Deciphering A Condo HOA Budget (October 23, 2015)

Not all condos are created the same and therefore not all HOA budgets will be alike. A townhouse style condo generally sits on a single tract of land. But it can also sit on a platted duplex or four plex lot. The road in front of the unit can be a private driveway or a publicly dedicated road. If it is a publicly dedicated road, it will be maintained by the municipality. Snow plowing and road maintenance will be paid for by the city. However, if it is a private road or driveway, it will need to be maintained by the homeowners association. Dues and reserves will have to be established for its maintenance and ultimate replacement. Although water and sewer to the unit will be built to MOA standards, if it is a public system, no dues will be needed for its repair and ultimate replacement. However, if it is considered a private system, even though it is built to the same standard, dues will need to be included in the monthly budget for its repair and replacement. Whether or not the monthly cost for water, sewer, and refuse is paid for in the dues, or by the individual condo owner, depends on how the association budget is set up. Having the individual property owners pay for those items reduces the dues and allows more buyers to qualify for the property. Qualifying for a single family mortgage does not take into consideration the cost of maintenance, water, sewer, and refuse. However, HOA dues for condos are calculated into a buyer’s debt ratios. In some instances, for condo buildings with a central heating system, that cost would also be factored into a buyer’s qualification. The goal with dues is to keep them as low as possible but still provide the common services and, hopefully, carefree management. Site condos provide the lowest dues because the condo owner is responsible for all exterior maintenance, including driveway, roof, and siding repair. Full service condos are just the opposite, and establish reserves, maintenance and management for all exteriors, including HOA owned fencing, monument sign and common element landscaping. With a full service condo, in most cases, you are buying the air space between interior walls, otherwise known as paint to paint.

All HOAs require management and very few are self-managed. The fee per unit for a professional property management company is usually around $20 per unit. Property managers collect the dues and pay all the bills. They seek competitive bids from vendors for work that the association needs performed. They also enforce the covenants, codes, and restrictions. The property manager is hired by the HOA board of directors and maintains the records of the board meetings. Other fees in the monthly dues include association and property insurance, legal fees, taxes and licenses, tax prep and audit. Reserves for roads, exteriors, and water/sewer if applicable are based upon the remaining useful life. Water and sewer lines are estimated to have a fifty year life; roofs twenty-five years; and asphalt twenty years. The remaining useful life must be verified by a licensed engineer who was associated with the development.

There is a cost for homeownership, whether a condo or a fee simple single family home, beyond the monthly mortgage payment of principal, interest, taxes, and insurance. Whether you write the check direct or to the association is the only difference.