Most larger associations employ a licensed, professional community manager, and I think residents (Board Members, owners and tenants) should know what the manager has—and has not—been hired to do. The manager has two primary responsibilities: to carry out policies set by the board and to manage the association’s daily operations.
Some residents expect the manager to perform certain tasks that just aren’t part of the job. When the manager doesn’t meet those expectations, residents naturally are unhappy. Since we want you to be happy, we’re offering a few clarifications to help you understand what the manager does.
• The manager is trained to deal with conflict, but he or she will not get involved in quarrels you might be having with your neighbor. However, if association rules are being violated, the manager is the right person to call.
• While the manager works closely with the board, he or she is an advisor—not a member of the board. Also, the manager is not your advocate with or conduit to the board. If you have a concern, send a letter or e-mail directly to the board.
• Although the manager works for the board, he or she is available to residents. That doesn’t mean the manager will drop everything to take your call. If you need to see the manager, call and arrange a meeting. If a matter is so urgent that you need an immediate response, call the association emergency number or 911.
• The manager is always happy to answer questions, but he or she is not the information officer. For routine inquiries, like the date of the next meeting, please read the newsletter or check the association website.
• The manager is responsible for monitoring contractors’ performance, but not supervising them. Contractors are responsible for supervising their own personnel. If you have a problem with a contractor, notify the manager, who will forward your concerns to the board. The board will decide how to proceed under the terms of the contract.
• The manager inspects the community regularly, but even an experienced manager won’t catch everything. Your help is essential. If you know about a potential maintenance issue, report it to the manager.
• The manager does not set policy. If you disagree with a policy or rule, you’ll get better results sending a letter or e-mail to the board than arguing with the manager.
• The manager has a broad range of expertise, but he or she is not a consultant to the residents. Neither is he or she an engineer, architect, attorney or accountant. The manager may offer opinions, but don’t expect technical advice in areas where he or she is not qualified.
• Although the manager is a great resource to the association, he or she is not available 24 hours a day—except for emergencies. Getting locked out of your home may be an emergency to you, but it isn’t an association emergency. An association emergency is defined as a threat to life or property.
In today’s economy, many boards are refusing to raise assessments for operating and reserve funding needs.
The main rationale that I hear all of the time is that the economy sucks and owners are struggling as is and they just can’t bear to add to their “friends” and neighbors expenses.
Such an emotional response isn’t doing anyone any favors and in fact might be doing more harm than good. It could also open the Board for criticism or lawsuits for not living up to their legal and fiduciary responsibilities.
I have one association who hasn’t raised assessments in three years and the Board is quite proud of that. The problem is that inflation hasn’t stood still and every month the association’s cash flow decreases and some months they can’t pay all of their bills and age them into the next month. They’ve dealt with this cash flow issue by underfunding the reserve account. While a small 1-2% increase each year over the last few years would have alleviated this problem and been easier for their owners to swallow, this coming year they will probably have to raise assessments nearly 15% to make up for. That increase will actually place more hardship on their owners and cause a lot of anger. Add to that the fact that their reserve fund is now very underfunded.
Here are just a few reasons why not setting your assessment levels at actual needs can come back and bite you:
1) When you do have an increase, the amount will be huge and you may have an owner revolt on your hands.
2) Cash flow issues start impacting routine maintenance that would normally get done. Such deferred maintenance lowers property values. Too much deferred maintenance also makes the day-to-day living in your community less desirable and owner resentment and anger can build.
3) Not properly funding your reserve (which nearly always is what suffers for cash flow) harms property values. Right now FHA/Fannie Mae/etc. are the only ones really writing mortgages. They have strict requirements for reserve funding. Not meeting those guidelines means your owners who are trying to sell can’t find buyers who can get financing. Fewer potential buyers mean downward pressure on property values.
It is hard to make the pragmatic and proper decision for your association’s future. I always recommend to my Boards to properly fund their actual needs and caution them against making emotional decisions rather than the sound business decisions that their fellow owners elected them to do.
Should your association have a reserve study done? That’s a seemingly simple question and one would think the no-brainer answer would be yes. It is a little more complicated than that though.
Reserve Studies are an analysis of where the physical condition of your property stands; industry norms of component life cycles; and recommendations of when work (maintenance or replacement) can be expected to have to be performed.
For instance – your roof will be inspected. If your roof is 10 years old and in average condition for its age and if an average life span of say a flat roof is 15 years, you can expect that you will need to replace it in about 5 years. An estimate dollar amount (adjusted for average inflation) will be provided as a guideline for planning your savings. If you have $10,000 in roof reserves and your estimate in the reserve study indicates a potential price of $40,000, you now know you need to start saving about $500/month if you don’t want a special assessment.
There is no doubt that all associations should do not only annual budgetary planning, but long term planning as well. An association is a business (though non-profit) and should be run as such and associations that fail to plan, both short and long term, doom the association to financial difficulties and special assessments.
But, does that mean they should hire a company to provide them with a formal study?
For larger association the answer is unequivocally – yes. Economies of scale make the per unit cost for larger associations much less and also, larger associations have more, and more complicated, structures and systems that only real experts can properly advise about.
Smaller associations are the gray area. One could argue that smaller associations are the ones who might need it the most since the cost ramifications on a per unit basis of not planning could be quite significant. However, smaller associations tend to have a more “pay as we go” mentality and are very relaxed (or short-sighted) about future savings in favor of keeping assessments “artificially” low today – they’ll deal with the future when it arrives.
Despite that tendency, they need to plan for the future as well. At a minimum, any association that chooses to not have a formal reserve study done should at least:
1) Take inventory of every major building/property component (roof, exterior walls, windows, hallway carpet, water heater, doors, porches, etc.) and note its general condition and age.
2) Research the average life expectancy of each of the components and the cost in today’s dollars for replacement.
3) Use the difference in actual age and life expectancy to see when you can reasonably expect to have to replace that component.
4) Do a calculation adjusting the current price for the future cost at the needed time of replacement and find out what you need to save monthly to achieve paying for the work in cash when the time comes.
5) Make a spread sheet listing all of the components and the monthly savings “needs”.
Is that monthly needed savings amount doable? If yes – DO IT. If not, then come up with a plan to add as much as you can to your reserves to minimize the potential assessment that may be coming.
Today, I was going to blog about Reserve Studies. An email over the weekend prompted that thought and now seemed like as good a time as any to tackle the subject of “should an association have a reserve study?” but that’s been preempted.
This week there is a recurring theme at four of my buildings – Water. Specifically infiltration of water into the buildings or their structures from various sources. Hurray – fun for me and my managers.
Let’s start off with the obvious. Water is the number one enemy of buildings. What about fire you say? I reply, what do they put fire out with? During most fires, the water does the majority of the damage. But I digress; I promise we’ll talk about BBQ’ing in bathtubs another day….
As I said, water is the number one enemy of buildings. Any water leak progressively does more damage the longer it is left unresolved. Damage from some of the issues faced by my managers could very well cost thousands of dollars.
Interestingly, three of the four leaks or water issues were air conditioning related.
Chicago has had an unusually warm and humid spring so far. Air conditioning units have been running pretty hard right from their very first start-up.
It’s simple, air conditioning usage creates condensation. That condensate (water) has to go somewhere. Condensate drain lines are fitted to the air conditioning units (or pans underneath them) to channel away the water into the buildings sewer lines or outdoors onto the ground. Individual unit air conditioners can create anywhere from a few cups of water to a few gallons of water per day. Big chiller units on 25 story 250 unit high-rises can make many gallons – per hour. If the condensate drain lines clog or fill with random debris, that water has nothing better to do with itself than find a nice opening somewhere and run into it.
That seems to be the main issue today; for sure with two of three air conditioning related leaks. So, the key lesson to all owners: Maintenance of your system does not only include furnace tune up in the fall and adding coolant in the spring, but also should include cleaning out your condensate drain lines each season.
My fourth building issue is simply a long rainy weekend and building neglected masonry issues. I say building neglected because every year for the past five years the Board at this building has decided to “squeeze out one more year of hoping that it will last” in order to not spend the large amount of money to make the repairs. What could have been $150,000 in special assessment five years ago, has been estimated this year by one engineer at $600,000. They have to do it as an emergency or the building could literally collapse. The poor economy makes this expense much harder to swallow now than it would have been five years ago. So the lesson learned on that is water damage only gets worse with time so fix it now even if it is hard to swallow this financial pill.
It’s been along water day – I think I’ll grab a beer and go play on my boat this evening – at least it was meant for water.
Property management companies lose customers/contracts. That’s a given in any business. I’ve been lucky and have never had one of my properties that I’ve managed leave due to dissatisfaction; though I’ve “fired” one or two properties which probably caused them to be not so happy.
In the property management business, changing from one management company to another is commonly referred to as “transition”. It is a generally orderly process where the old management company hands over documents and information a month or so prior to the actual changeover date so that the new management company can hit the ground running on that changeover date.
Despite that there are more than 100,000 condos in the City of Chicago, the main players in the property management business are a relatively small group – one of those 10% have 90% of the business kind of things. It’s a small world and eventually companies have to deal with each other on a regular basis to transition properties.
Nobody likes losing business and it takes a large amount of professionalism, courtesy and cooperation to handle it gracefully.
It continually astounds me when a company losing their business throws a childlike temper-tantrum and refuses to cooperate. It makes everyone involved in the transition look bad and stains the industry as a whole. The old management company looks petty and everyone around says; “See, this is one of the reasons we’re firing them.” The new company is left scrambling around trying to piece together what they can. Scrambling around causes balls to be dropped and owners of the property say; “Why did we hire these guys? They look like idiots.”
So, my grump for the day………This weekend I am taking over management of a new property and, for the second time this year, the management company is being unprofessional and uncooperative.
Unfortunately, the owners of the property are the ones most likely to suffer while I try to get a handle on everything as fast as I can. Nobody wins – we all lose. Like I said, it stains the industry and irritates me to no end.
It is very short sighted and someday, if the prior management company survives giving this kind of customer service to its clients, they may ask something of me. Of course I’m too much of a professional to not cooperate and I also obsess about my company’s reputation in the industry. Other management companies might not be so professional.
It is good though that property management is a small industry and people get together and talk……….
Some residents think homeowners and condominium associations (generally called community associations) exist just to tell them what to do—or not do. Actually, the association is more like a housing management or service-delivery organization that provides three types of services to all residents—owners and renters alike.
1. Community services: These can include securing trash collection, publishing newsletters, orienting new owners, holding community-wide information meetings, and scheduling recreational and social functions.
2. Governance services: These can include ensuring that residents are complying with the association’s governing documents, that the association is adhering to local, state, and federal statutes (like fair housing laws), enforcing community rules and policies, administering design review policies, and recruiting new volunteer leaders.
3. Business services: These can include operating the common property efficiently, bidding maintenance work competitively, investing reserve funds wisely, developing long-range plans, and equitably and efficiently collecting assessments.
Providing these services requires good management (whether carried out by a professional manager or a self-managing board of home owners), strong planning and organization, and carefully monitoring the association’s affairs. It isn’t easy, but by fairly and effectively delivering these services, community associations protect and enhance the value of individual homes and lenders’ interests in those homes.
Since this blog is about Community Associations – I might as well start with > What’s So Great about Community Associations?
Community associations offer one of the best opportunities for Americans to own their own homes. They are for the 21st century what land grants were in the 19th century, and what the New Deal and GI Bill were in the 20th. Why?
Collective Management Protects Value
Americans have accepted, for the most part, the collective management structure of community association living. Covenants and rules are no longer a new concept to most of us: renters are used to lease agreements with restrictions; single-family, detached-home owners are used to zoning ordinances and building codes. The difference is that in traditional, single-family housing, restrictions are administered by public bodies rather than by private boards.
Most Americans have accepted private governance because they understand that collective management and architectural controls protect and enhance the value of their homes.
Privatizing Public Service Allows Growth
Wherever a new community is built, local infrastructures are stretched. School populations, snow removal, storm water management, road maintenance, utilities, traffic, everything increases leaving the local jurisdiction unable to support new community development. Yet housing is sorely needed. Therefore, local jurisdictions often require community associations to assume many responsibilities that traditionally belonged to local and state government.
This privatization of public services has allowed local jurisdictions to continue developing needed housing without increasing local taxes. Instead, the developer must build the infrastructure and create an association to maintain it after it’s developed.
Community Associations Make Owning a Home Affordable
Almost from their inception in the 1960s, condominiums have provided housing for low-to-moderate income Americans. In fact, in some areas, builders are required to include a certain percentage of affordable homes in new developments.
Also, converting rental apartments and commercial buildings into condominiums not only revitalizes many decaying neighborhoods, it’s also made ownership more affordable for those wanting to live in urban centers.
Community associations have made home ownership possible for millions of Americans partly because 21st century families tend to be smaller, the number of single-parent homes has increased, and more retirees are staying in their homes after retirement.
Community Associations Minimize Social Costs
Community associations also minimize social costs. Because they have mandatory covenants that require certain obligations from homeowners and the association, associations ensure that all who benefit pay their share and everyone is equally responsible. Community associations have sufficient enforcement authority that local government is seldom, if ever, needed to resolve assessment disputes. Many associations use alternative dispute resolution because it’s a faster and cheaper way to solve problems than legal action.
Community Associations Make the Market Efficient
Many community associations—especially condominiums—have greatly reduced urban sprawl. Because of their collective management and protective covenants, they are precisely what the Housing Act of 1949 intended when it called for “decent home(s) and suitable living environments.” Community associations, as alternatives to traditional single-family homes, are shining examples of free-market efficiency.
The factors that make community associations great places to live are easily ignored or misunderstood. Critics prefer to look at a few sensational issues instead of the whole picture. But for many community associations are affordable, enjoyable, efficient places to live.