Condo dues hikes usually justified

Q: I own a condo. The mortgage is paid off and I am now paying only a monthly maintenance fee. My manager recently sent me a notice that this fee would increase by $55 a month for my three-bedroom unit. This has really hit me hard, since I get by on Social Security alone. I am in my 80s and unable to work. I have been trying to sell my unit through a real estate agent, but they never seem to get many people to look at my unit. I’m just no sure what I should do, I can’t go on with this situation much longer. — L.A., Everett

A: It can be a shock to anyone’s household budget when a condominium’s monthly homeowner’s dues increase $55 per month, especially when you’re living on a fixed income. However, in most cases, such a dues increase is not only justifiable, but usually overdue. Here’s why:

Condominium property managers are stuck in a very politically difficult situation. On one hand, they have an obligation to collect enough money to properly maintain the condominium property. On the other hand, they have to keep the monthly dues as low as possible so that the condo owners don’t revolt and hire another managing company.

In some cases, the managers bow to homeowner pressure and keep the dues lower than they really should be in order to keep the owners happy — and keep their condo management contract. But eventually that kind of shortsighted budgeting always catches up with the condominium homeowner’s association.

Sometimes, the owners are hit with a one-time lump sum "special assessment" to pay for deferred maintenance costs. For example, when it’s time to replace the roof and the association’s reserve fund does not contain enough money to cover the cost, each condo owner might be hit with a $1,000 assessment for a share of the roof replacement expense. I’ve even heard of cases where condo owners have had to pay special assessments of $5,000 to $10,000. So by comparison, a $55 per month dues increase is not too bad.

But perspective is everything. And if you are on a modest, fixed income, even a $55 dues hike may be too much to handle. I’m sorry to hear that your dues increase is literally forcing you out of your home.

While you may not want to take this step, once you decide to sell you should price your unit aggressively. By that, I mean price it low. If the real estate agent is not getting anyone to look at your condo you either have a very poor agent, or more likely, your asking price is too high. Ask your agent for a computer printout showing the recent selling price of condos in your area. Then, lower your asking price to be below the average sales price. Remember, I’m talking about the average selling price, not the average asking price.

If cutting your asking price does not sound very appealing, you might consider a strategy that has worked well for me in selling my own condominiums: a lease-option agreement. This plan has some major advantages, such as avoiding a real estate sales commission, but it also has some drawbacks, such as the fact that you will have to wait a year or more for your sale to close.

Now before you dismiss this idea out of hand, consider this: If you lease your condo with an option to purchase you will have additional income to live on. Of course, you will have to become a "landlord," or hire a property management company to oversee the rental for you. But the benefits are significant if you are not in a hurry to sell. Under a lease-option agreement, the tenant pays a non-refundable option fee (down payment) to lock in the purchase price for a set period of time (usually one year). The tenant-buyer typically pays above-market rent, with a portion of that rent credited to the down payment when the purchase option is exercised.

For example, if the market rent for your condo is $900 per month, you might offer it at $1,100 per month with a $200 per month credit to the down payment. Over the course of a one-year lease, the tenant would accumulate $2,400 toward the down payment. As for the move-in cost, you might ask for a $1,000 non-refundable option fee, which is also applied to the down payment. At the end of one year, the tenant would have a total credit of $3,400 toward the down payment ($1,000 up front plus $2,400 rent credit).

There are several advantages to the lease-option approach: