There was someone contemplating two condos in Sacramento. The prices and square footage were similar, but the management fees for one were nearly $100 higher than the other. The first thought might be that the condo with the lower fees is the more reasonable choice. However, when comparing the HOA documents for both properties side by side, the answer was not so simple.

The median monthly HOA fee for condos in the Sacramento area is around $335. This is comparable to the overall California average, which ranges from $300 to $400 per month. Typically, management fees include building exterior maintenance, master insurance, common area management, landscaping, trash collection, and reserve fund contributions.

The Sacramento condo market consists of mid-rise buildings near downtown and townhouse-style complexes in suburban areas. The downtown area has many relatively newly constructed complexes, while the suburban areas have a variety of construction years, leading to significant differences in reserve fund contributions.

Lending institutions review the HOA budget, accounting audit reports, actual reserve fund balances compared to target contributions, and the percentage of delinquent units. When comparing the two properties, looking at these documents side by side makes it much clearer where the differences in management fees originate.

If the budgets are similar, it can also be helpful to compare the changes in the budgets of both properties over the last three years. Properties with steadily slight increases in management fees often have been planning to grow their reserve funds, while those that have been frozen for several years and then suddenly increased significantly may indicate a history of insufficient contributions.

Upon comparing the two properties, it was found that the one with the lower management fees maintained a reserve fund contribution rate below the recommended standard, while the one with the higher fees had a more stable reserve fund. While the immediate monthly burden is lighter for the property with lower fees, it carries the risk of special assessments in the long run. The difference becomes apparent when major repairs, such as roofing, plumbing, or elevators, are needed.

California's Civil Code Section 5550 requires HOAs to conduct a reserve study at least every three years and review it annually. Additionally, following the Surfside condo collapse in 2021, SB 326 mandates that buildings with three or more stories must inspect exterior elevated elements like balconies and decks every nine years, with the first inspection deadline set for January 1, 2025. Checking whether both properties have completed this inspection should also be part of the comparison criteria.

If the budgets are similar, consider comparing the following items alongside the management fee numbers:

• Recent reserve study and reserve fund contribution rates
• Percentage of delinquent units and any ongoing litigation
• Compliance with SB 326 balcony inspection
• History of special assessments and future plans

Through the process of comparing the two properties side by side, it became clear that judging which option is better based solely on the management fee number is difficult. If the conditions are the same, obtaining the recent fiscal year budget and reserve study summary through the seller or real estate agent in advance can be much more helpful for comparison. Requesting the documents incurs no cost, so it is better to ask for them for both properties. If the agent is reluctant to request the documents, that in itself can be a signal to consider. After receiving the documents, dividing the reserve fund balances of both properties by the number of units in each complex to compare the per-unit contributions provides a much more intuitive basis for judgment than just the management fee numbers.

Ultimately, that person chose the property with slightly higher management fees. It was a decision made by looking at the financial structure behind the numbers rather than just the immediate figures. This article is not investment or legal advice, and consulting a professional before making any actual contracts is recommended.