age, you see the fees start to creep up to this level.
Above $0.80/sq ft - High. This is the point where condo fees start to affect the value of units in a building (apart from luxury buildings, which are a totally different category), as the monthly fees become a bigger factor in how much someone might be willing to pay for a unit.
One final important factor is whether or not utilities (hydro/water, etc) are included in the condo fees for each unit. All newer buildings meter most utilities separately, but buildings built pre-2004 or so still might include hydro/water in their condo fees. My own analysis says hydro comprises about $0.08 to $0.09/sq ft of a unit where hydro is included. So before you freak our when a building's condo fees are higher than you expected on a per square foot basis, remember to factor in the extra $0.08-$0.09/sq ft to see if the condo fees without considering hydro are comparable to another building where hydro is billed separately.
I could go on and on but I hope this helps show that condo fees are a crucial part of condo ownership and are in no way a waste of money. Yes, they affect your immediate monthly cash-flow versus a freehold property but all those housing repairs and expenses you would otherwise have to deal with yourself are budgeted in advance and taken care of by someone else simply by paying condo fees - and to people who appreciate condo living, it's totally worth it.
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Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)