Bricktionary

What does 'net effective maintenance' mean and why am I suddenly seeing this phrase in sales listings?

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How much total do you plan to tip the building staff this year?

You may be seeing the phrase “net effective maintenance” in apartment sales listings these days and scratching your head a bit. Is it similar to net effective rent? What does it really mean? The answer is: It sort of depends on the situation.

A quick refresher on the differences between maintenance fees and common charges is useful here. Both monthlies cover operating expenses for a building and usually include cleaning, upkeep, management fees and salaries, and shared expenses like heating. Maintenance fees, which you pay in a co-op, also include the cost of the building's mortgage, since co-op residents own shares in the building, and the owner's share of the building's property taxes. Condo owners pay property taxes on their apartments separately as part of their common charges.

Just as net effective rent is a more granular way of determining how much you’re paying in rent by adjusting for concessions, net effective maintenance adjusts the maintenance fee up or down depending on whether the landlord is making the concession, or the owner is paying extra for an assessment.

For example, with “a property with a high monthly maintenance fee, a seller may offer several months free,” says Constantine Valhouli, co-founder of NeighborhoodX, a real estate research and analytics firm. “As a result, the net effective maintenance reflects this commission and offers a lower number. 

“Imagine an apartment where the actual monthly maintenance is $1,814, but because the seller is offering three months’ maintenance as a concession, the net effective maintenance for the first year is $1,361 per month,” he says.

“On the other hand, if a building has a temporary assessment in place or there is an expected surcharge in winter to offset higher oil prices in a building with a shared system, then the net effective maintenance would be higher because it includes these additional expenses.”

Why is net effective maintenance is showing up in more and more listings? Valhouli theorizes that it could be a phase. “It may be a reflection of the fact that some buyers are balking at high maintenance and condo fees in some buildings,” he says. “This could be a reflection of the late stage of the current real cycle, as sellers are open to making concessions in order to make the financials look better for a transaction.”

As a buyer trying to make an apples-to-apples comparison between potential apartments, you might employ a somewhat broader concept of net effective maintenance as a tool to help you determine your actual real estate financial obligation--your net effective housing cost.

“In a rental, your net effective housing cost is just your rent. When you move into a co-op or condo, the net effective housing cost is going to be lower than the actual cost because there are certain things you get deductions for," says real estate attorney Steve Wagner of Wagner Berkow. You can make an apples-to-apples comparison between co-ops and condos with a bit of mathematical adjustment.   The key numbers in a co-op are the portion of the underlying mortgage allocated to your unit and the maintenance fee; in a condo, you get a separate tax bill, plus the common charges (which are lower than a co-op maintenance fee) and the mortgage on your unit.