Paying the Price: The High Fees Associated With Co-op Living

• January 14th 2011

by Mark Wellborn

For some home buyers out there, it can be a letdown to find an amazing unit only to discover that the monthly fees are higher than you anticipated.

We decided to try and get some perspective on these fees, so we sat down with Joe Himali of Best Address Real Estate to learn more about them and how he priced a two-bedroom co-op in Kalorama that carries a $1,000 a month fee.

The main difference between co-op fees and condo fees is that a co-op fee typically includes an underlying mortgage and property taxes, in addition to any amenity, maintenance and utility costs. (Both the mortgage interest and property taxes are usually tax deductible for the co-op fee.)

Himali’s primary metric for determining the pricing for the two-bedroom unit was to use comparable sales in the building where the unit is located. For example, Himali and his sellers used the sale of the last unit in the building with two bedrooms and a view, which sold for $579,000, but also had a powder room. By subtracting $25,000 for the value of the powder room, the sellers determined the right price for their unit would be $550,000.

As for the fees, they aren’t as bad as they seem. The building spends $229 a month on utilities (gas, water, heat, electricity) for the unit, which is factored into the $1,000 a month fee. And if you take out the property taxes and underlying mortgage, the monthly fees drop to around $555/month (still high, but not exorbitant) to cover maintenance, operation and reserves for the building.

For those that are prone to compare units on a price per square foot cost basis, the 1,250 square-foot co-op’s price is heavily discounted when compared to similarly-sized condos for sale in the vicinity. For example, a two-bedroom condo in a newer building is currently on the market for $542 per square foot; Himali’s unit is listed at $440 per square foot.

But such a discount is likely needed, as the existence of a high monthly fee still ultimately separates buyers into two categories: 1) Those who will pay a premium to live in a co-op building with a number of amenties and 2) Those who will skip the amenities, in favor of living in a condo with lower fees.

“There are a number of reasons that condos have lower fees,” Himali explained. “For one thing, newer buildings, in general, do not have high fees and the units are separately metered, so the tenant has control of their utilities. But in the end, a historic co-op usually offers amenities that a condo does not.”

Himali noted that if you live in a converted row house, then you are going to have lower fees because there are not amenities like a doorman, a front desk or a swimming pool. But he said that there are plenty of buyers that will pay that extra amount to have help with their groceries or have someone to take their packages during the day and act as an extra layer of security for the building.

“The bottom line is that no one wants to pay a fee,” Himali told UrbanTurf. “The hardest part for an agent when listing a unit with high fees is having the opportunity to explain how those fees break down to potential buyers.” Himali said that sites like Trulia and Zillow don’t break down the fees very well, but he provides a detailed explanation on his site. (Look under “Fee Breakdown”)

In the end, the fees don’t seem to be that much of a deterrent to people who want to buy at 2122 California: two of the three units sold there in the last 12 months have gone under contract in 40 days or less.

This article originally published at https://dc.urbanturf.com/articles/blog/paying_the_price_the_methodology_of_pricing_a_co_op_with_high_fees/2841.