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Condo Association Fees

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Stephanie is off this month and has recommended this past article, "Condo Association Fees" as relevant and timely. -Web Editor

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Tired of taking care of a house with all the constant maintenance? Condo living can free you from the drudgery of taking care of a single-family home.  You can lock the door and head to Vegas and not wonder if your home will still be there when you get back. Think of the relaxing weekends – no more mowing the lawn and pruning the hedges, or painting the woodwork.

If you don’t have the time, interest, or cash to keep your house in good repair, you should seriously consider living in a condo or townhome. But before you make the change, you need to know more about the financial complexities of paying for maintenance that you can’t control. And those monthly fees – how did they get so high?

  
The Livin' Is Easy

When you live in a condo, most of the maintenance is taken care of by the association of homeowners.  This usually includes water, landscaping maintenance, building insurance, roof repair, exterior painting, pest control, trash pick-up, and care of amenities such as lobbies, pools, barbecue and parking areas, and party rooms – to name a few.  Other services such as security, resident manager, window washing, air conditioning, and even concierge services may also be included.  These fees are collectively called “Condo Maintenance Fees”.

Numerous single family neighborhoods also have an association that charges a fee for shared maintenance or amenities – but most items still are the responsibility of each owner. These fees are known as Association Fees and are part of life in many newer developments in areas such as Hawaii Kai, Ko Olina, and Mililani.

Some areas have up to three layers of fees for a condo, recreation center, and neighborhood. Examples of these can be found in planned communities such as Kapolei, and Upper Makakilo. Some of these fees are very nominal but they do need to be taken into account.

Every homeowner is billed for their portion of the services provided. A Board of Directors comprised of elected homeowners meets to make decisions on how to accomplish the tasks needed for smooth operation of the property.   The funds collected are usually managed by a separate organization hired by the Board of Directors to keep detailed records and documents.
  

It Costs How Much??!!

Association fees vary from $100 a year to over $1000 per month. Do you wonder why fees are high, and whether the money you pay to your association is well-spent? This is a complex question than needs to be viewed in detail since each property is subject to a different set of expenses and rules. It’s important to be very clear on what services and amenities are being provided. Are any utilities included, for example? Air conditioning? Is there a resident manager or security guard? Is the property large and well cared for? Everything costs money to create and maintain, and insurance costs are a big factor, too.

high rise McCully

Worry Now, Not Later

The financial details are of major concern when you are buying into a condo, because you are becoming a sort of partner with a group of homeowners. You have the benefit of letting others take care of all the details of running the building, from deciding when to paint, whether to update the landscaping, or who to hire to give legal or tax advice. You are giving up a measure of control over your property, so you want to be comfortable with how the decisions are being made. Keep in mind that we are talking about big bucks here – if 100 condos are each paying $300 a month in homeowner’s fees, which comes out to $ 30,000 per month. And remember that the Board of Directors making these decisions are working on a voluntary basis and putting in hours of time. The fees charged to each homeowner are a direct function of the cost of maintaining the property which goes up over time.
  

Homework First!

When you examine association costs, what financial information should you be reviewing, and where do you get it? When you buy a condo, you normally receive a package of documents from the seller, which include these crucial financial documents:

  • Current or Proposed Budget
  • Current Financial Statement
  • Reserve Study
  • Meeting Minutes - Board of Directors and Annual

The Budget explains in detail how much cash the association of homeowners has at their disposal, how they plan to spend their money, what future projects are planned and the expected cost. It also shows if their recent expenses were in line with their budget. It gives you an idea of how well they are managing their money. Try to compare the actual expenditures with the budgeted amounts to see that they are close to the mark, and if not, what unforseen costs came up?  Also, note that the total amount needed to cover the building’s monthly obligations is divided up by each unit’s share to determine the cost for each owner.

The Financial Statement shows the actual amount of money in the association’s accounts, whether for current monthly expenses or future long-term needs. Look for a Reserve Account and whether the amount in it is reasonable for the number of units in the building.  The financial statement may also include juicy details such as whether a significant number of homeowners are behind in their payments.

Makakilo townhomes

Meeting minutes may show discussions of a financial nature so read them carefully! This could include future expenditures or financial crises faced by the association such as lawsuits or construction problems. Perhaps there is a discussion of a fee increase or assessment to each owner. Proposed annual increases in fees may also be on the agenda - around 5 % a year is typical, plus extra if there is a backlog of maintenance or planned improvements.
  

Planning for the Future

The Reserve Study is among the most interesting – if you care about the future.  It consists of a schedule of projected costs for future predictable expenses. Hawaii state law require that the property's ongoing  financial needs be anticipated, so every item has a time period assigned to it.  If monthly condo fees are kept artificially low, then owners may have to be assessed individually each time a major expense comes up.  Condo associations should practice good planning to avoid embarrassing and expensive financial surprises.

For example, if painting is expected to be needed every 5 years, the association should ideally be putting in one-fifth of the cost every year so that these funds will be available when needed. Perhaps the roofing has a 10 year lifespan, and major elevator overhaul a 20 year plan - each can be plugged into the equation for future projections. Rising contractor costs and inflation in general must also be included in the calculations. By careful review of the Reserve Study you can get an idea of whether the condo association’s planning looks solid. Of course, most of us do not have an accounting background, so we are at a disadvantage. But anyone can make the effort to look over these figures and at least see that they have been professionally prepared whether there is a shortfall. It’s important to have the most up-to-date documents. If you can’t get the seller to provide you with a copy of these crucial documents for the condo you are purchasing, that would be a “red flag” unless the building is brand new.

hawaii Kai dock home

Does Hawaii Cost More?

Hawaii’s weather and pests such as termites are waging an ongoing battle against homes and buildings. Some areas have heavy rains and fungus or mildew is an issue, and in other neighborhoods salt air and constant blazing sun are factors. The beautiful trees, lawns and gardens grow 12 months of the year so they require constant. And don’t forget that our taxes are among the highest in the nation and each service is taxed by the state. Also, it is more expensive to use licensed and insured painters, for example, rather than someone’s retired cousin who you might have paint your auntie’s house on the weekends.

Keep in mind that the expenses of maintaining a condo mirror those of a house but they are set as a fixed monthly amount to each owner. It’s a trade-off for not having to face that $ 20,000 expense for finally repairing your house’s roof, for example. In a condo you don’t have the choice to defer the maintenance and just put buckets around to catch the drips! Let’s face it; most of us really don’t have the time or skills to do the work on our homes anyway, and we would be paying others anyway.

Nearly all condo fees include water, sewer, and building insurance. All of these have gone up in recent years, of course. Some buildings include electricity, air conditioning, cable TV, resident manager, boat docks, or even internet access. Amenities offered in a condo must be paid for and maintained, so the pool, workout room, gardens, tennis court, etc. will add to the monthly fees. If you don’t want to pay for these, select a “no-frills” condo instead of a luxury resort! And remember that the more open space that is owned by the association, the more there is to maintain.

Diamond Head condo

Add It Up

It’s easy to overlook what it costs to keep a house in top repair. If you calculate what you would pay for basic home maintenance in a detached home you can better analyze whether the condo fees you are paying are reasonable. Include utilities, security service, yard care, pool service and fitness club dues, if applicable. Then consider the cost of basics such as roof, exterior paint, garage, and driveways.  Only then will you have a basis for comparison so you can decide if your condo’s fees are reasonable - or a rip-off.
  

Get Involved

If you want more control, be sure to attend owner’s meetings, make your opinions known, and be willing to compromise. If you want to have more impact, you can run for a position on the Board of Directors and do your part in making your condo a better place to live. Every condo has its own personality which depends partly on the people involved, especially those on the Association Board of Directors. Are they meticulous or lax on maintenance? Do they expect everyone to follow the house rules to the letter- or else? How will your style fit in? Do they fight and argue among themselves so as to prevent any positive decisions from being made? If that bugs you, you could be in for a bumpy ride after you buy there.
  

Take the time to learn as much as possible about your condo home, and you have a good chance of enjoying the easygoing lifestyle you wanted. The cost of paying fees for a well-run condo is well worth it so that you can enjoy life more.

Your experienced Realtor may be able to answer your specific questions or direct you to someone who can. Or you are always welcome to email your general or condo questions concerns directly through the email link on this page.

Dog on lanai

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Puna
Regarding the Kilauea volcano lava flow.




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