Going Up and Not Coming Down

Going Up and Not Coming Down
Condo Fees Are Escalating at a Shocking Pace, but Buyers Can Still Be Choosy

By Terri Rupar
Washington Post Staff Writer
Saturday, June 3, 2006; F01

Condo fees can vary dramatically, based on a building's location, age and amenities, among other factors. But fees tend to have one thing in common: They go up. And lately they've been going up more.

"Utilities and insurance have [raised] condo fees into a whole new stratosphere," said Katie Allardyce, senior vice president for CFM Management Services in Alexandria, which manages about 45 communities around the Washington area, most of them condominiums. Before a few years ago, she said, fees mostly increased by 2 to 3 percent a year, just keeping pace with inflation. Now, jumps of 5 to 15 percent are not uncommon.

Consumers are already feeling the pinch of rising interest rates and higher prices for gasoline and other goods. Property taxes are rising with tax assessments. Condo fee increases add to the budget strain -- especially for people who stretched to buy their units or those who are on fixed incomes.

Condominium owners own their units individually but own in common shared areas such as roofs, lobbies and outdoor space. Fees go to fund owners' common needs: maintenance, landscaping, utilities for shared areas, any amenities. Fees are generally set by the condo association board, made up of owners and elected by owners as well.

People have different reasons for how they want fees set and how much they want to see them go up. Stan Karson, former president of the association governing 1510 Condos in Arlington and a 26-year resident, said people who have lived in the building the longest tend to be more skeptical about raising fees. Karson said fees in the 40-unit building are roughly $250 to $350 a month. People who are looking to sell soon may want lower fees, Karson said, but large reserves of cash also tend to be attractive to buyers.

Stephen Bupp, president of Columbia-based community association manager Condominium Venture Inc., said that generally, his property management company will present the board with a budget and a summary of the fees it will take to fund it. Board members review the budget and then decide what services or improvements will be funded and at what level. Most of the budgets for properties his company manages are more than $1 million. "Pretty large budgets are being decided on by a volunteer board of directors," Bupp said.

In cases of condo constructions and conversions, the developers set the fees. As people buy into the building, they take control from the developers, eventually forming a board and setting their own fees.

And fees may tend to be lower in new or newly converted buildings because a developer has an interest in keeping fees low. Tom Welch, a real estate agent with Brian Logan Real Estate in the District, said he has found that fees increase once owners take over control of the building from developers and see what kinds of amenities they need.

Cassie Cataline, vice president of marketing for developer KSI Services Inc., said developers do have an interest in keeping fees low, but no more than anyone else. "It's in everyone's best interest" to not overpay, she said. "KSI does not artificially reduce fees in any way." Cataline said that, for example, residents could decide they want a gate manned 24 hours or a pool open more weeks, making fees higher. But fees will go up no matter who is in charge of setting them, she pointed out.

Elliott Simons, president of the association for Cross Fox Condominiums in Columbia, has dealt with increases of about 15 percent in each of the past two years, since management of the complex was taken over by Bupp's CVI. Previous management companies had not suggested significant increases, Simons said, so reserves were low and some costlier maintenance had not been taken care of. "All of a sudden, we got whomped with this big 15 percent increase," he said. Considering and passing the large fee increase was "quite an adventure," he said.

Simons said older people in Cross Fox, a 244-unit community built in 1969, had trouble dealing with the fee increases. "I was accused of kicking people out on the street because they couldn't afford it," he said. And those who don't go to the association meetings where increases are explained take them the worst, he said. "For them, this condo fee is a mystery, a big black hole."

Two of the main culprits for higher fees are utilities and insurance costs, which together generally make up 60 percent of a condo association's budget, Allardyce of CFM said.

Deregulation and higher fuel prices are leading to the increases in utility bills. Bupp said utilities are especially an issue for condominium associations that don't have individually metered units, meaning the association has to pay all the utilities for the building. Some of CVI's buildings are luckier than most with utility costs: In spring 2005, the company locked in rates for utilities through 2007, he said, causing fees to go up an average of about 15 percent, or $45 a month -- more than $500 a year. But those increases aren't as bad as if CVI had not locked in a contract; while the prices set in the contract may have seemed high a year ago, "compared with today, it's a huge bargain," he said.

As for insurance, "it's been a hard market since September 11," Allardyce said, especially in higher-risk markets such as Washington.

While Simons of Cross Fox was accused of kicking people out of their homes, some local property managers and residents say they haven't seen fee increases cause people to sell. "Very frankly, I've heard talk about that here for the first time," said Karson of 1510 Condos, but he attributed it to anxiety-induced grumbling more than reality.

Frank Rathbun of the Community Associations Institute in Alexandria said that according to a recent study, "bottom line was roughly 80 percent said they were happy with their assessments." Those include condos, co-ops and neighborhoods governed by associations. Owners' level of happiness, Rathbun said, "probably depends more often than not on what people perceive they're getting."

According to the American Housing Survey, done by the Census Bureau for the Housing and Urban Development Department, the median condo and co-op fee nationwide was $178 a month in 2003.

Real estate agents and building managers say fees can affect the decisions of people looking to buy.

"There's a tendency for some people to shop condo association fees as well as condo prices," said Walter Molony of the National Association of Realtors. But, he said, buyers shouldn't choose a condo based solely on whether it has the lowest fees because the association might not be in good financial position. If a condo association is lacking reserves for bigger-ticket items or hasn't kept up with maintenance, it could mean a big increase in fees or a one-time special assessment.

In general, while potential buyers might get a look at an association's bylaws while shopping around, they won't have a legal chance to review the financial documents, such as an association's budget and reserve information, until a contract is on the table. In both the District and Virginia, the law requires that would-be condo buyers have three days after signing a contract to review the association's numbers. The limit in Maryland is seven days.

Buyers should make sure their representative knows how to review condo association financial documents. "People don't focus enough on fee issues," Molony said.

There's a lot to focus on beyond price; financial documents will generally have information on reserves, a reserve study if one has been done and the association's budget and audited financial statement. Reserves are the amount of money an association has put aside to pay for major maintenance on such predictable items as roofs and elevators. A reserve study, usually performed with the aid of an engineer, is done to determine when such maintenance is likely to be needed and how much it should cost.

Heather Field, a community manager with Frederick-based Property Management People, said her company recommends reserve studies be updated for condo associations more often than for homeowners associations, maybe every two to three years.

Allardyce said she thinks most people don't read the financial documents. "I hate to say it, but . . . it's about a two- to three-inch pile of paper," she said. "People just don't take the time."

Welch, the real estate agent, said people do cancel sales after seeing condo associations' financial documents. However, he said, under D.C. rules they don't have to disclose why they decide not to buy, so it's hard to know why a sale was canceled and how much an association's financial situation had to do with it.