Ridiculous Maintenance Fees

Business | April 14, 2009

At what point do the maintenance in a building make a condo unit un-sellable?

There are a few buildings in the city that have the most ridiculous, outrageously high maintenance fees, and I have no idea how these poor owners are going to sell their condos.

Let’s examine two of these buildings…

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Maintenance Fees

Where do we begin?

I’ve written countless articles about what maintenance fees pay for in the building, why they increase, and how the fees are a function of the square footage of the unit, the age of the building, and of course how well the property is run.

But for the most part, and this is quite a blanket statement, I’d say that maintenance fees in the majority of downtown Toronto condominiums are all within the 20% of eachother, based on square footage.

Sure, there may be a 600 square foot, 1-bedroom condo with fees of $330/month, and there may be another 600-footer for $390.  The difference isn’t negligible, but it’s not outrageous either.

This brings me to the question at hand: How much is too much?

I was casually browsing on MLS the other day, and I came across a unit at 50 Lombard Street for $309,900.

I would usually expect a unit in this price range to come with maintenance fees of between $300 – $400, depending on the age of the building and the size of the unit.

But would you believe that the monthly maintenance fees on this $309,900 condo amounted to a whopping $705.20?

And that doesn’t include Hydro…

Sure, the unit is a large 2-bedroom, and at $309,900, you get far more space than you would with most other units priced at $309,900, but who wants to pay $700 per month in maintenance fees?

Nobody, apparently, and that is why the seller is offering a rebate of $100 per month for 24 months!

How is that for a marketing tool?

Car companies always offer “cash-back” incentives, so why not sellers of real estate?  Personally, I never understood the “cash-back” idea.  It seems to me to only be a psychological ploy.  For instance, if a car costs $25,000, but it comes with up to $3,000 “cash-back,” why not advertise the car at $22,000?

It’s a rhetorical question, really.  People would feel better paying $25,000 and getting $3,000 back than paying the advertised price of $22,000.  We all like “free” money, don’t we?

In the case of this Lombard Street condo, the owner is offering to pay $100 of the $705.20/month maintenance fees for two years.  That seems pretty decent; it lowers the cost to “only” $605.20.

But when you think about it, they’re really offering a $2,400 rebate payable in 24 monthly installments.

Who cares about $2,400 when you’re looking at a $309,900 condo?

This could end up selling for $25,000 less than the asking price, so doesn’t that make the $2,400 “rebate” seem somewhat insignificant?

Another example is a unit at 71 Front Street.

For $329,900, we have a 2-bedroom, 2-bathroom unit of about 1150 square feet.

What a deal!

But the monthly maintenance fees are $842.45, and that doensn’t include Heat, Hydro, or Central-Air.

You’re looking at a thousand bucks per month!

You can see how the PRICE of a condo is directly tied to the maintenance fees.

A unit in my building of 1200 square feet would cost well over $500,000, but the monthly maintenance fees would probably only be $500, and that would include all of Heat, Hydro, and Central-Air.

Outrageously high maintenance fees make a unit un-livable, and thus almost un-sellable.

Both of these condos would have to be purchased by people who see value in the extra space, but have the stomach to get gouged every month by the condo corporation.

The reality is, most buyers looking in the $300,000 – $330,000 range are expecting to find a condo with maintenance fees around $375 per month.  When you find a condo at $329,900 that comes with $842/month fees, you keep looking.

It doesn’t matter that the unit is 1150 square feet, and that on a per-square basis, the maintenance fees are only ridiculous, and not catastrophic.

It doesn’t matter that the price of the unit is considerably “low” given the size.

Buyers will never get over the ridiculous maintenance fees.

And what are you paying for?

If the amenities in the building, in addition to the gym, billiard room, virtual golf, bowling, swimming pool, hot tub, and sauna, happened to also include hot-rock massages given by nymphs who float down on clouds, a private chauffeur, and a 24-7 happy hour, then perhaps I see some value…

But neither of these buildings even have the “standard” pool and gym, let alone an on-call Tibetan masseuse…

These buildings are just expensive because they are old, poorly managed, or both.

A couple years back, I sold a condo at the prestigious Palace Pier on the Toronto waterfront.  The $1,100,000 condo of 3,100 square feet came with maintenance fees of “only” $1,336 per month.  And this building actually does have private shuttle buses that run to the city centre, as well as personal dry-cleaning services and basically anything your little heart so desires.

People see value in living at Palace Pier, but I’m not so sure that a buyer of a $300,000 condo would see value in paying $700 per month for maintenance fees that simply serve as a replacement for the depleted reserve fund.

I feel bad for the sellers of these two condos, as I don’t see them having an easy time divesting themselves of their largest assets.

Then again, the blame could be solely placed on them.

Afterall, they’re the ones who purchased the units in the first place…

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7 Comments

  1. Franky B

    at 10:18 am

    David,

    As a long-time reader I’d be curious as to any insight you have on what drives condo fees and their variations over time. I would imagine that most of them are created more or less equal and then diverge over time… or do they?

    Keep up the great blogging.
    FCB

  2. fidel

    at 11:19 am

    I feel bad for those who bought pre-sales with artificially low maintenance fees only to see them double the next year.

    Personally, any more than 50 cents per sq foot in maintenance fees would scare me away

  3. David Fleming

    at 12:06 pm

    Fidel – I always respect your opinion.

    But $0.50 per square foot is actually less than average for resale.

    My condo is 585 square feet and I pay $330 per month, or $0.56 per square.

    Anything more than $0.60 per square foot, and I too might be turned off.

    It depends on whether utilities are included as well.

    My fees include ALL of heat, hydro, and water.

    The building next to me includes hydro and water.

    Some buildings don’t include heat OR hydro!

  4. Alex

    at 6:21 pm

    I’d be really interested in hearing your thoughts on MLS listing: C1540612.

    It seems that its been on the market forever and with maintenance fees of $1.06/sq.ft you have to ask, will it ever sell?

  5. David Fleming

    at 9:35 pm

    Re: MLS C1540612

    Here is their logic, as written on the listing:

    “Approx. 1094 Square Feet! At $237 Per Square Foot, Pricing Takes Into Account The Higher Than Average Maintenance Fees! ”

    It’s hard to argue with the logic, and $259K for almost 1100 square feet is an incredible price.

    But in the end, it’s tough to convince somebody to pay $1,161.72 per month in maintenance fees after they purchased a $259K condo.

  6. Darius

    at 2:04 am

    Hi David,

    I have been offered $587K for MLS C 1830156 around 1760 sqft with main fee of $1202 per month only water included. I love the unit but find the main fee too high as resale will be hard. What do u think? The same unit is sale on North building for $760K so the price is so tempting!

  7. Pingback: What’s Happening With Condo Maintenance Fees? - Toronto News Station
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