When purchasing a condo, one of the most important things to take into consideration are the monthly homeowner association assessments or maintenance fees. These fees are paid by unit owners in order to cover the cost of the building's amenities, maintenance, insurance, etc... It is important to understand the health of the condo association as well as provisions in the condo documents as they may lead to increases in HOA fees in the future.
A condo association is designed to operate as a not for profit corporation charged with the task of operating the building. The association elects a board of directors to run the corporation and serve as the building's administrative contact.
When purchasing a unit in an existing construction building, the biggest risk is an increase in fees or a special assessment to pay for building repairs or bad debts. Due to the rising numbers of foreclosures, some buildings in Downtown Miami such as Jade Brickell, Emerald on Brickell, and Ten Museum Park have seen drastic increases in their HOA fees. Absent of bad debts or building repairs, HOA fees usually remain consistent from year to year since the association usually has a very good idea of the building's operating costs.
When purchasing in a new construction building, the biggest risk is an increase in HOA fees once the developer turns over control of the association to the unit owners. At the inception of any condo project, the developer controls the condo association and has the responsibility of appointing the board of directors. As certain sale thresholds are met, the association is slowly turned over to the new unit owners. The developer is responsible for setting the operating budget and appropriately assessing all the unit owners. Once the HOA is turned over, as a unit owner, you run the risk that the developer's estimated operating budget does not cover the actual costs of operating a fully occupied building. This ends up with all the unit owners being reassessed for a higher monthly payment.
I mention this because right now Downtown Miami contains many new construction buildings with HOA fees that are fairly consistent (between $0.40 and $0.50 per square foot) despite drastic differences in building quality and amenities. I'm guessing that in the majority of these buildings the developer is still in control of the homeowner association. It's no secret that keeping HOA fees low will help attract buyers.
Developer turnover of a condo association technically occurs when the unit owners are allowed to elect the majority of the members of the board of directors. In most cases, this happens:
- Three years after 50% of the units have been sold.
- Three months after 90% of the units have been sold.
- When all the units are complete, some have been sold, and the developer is no longer offering units for sale.
- Seven years after the declaration of condominium has been filed.
It's unlikely that many new developments have hit these thresholds. I hope unit owners are not faced with an unpleasant increase in their HOA fees once the associations in these buildings are turned over.
Tags: bad debts, brickell, condo, downtown miami, hoa, hoa fees, homeowner association, maintenance fees, miami condo, new construction
