Condo Questions - What are A.O.A.O. Fees?

Posted by Teresa M. Nelle RS-60797 on Wednesday, February 14th, 2018 at 11:02am

In Hawaii AOAO fees - (also know as maintenance, strata or HOA fees) are a part of condominium life.  AOAO which stands for Association of Apartment Owners.  In Hawaii, every condominium development is required to have an AOAO (Association of Apartment Owners).  The association is comprised of the condo owners who are responsible for running and maintaining the condominium complex.  So, when you become an owner, you get a vote in how the complex is managed and you have some responsibility for maintaining the property.

With AOAO fees, you need to know not just how much you have to pay, but what do you get for your money, i.e., what is paid for by the AOAO, what are the extra costs that come out of your pocket, are there any assessments pending (and how do you find out) and how well are the reserves funded.

At a minimum, all AOAO’s are responsible maintaining the condominium’s “common elements”, i.e., the grounds, the pools, the exterior of the buildings usually including the roofs and so forth.  That’s the minimum, and that is all that some AOAO’s maintain.  This is OK, because you know that up front and your fees should be lower than some other complexes that cover more items with your fees.

At some so-called “condo-tels” the fees will cover items that guests might expect like cable television, WIFI and basic telephone.  If your condo has air-conditioning you definitely want to know if electricity is covered or if you are going to get a separate bill for it every month.  So, in some cases, you pay more and you get more for your money

How much should your fees be?  The fees should be enough to cover the operating expenses and reserves for your development.  So the next questions are:

     ** How much are the operating expenses?
     ** How is the budget determined,
     ** How are reserves set?
        * Is the complex you are looking at now adequately reserved?

Once you get into escrow, the condo owner, the seller, is required by contract to provide you with whatever condominium documents you request within a reasonable time frame.  The time frame is negotiable; however we usually request that sellers get the docs to you within 5-10 days.  We usually ask for another 5-10 days for you to review the docs.

What to look for…

The first thing I look for is the financials, the profit and loss statement and the balance sheet.  If you are not comfortable reviewing the financial statements, have your accountant look them over for you.  We’ve received P&L’s with sections, such as the manager’s salary, whited out.  We’ve received statements that were 2 years old.  Of course, those are exceptions.  Usually, the statement will be in order.

Next you want to see the budget.  Again, if you are not comfortable with budgets, get your accountant to look it over.  You are looking for reasonableness.  In order to determine how reasonable these numbers are, it will be helpful to have the Reserve Study.

The Reserve Study tells you the useful life of capital items such as roofs, pools, parking lots, etc.  They also tell you the estimated replacement cost for those items and tells you how much money should be held in reserve.

By law, condominium developments in Hawaii must choose one of two methods for establishing reserves.  They are required to hold a either a minimum of 50% reserves determined by the reserve study or the so called cash method which means they will have enough cash in the account to cover capital expenses in the upcoming year.

It is not all that unusual to find that a development is under reserved.  Being under reserved doesn’t necessarily mean you should reject the property, but you should proceed with caution because the lack of adequate reserves can result in an assessment or cause some needed maintenance to be deferred.

An assessment is levied when the reserves are not adequate for necessary repairs or replacements or sometimes, just to get the association back in compliance with the law.  The assessment can range from a few hundred dollars to tens of thousands of dollars per unit.  It is a good idea to ask if there are any pending and/or upcoming assessments when making an Offer and to dig deeper until you secure the answers you need. 

Contact me for your Maui Real Estate questions. I will be posting more information in the next few weeks.

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