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Condo fees are apt to go up, and experts say it’s about time
Fannie Mae announced it’s raising the minimum amount of money condo associations need to maintain in reserve. What will it mean for condo owners?
A recent survey from LendingTree reported the median monthly condo fee in Boston is $386. And nearly 30 percent of condo owners pay more than $500 a month. But chances are those condo fees are going up this year. Maybe way up.
On March 18, the Federal National Mortgage Association (Fannie Mae) announced it’s raising the minimum amount of money condo associations need to maintain in reserve to qualify for Fannie Mae-backed mortgages — from 10 percent of the operating budget to 15 percent effective Jan. 4, 2027.
The Federal Home Loan Mortgage Corporation (Freddie Mac) hasn’t announced if it will follow suit, but if it does, every condominium association in the country will likely consider raising its monthly fees to beef up their reserves. Together, Fannie and Freddie back about 70 percent of mortgages in the country.
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If buyers can’t get a Fannie Mae or Freddie Mac loan on a condo for sale, they’ll have to get a more expensive, conventional loan, which might drive down the condo’s value or cause potential buyers to look elsewhere or even get out of the market altogether.
But even before Fannie Mae announced the change, experts said the majority of condominium associations set their fees too low to maintain their buildings.
Schernecker Property Services (SPS), based in Needham, is both a contractor and a consulting company that works with condominium communities to plan for the future. Of the hundreds of condominium associations SPS executive vice president Eric Churchill said he has reviewed, not one was properly funded to maintain its infrastructure over the long term. Worse, most were dramatically underfunded.
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“Lower condo fees attract people, but then the community reaches an age when all of a sudden the maintenance bills start going up,” he said. “And there’s often resistance to raising the fees, but the bills continue to go up. And the consequence is work gets deferred. The deferrals continue to accumulate, and in the end, you’re left with a fee of $500 a month and a need of $800 a month. It’s just not sustainable.”
Under pressure from their fellow owners, many condominium boards often prioritize keeping monthly fees low, leading them to rely on routine painting and localized fixes rather than funding systemic replacements. Some associations might once have had the right fees, but didn’t raise them often enough to keep up with the rising costs of insurance, fuel, labor, and construction materials.
Churchill said many associations are lulled into a false sense of security that they are maintaining their aging building because they are making repairs and painting on a regular schedule. In reality, painting and caulking over leaky exteriors only kicks the can down the road for more expensive repairs.
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“We spoke with one community where the board’s desire to maintain artificially low fees led them to spend $450,000 over a decade on routine painting and cosmetic fixes,” Churchill recalled. “In hindsight, that $450,000 was completely wasted. The board finally realized the wrong work had been done.”
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Condominium attorney Stephen Marcus of Allcock Marcus in Braintree, said condominium association board members have a duty to set monthly fees high enough to cover operations and building maintenance, but too many of them are reluctant to raise them periodically and that leads to expensive and disruptive problems.
“The problem that results is that maintenance gets deferred,” he said. “Repairs aren’t made, so $100,000 problems become million-dollar problems, or multimillion dollar problems.“
Attorney Rich Rosa, cofounder and co-owner of Buyers Brokers Only LLC in Haverhill, sees lower condo fees differently. He said when fees are higher and an owner moves after several years, they leave those extra dollars in reserves and don’t get any benefit from them. He said lower fees protect against that loss, provided that owner moves out before a major expenditure arises.
“Buyers and their agents have to ask the questions,” he said. “Are there any special assessments coming up? What is the age of the building, the systems? Take a look at the budget. Buyers should know exactly what they’re buying and what to expect.”
Marcus said many condo owners tend to fall into two categories: Younger couples who are just getting into the housing market and older retirees, for whom condos are a relatively affordable way to own property. They’re less concerned with deferred maintenance, hoping they’ll have moved on when the big repair bills come due.
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“They’re generally not planning to still be living there in 30 years, so they tend to think and budget for the short term,” he said.
Scott Wolf, president of Boston-based property management company Brigs, LLC, said he has often thought it would be a good idea for condominium buyers to take a class on the differences between owning a condo and owning a single-family house.
“There’s a total lack of understanding among many condo owners,” he said. “They just think, ‘I move in, I pay a condo fee. Everything’s good.’ Then they get a special assessment, and they want to run for the board and change everything and not do the work. They think they can’t afford to make repairs. The truth is, they can’t afford not to make them.”
Rosa said the cost of a condominium is close to the cost of a single-family home in many communities, so the monthly payments aren’t that different for most buyers. He said if condo fees go up significantly, it might push would-be condo buyers into the single-family-home market.
Condo owners, Wolf added, often seem to think they’ve bought an apartment within a building somebody else takes care of. In reality, they bought an apartment within a building that is actually a business. They are shareholders in this business and have clearly defined rights and responsibilities.
That means they need to pay monthly fees to fund the regular repairs and maintenance of the building. Those fees should also cover expected big-ticket costs like roof replacement, exterior maintenance, and other common expenses. If the monthly fees are not calculated to include these repairs, then owners can be assessed their share of the expense when these repairs become necessary. A $25,000 roof replacement on a building with 10 units might require assessing each owner $2,500. If the board votes to approve a special assessment to have the work done, then each owner is obligated to pay their share.
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In 2007, the trustees of Harbor Towers on the waterfront in Boston voted to spend $75.6 million to replace the HVAC and other systems. Unit owners were assessed between $70,000 and $400,000 each, causing some to sell their condos.
If the condominium doesn’t have enough money in reserves to cover expenses and wants to avoid a special assessment, it might be able to borrow the money for it, but that’s almost sure to raise the monthly fee going forward to cover the monthly loan payment.
The point is, buildings degrade. Repairs, maintenance, and insurance are all getting more expensive. Condo owners should be aware that they have to pay for these things.
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