End user condominium purchasers can be surprisingly oblivious to not only their rights owners, but also how good governance can reduce both their short- and long-term monthly maintenance fees.
“Even current owners don’t know how condo corporations are run,” said Alex Balikoev, senior vice president of sales at Sotheby’s International Realty Canada. “That’s why some buildings have higher condo fees—because owners aren’t involved, not because they’re lazy, but because they’re not aware to what extent they can become involved.”
Higher maintenance fees can, of course, diminish a unit’s competitiveness on the resale market. Balikoev cannot count how many times he’s encountered sellers whose reasons for listing were exorbitant monthly fees and dislike of how their buildings were run.
“When people complain about how their building is run, my answer is,’ Why don’t you do something about it?’ People don’t realize they have power over management,” said Balikoev.
An example of good governance, he added, is interviewing 10 to 20 contractors, rather than only three or four, for maintenance work and selecting the cheapest and best one.
“It comes down to how active and involved a condo corp is,” said. “Be aware of who’s on your board of directors and how to get a hold of them. Know when your meetings are, and go to them.”
Balikoev also noted that buildings with larger units tend to have more involved owners because they have more skin in the game by virtue of having to pay higher condo fees.
“I live in a condo with over 350 units, but only a few people show up to board meetings, which is surprising to me. Being on top of things is paramount for the wellbeing of a condo corporation because you can make sure it’s run properly.”
In the luxury segment of the condo market, condo corporations often have strict policies about noise and pet ownership. Moreover, maintenance fees go to atypical services.
“Some of the funds in the annual budget are allocated to services that aren’t typical of a condo corporation, like newspaper delivery, butler service, valet parking, cleaning services, etc.,” said Matt Smith, a broker with Engel & Völkers Toronto Central. “It’s important to understand what the maintenance fees cover because they often appear high compared to other properties, but once you dig deeper, there are often many value-add services that are included in those fees.”
Smith advises his clients to thoroughly examine condo corporations’ financial records before purchasing a piece of real estate in those buildings.
“We recommend obtaining as much information as possible about pending assessments, pending fee increases, potential capital improvements—anything that could affect the financial picture of the corporation,” said Smith. “Don’t be shy to reach out to the board members as well; if well-managed, they are usually proud to share information about the building and the details of the condo corporation.”
Balikoev echoed Smith, stating that buyers should know what they’re buying into, especially because some buildings have artificially high maintenance fees that he suspects are intended to be exclusionary.
“The average monthly condo fee is $0.60 per sq ft while older buildings could be $1 a sq ft, and that’s fine, but some buildings are $1.50-2.00 per sq ft, and if you look into the financials of the buildings there’s no reason for them to be so high,” he said. “There are several buildings in the city where owners and condo corporations keep fees high to become more restrictive of income classes, so that they become like golf clubs. It filters out the crowd.”
Beginning this year, condo purchasers will be given the Ontario’s Residential Condominium Buyers’ Guide, as mandated by the provincial government to ensure buyers are aware of their rights and obligations, and part of it covers condo corporations. Balikoev lauded the move.
“The condo guide will help first-time buyers and explain how a condo corporation is run and what their role, as owner, in the corporation is. First-time buyers, especially, probably grew up in freehold homes and aren’t accustomed to how condos are run.”
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Written by Canadian Real Estate Wealth.
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Canadian Real Estate Wealth