By Helen Morris, Nest Egg
The penthouse at the Four Seasons Hotel and Residences in Toronto cost the buyer $28-million, with a $6,688 monthly condo fee.
For condo buyers with more modest means, there are ways to assess if that monthly condo fee is a good deal or a sign of trouble. Start by asking yourself questions, says Mario Deo, vice-president, Toronto chapter, Canadian Condominium Institute: “What is the builder’s reputation and the date of the budget statement? Is there a building permit? If you have one, you are closer to registration.”
A management company draws up a budget on behalf of the builder; this gives buyers an idea of the likely level of fees.
“The better the builder, the better the budget,” Mr. Deo says. “The purchaser should look at when the budget was done and when is the anticipated registration of the building,” he says. “The law says builders are responsible for the shortfall in the budget in the first year,” he says, so if a building’s budget appears low, it may signal that the developer prefers to make up that shortfall himself but get more for his sales by falsely increasing interest in his units. “Good builders don’t do that; a sneaky one will undercut the budget.”
Mr. Deo recommends interviewing the boards of directors of buildings constructed by the same company and look for any budget shortfall.
Mr. Deo recommends interviewing the boards of directors of buildings constructed by the same company and look for any budget shortfall.
“[Check the] fees-to-market price ratio. Say the condo is selling for $150,000 and the fees are $1,000, that’s a ratio of 150. If it’s $300,000 and the expenses are the same, that ratio is 300,” Mr. Deo says. “Identical buildings with identical amenities, the higher the price-to-fees ratio the better the property.”
Fees also affect resale value.
“If the fees are super high, the value of the unit will go down,” says Linda Pinizzotto, founder of Condo Owners Association Ontario. She says some higher fees in older buildings may be caused by a need to bolster reserve funds to new requirements.
Amenities such as roads maintained by the condo, parking garages, pools, tennis courts and sprawling grounds signal higher future fees.
Hire a realtor who knows the condos in your area, and once you own, vote for a savvy board of directors to keep fees under control, Ms. Pinizzotto says.
“[Condo buyers] need to show more interest in their ownership,” she says. “They didn’t just buy their unit, they bought into the building.”
Consider these three key questions for resale condos.
“What’s the ratio, how healthy is the reserve fund and what does the building look like? Is it dirty? Does it look like it’s not being maintained?” Mr. Deo says. “A significantly lower ratio, if everything else is the same, is a sign of trouble. If the reserve fund is really underfunded and the building looks terrible, it’s been mismanaged for a long time.”
It’s better to focus on not how much is in the reserve fund, Mr. Deo says, but whether the balance and future collections will pay for anticipated repairs. The status certificate will indicate any reserve fund shortfall, excessive borrowing or may signal future fee increases.
“People walk into a unit and fall in love with it; somewhere along the way they forgot about the building,” Ms. Pinizzotto says. “The value of your purchase is in the building, not necessarily just in your unit.”
