What is a “capital contribution fee” in NYC real estate?
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I decided to write a quick blog post on this concept after we saw this new term emerging from the New Construction jargon. Several home buyers using NestApple asked us what exactly a capital contribution fee in NYC means. Sometimes, people call this “capital contribution fee” an “HOA capital contribution fee.”
What precisely the capital contribution fee in NYC means?
It remains a one-time charge generally associated with the transfer of title on a property. It remains part of a condo or homeowners association, and the buyer or the seller typically pays the fee at settlement to the association.
There’s a good reason why many buildings charge capital contribution fees. They bolster the reserve fund, which is essentially the community’s saving account and the balance sheet. These reserves serve as a cushion for future large-scale maintenance projects, which include repairing and updating:
- Elevators
- Lobbies
- Swimming pools
- Patios
- Lighting
- Signage
Therefore, this contribution usually gets deposited into the capital reserves to fund future maintenance items. This fee varies by building, and the buyer or seller can pay for it. However, with NestApple, your real estate cash-back rebate can pay this fee and the closing costs!
Are capital contribution fees legal?
Yes. They’re extremely common, although not every HOA community has them.
However, that doesn’t mean there are no limits. Some rules regulate how HOAs can charge this fee. According to New York law, all fees must be stated beforehand in your community’s governing documents.
Sometimes, your HOA rules want new members to pay these fees, but its governing documents don’t explicitly allow this. The HOA would have to amend its governing documents to allow this practice in these cases. The HOA would also have to follow its governing documents’ requirements for amending the document. For instance, the HOA may have to get the consent of the majority of its board members before amending its governing documents.
What’s the difference between capital contribution fees and other building fees?
Capital contribution fees are explicitly paid upon the transfer of a property, and they’re usually used to fund the repair of common areas. However, they shouldn’t be confused with monthly dues, which residents regularly pay to cover operating expenses and reserve funds.
Also, don’t confuse capital contribution fees with special assessment fees, which your condo or co-op board may change from time to time when the reserve funds aren’t enough to cover significant repairs and long-term projects, such as siding and roof replacement.
How much do you have to pay for capital contribution fees?
Well, that depends on the specific condo or co-op you’re seeking to join. There’s a wide range depending on the size, age, location, and upkeep of your building. The more amenities a building has (e.g., pools, decks, a lavish lobby, and other amenities), the more expensive the capital contribution fees usually are.
For context, capital contribution fees are typically two or three times the amount of your monthly fees, anywhere from $100 to $2,500 (maybe more) per month in New York. So, you can expect to pay anywhere from $300 to $7,500 (again, or more) to join a condo or co-op. This fee is not a function of the sale price.
In a new development, sponsors list this fee as closing costs for the buyer.
It typically represents a few months’ worth of the apartment’s common charges. Some developers sometimes charge potential buyers two separate fees.
- The first one, usually a few months’ worth of common charges, represents the “traditional” way the building builds up its capital reserve fund.
- The second fee is a per-unit charge to help fund and pay for the live-in super’s apartment.
Call your buyer’s s agent in New York to get your real estate cash-back rebate.
Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.
