Ways Condominium Associations Can Help Or Hurt Your Value.
July 14th, 2008 categories: For Buyers, For Sellers
A Honolulu apartment owners association can positively or negatively affect the value of the units in a particular building. Here are four ways they impact your property.
#1. Maintenance fees. We all know that it is desirable to have as low a maintenance fee as possible, however, most associations have to balance the maintenance fees charged with their needs to maintain and operate the building. Every segment of the market has a range in which a maintenance fee is considered reasonable and above which it is considered too high. Once a maintenance fee goes beyond the level of being reasonable, then prospective purchasers will start discounting in the value of the apartment in proportion to the amount of mortgage that the overage on the maintenance fee will pay for. If $100 a month will carry a mortgage amount of $16,200, then one could draw the conclusion that every $100 over the perceived acceptable high maintenance fee for a building will cost the seller approximately $16,000 in lost equity. With this in mind, the level of a maintenance fee can make or lose money for the owner of a condominium.
#2. Maintenance of the common areas can drive the value of individual units. It has been my experience that first impressions are the key to buyers liking or disliking a particular project. With that said, the very first impression a buyer gets of a property is the exterior appearance of the building. Then the buyer has to negotiate their way through the lobby, elevators and hallways leading to a specific unit. If these areas are rundown or look out of date a negative impression of the building is formed. No matter how nice the interior of a specific unit may be, it is difficult to overcome week and tired common areas. Not only does this hurt the initial impression of the building, but it can lead prospective purchasers to question whether or not a sizable special assessment may be pending from the Association. None of this helps a seller get more money.
#3. Every condominium has a reputation. The house rules and the enforcement and application of these rules will affect the desirability of a project. Simple things like the management of noise (music, pounding, yelling, etc.) Can determine their reputation of a given building. The strength of the resident manager an association chooses to hire has more impact on the value of the building than almost any other factor. A reputation can follow an individual and condominiums are no different! A building’s reputation is a hard thing to change. Thus, this market perception will make or cost the owner of a unit money.
#4. Closely related to the maintenance fees, but considered separate issues, are the financial operations of the Association. Every time a condominium is sold, the buyer is provided with copies of all the documents regarding the association’s formation and operation. Included in this package are the various financial statements regarding reserves, budgets, and current income and expenses. Most buyers review these documents in detail. Should these documents reflect low reserve levels, unpaid maintenance fees or operations outside the budget, a buyer can either cancel the sale or may try to renegotiate the price. In either case, the poor management of the Association has negatively affected a seller.
No matter whether you are a seller, buyer or the owner of a condominium with no desire to sell, it is prudent to make sure that the condominium association is well managed as it can make or lose you significant amounts of money.
Today’s picture was taken on race day at Waikiki Beach at about 830 in the morning.
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You are sooo right on the mark Keahi. My buyer backed out of the Harbor Square escrow last Friday and has moved on to a better association with stronger financials.