Steady As She Goes? The Balance Between Increased Fees and Market Value
Question: Q: Our condominium board has proposed a special assessment to build reserves and take care of some significant maintenance issues. The board is also proposing to increase our common fees, which haven’t been raised in six years. I understand the importance of maintaining buildings and funding adequate reserves, but is there a point at which these increased expenses for owners will have a negative impact on market values in our community?
Answer: A: Market value and common area fees are related (although probably not in the ways you assume), but they are also separate issues. And you need to understand them separately in order to understand the relationship between them.
Let’s start with your observation that “fees haven’t been increased in six years.” That set alarm bells jangling for Kenneth Bloom, CPA, a principal in Bloom Cohen Hayes LLC, who specializes in community association finances.
“Can you think of any products or services you buy that don’t increase in cost every year?” he asks. “What makes condominium owners think the inflation forces that affect owners of single-family homes don’t apply to them?”
Just because your fees have been stable for the past six years doesn’t mean they’ve been set at an appropriate level. In fact, Bloom says, it probably means the opposite: That your association has been cutting corners to keep expenses in check, which probably explains the need for the special assessment you mentioned – to take care of all the deferred maintenance tasks the board hasn’t had the funds to address.
Will higher fees make your community less desirable to prospective buyers? Will communities with lower fees have a competitive advantage? Bloom doesn’t think so. The whole notion of market value in condominiums “is grossly misunderstood,” he believes.
A $50 increase in monthly fees would total $600 a year, he notes,” and in the context of a monthly mortgage payment, that just isn’t significant.”
Equally important, he points out, buyers don’t focus solely on the monthly fee when they are comparing condominium communities – they look at what’s included in the fee. If a higher fee covers costs and services that aren’t included in a lower fee, buyers will understand that the lower fee isn’t necessarily a bargain.
There is also an emotional component to home buying, Bloom notes; it is not entirely a dollars-and-cents decision. Buyers who like the architecture, layout, room size, charm or other features of your community won’t reject it because your fee is a little higher than other communities they are considering.
There are limits, of course. A huge difference in fees that can’t be explained by services, amenities or other factors, will be problematic. But in most cases, the fee is unlikely to be a make-or-break issue in a condominium buyer’s decision.
On the other hand, savvy buyers will look at fees that haven’t been increased in a long time and wonder, like Bloom, what your community hasn’t been doing. In that respect, while a sudden, sizable increase might concern some buyers, peeling paint, dilapidated exercise equipment and other signs of neglected maintenance will concern them a lot more, and have a far greater impact on market value than the long overdue fee increase your board is proposing.