Can Condo Fees Actually Go Down?
Those monthly fees are a real factor when it comes to condo living, and condo values.
How is everyone holding up? I'm used to working from home. It's all I do. I think I go into my brokerage office like twice a year just to check my mail. I'm sure most folks at one point or another have experienced working from home but surely nothing like this. Wifey is actually in the kitchen right now working on our island on a conference call and so far so good, but she's already getting stir crazy. She hasn't made any indication that she wants to kill me yet, even as I dance around in my underwear while she's on video calls, but it's still early going ;)
I've had a couple clients email or call me in the past week or so asking how the condo fees in their building, which have been steadily rising over the years, will ultimately affect the value of their units when they decide to sell. As buildings get older, repair and maintenance expenses increase and it costs more and more to run a building. Add in unexpected events like minimum wage increases and Condo Authority of Ontario fees (topic for another day) and it seems inevitable that condo fees have nowhere to go but up.
While condo values as a correlation to condo fees isn't really the topic of this post, the short answer is yes - high condo fees will affect the value of your building. How can it not? Nobody wants to pay $1000/mo in condo fees on top of their mortgage, property taxes, etc for a 900 sq ft 2-bedroom condo, unless you're in a super luxury building with crazy amenities and services like valet parking and a doorman, where a few extra hundred bucks a month means little to owners. But for the vast majority of buyers, the higher fees are only acceptable if there is a trade-off or some sort of concession. And that concession is almost always a lower purchase price.
Whenever I start touring condos with buyers, the same question inevitably comes up - "Do you think the condo fees will go up?" And my answer is always the same - "Yup. Expect a usual increase in condo fees every year around the rate of inflation".
I get to see a lot of condo status certificates and budgets on a daily basis and maybe it's just me, but I've seen a lot of buildings in the core raising their condo fees in the 3-5% range per year over the past couple years. That's certainly higher than the rate of inflation, which stands somewhere around 2%. As a condo lover and as someone who has always lived in a condo since I left home, those increases start to become noticeable over time.
But can condo fees actually go down?
I own a few different condos in different buildings and the condos fees in one building in particular started to irk me a few years back. We would see the usual 3-4% increase every year, with an odd 4% drop one year followed by an 8% jump the following. I studied the budget each year and couldn't understand why the fees had to be constantly increased. We were running a surplus almost every year that kept piling up. It's was a 15 year old building and sitting on a $400k operating surplus just didn't make sense.
For those of you curious, a condo corporation in Ontario is a not-for-profit enterprise. Ie, the goal is not to "make" money. A balanced budget is to be set every year and in a perfect world you spend exactly what you take in from owners. No more, no less.
This isn't an exact science and expenses can vary year to year, but the goal is to analyze previous years' expenses and forecast. That being said, it is financially prudent to have an operating surplus slowly built up over time to take on those unexpected operating expenses that inevitably come up, within reason. At a certain point, however, a condo corporation sitting on hundreds of thousands of accumulated surplus is probably not efficiently running their building's finances the way it's meant to.
So that's why I joined the board of that condo two years ago. I wanted to know where the money was going, how it was being spent, and to help control the risk of condo fees getting so high that they ultimately effect the value of the building. As an agent, I know what buyers say about buildings and certain ones get blacklisted by a lot of buyers for having high fees.
Once on the board, here's what I learned - no property manager or auditor will ever recommend that a condo board actually lower their condo fees.
Why? Well, ask them and see if you get a straight answer.
I asked. And I asked again. And I asked again. And I was never satisfied with the response I got.
So I pushed to reduce the condo fees two years ago and after appealing to logic and math, it was approved. We dropped fees 1.8% by deploying some of the operating surplus money we had been sitting on for years and guess what? We still ran a surplus that year. Imagine that - we lowered condo fees and still were taking in more money than we needed to run the building. So I pushed again at the next year's budget meeting and that following year we lowered fees again by 1%. And guess what? Halfway through our current fiscal year and we're still running a surplus. Now I've been shifted to Treasurer on my board and guess who's in charge of finances now ;)
Guys, one thing you need to remember is that condo boards are run by volunteers. There is no educational or professional experience required. Most boards rely on their property manager to come up with a budget each year and those managers, as great as they might be, are not financial experts. Most couldn't tell you what an income statement looks like.
On a side note, the first year I joined my board we relied on the property manager at the time to put together a draft budget for our upcoming fiscal year for the board to review. He came up with a 0% increase budget. Seemed fine but he then said "I went through all the line items carefully and looked at actual and projected spending and actually came up with a condo fee reduction for next year. So I just padded some random line items to make it a 0 budget". I was livid. You don't just make up extra expenses on a budget to get to the numbers you want. That's not how budgets are done. My fellow board members finally agreed and said they had been questioning why we kept building an unnecessarily large surplus every year and nobody had the conviction to challenge management. But I did.
I wrote a blog last year on what condo fees actually pay for, which I think was pretty eye opening to a lot of readers. You can check it out here. Make no mistake - it's expensive to run a condo. As an owner, you're not throwing money away in condo fees. But don't hesitate to take a closer look at your building's finances and question them, ask your board questions, and ask your management to explain the budget to you. It's always the board's decision in the end on how money is spent but it's your money, so help with ideas on how to save some if you can. And if the rationale is there and it doesn't impede the financials or the functioning and services of your building, then yes, condo fees can actually go down. Just don't count on it.
Have you checked out my previous blog posts?
Your Toronto condo lover,
Adil Dharssi Sales Representative iPro Realty Ltd, Brokerage Direct: 647-223-1679 (call/text) Email: Adil@AdilKnowsCondos.com