Is a lower condo fee better for your community??
It is tempting to strive for the lowest possible fees year over year. This “set it and forget it” approach may not be the best allocation of community resources to achieve the highest value for homeowners. Determining your community’s ideal fee can be overwhelming. But it doesn’t have to be.
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Alright, well good afternoon everyone and on behalf of Alcock Marcus and SPS we’d like to welcome you to our interactive expert panel discussion on how to write size your condominium fee.
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I will introduce our panelists and get us started in just a moment, but before I do, I’d like to take care of just a few housekeeping items.
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All attendees have been added and listen only mode so you will be muted but we do ask that you please take the extra step of ensuring that your computer microphone is muted.
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We will have about 30 min of panelists discussion plan for today, which allows us plenty of time to open up the conversation with all of you.
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And hear what’s on your minds during Q&A time. So as the discussion progresses, please feel free to submit any questions that you’d like for our panelists to address using that little button at the bottom of your screen that says Q&A.
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And again, we’ll talk about these after the panelists discussion. We are going to be recording today’s session and we’re happy to share that with you via email once it’s available.
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And I’ll share more about this in just a minute, but today’s session is the first of several that we plan on hosting with our experts to really dig in on this topic.
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Of right size and condominium fees. And we do hope you’ll join us. For those next sessions as well.
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So stay tuned to learn more about those.
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So today we are fortunate to have 3 experts with us to help us explore this question about condominium fees from various angles.
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Our first panelist is Norm Orban. Norm is a partner with a law firm of Alcock and Marcus.
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His only focus is on representing condominiums and homeowner associations in Massachusetts and Maine. He provides associations with general representation and with litigation matters in state and federal courts including arguing condominium related issues in superior and appeal courts.
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Concerning various condominium related matters. He has been an active member of the CAI New England chapter since 2,017 and he currently is on the CAI New England Board of Directors.
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We are also joined today by Ralph Noblin. Ralph is a highly skilled professional engineer and visionary entrepreneur with over 40 years experience in the construction and building technology industry.
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Ralph is the founder of Nablin and Associates and past president of CAI.
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His expertise lies in building envelope technology for condominiums and building repair and restoration. Ralph’s hands on experience in construction has given him invaluable insights that have proven instrumental in his work.
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And our third panelist is Eric Churchill. Eric serves as the executive vice president at SPS.
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He plays a crucial role in working closely with our clients and management team to deliver exceptional value and long term solutions for condominium communities.
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Eric firmly believes in a comprehensive and collaborative approach to planning. He understands the importance of working hand in hand with board members, property managers, and other professionals on behalf of communities and owners.
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To ensure each community has an accurate. Practical, realistic, and actionable plan that meets their specific needs.
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So in thinking about right sizing fees, there are factors that are often can considered and should be considered in determining the right fee for your community.
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And so as part of this planning, we want to make sure that we account for how much homeowners can afford.
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What are the fees for similar nearby communities? How much does operating the community cost? How much cash is needed?
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And we also want to hear from you about other factors that you take into consideration. When determining your fee or you think should be included on this list.
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And our goal is for this to be a collaborative discussion as we progress today. So as with. Many of the responsibilities that fall to association boards, this has the potential to be a complex discussion because determining the proper fee is a multi-step process.
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But it doesn’t have to be as overwhelming as it might sound. We recommend applying a best practice three-step planning framework to ensure that your position to make a fax-based decision on your community.
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We start by collecting the necessary data. So that we are armed with the facts. Next, with those facts in hand, we frame out what options we have, making sure that we evaluate the benefits of each as well at what as what it would take to execute them.
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And only after we have done those things, do we then have enough information to help us choose an option?
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Create an actual actionable plan to support that option and then execute that plan. So our experts today are going to take us through each of these 3 steps to get us started down that right path.
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And for today’s session, we’re going to focus on step one, which again is about collecting the appropriate data so that we have the facts at hand.
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We’ll talk about steps 2 and 3 in the next few sessions. So Norm Ralph and Eric are going to help us explore the 4 main categories of the factors we need to be looking at.
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As we gather those facts. Including the legal considerations. The technical aspects. The financial implications and the social factors.
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So let’s go ahead and dive in with a look at the legal considerations. Norm?
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Good afternoon, everyone. As Alison mentioned earlier, my name is Norm Orban and I am a partner at the law firm Walcock and Marcus where we focused primarily and almost entirely on kind of minimum law.
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So I want to talk a little bit about reserves accounts, the things that you may know. You might not know and what you need to do for the purpose of today’s session.
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What you may know is that associations are required to have some sort of reserve account. For their funding.
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You also may know that this reserve account is funded through common area expenses or your assessments through the culinary collections.
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And the other thing you may also know is that the reserve account is used to fund a community’s ability to replace restore and rebuild common areas and facilities.
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So it’s your sort of tool to look towards the future perhaps and say, hey, what money do we need to set aside to make sure that we’re in a position going forward to adequately.
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Maintain, repair and replace our commonaries. Now the things that you might not know is there’s actually no specific requirement for how much should be maintained.
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Chapter 183 A the kind of mini a match only says that you need to have an adequate reserve.
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And this creates some problems because generally it’s simply too vague and more needs to be done to determine what is specifically needed for each specific condominium.
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Because every association, not only are they different in size and location, but they’re different in terms of the makeup.
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The facilities. So no matter what size or even if you have 2 identical sized communities, I guess I would say the needs to be vastly different and the types of reserves for those 2 similar communities could also be vastly different.
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Which you also may not know is that if you have something sort of insufficient reserve account You may have a difficult time.
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To getting financing for your communities. That goes in the way of refinancing or by the way of somebody coming in and attempting to buy a unit and getting a loan.
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Right now I know there’s been some talk about Freddie and Fannie Mae and the blacklist and one of the things they’re looking in and putting associations on blacklist where they’re not giving lending.
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Is looking at what you put down in questionnaires in terms of what your reserve accounts baby. So they’re looking at them specifically and another group that’s looking at as well is insurance.
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And insurance companies can look at your reserves and opt not to give you an insurance policy down the road if they don’t think you’re funding or reserve account is adequate.
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For the future of your community. And the last thing you may Not know is that I think most reserves are probably inadequate.
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Because there is no specific definition that makes it harder to track. And I think it’s people’s natural tendency to get by with what they can rather than going full forward and maybe looking into all the different things you need to look into to make sure your reserves are adequate and appropriate for your own association.
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That’s what the goal is. The goal here, we’re here today and going forward is going to be to look at every association.
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We’ll try to look at the association for what they are and to set it up. So that everybody has an adequate reserve for the future of their communities.
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And adequate can mean a few different things. It could mean that when you have a future project that you’re able to cover it with the reserve or it could mean that maybe you don’t have enough in the reserves but maybe when it comes to do that special assessment or get that bank loan that’s all we need to finish a bigger job that you have enough in the reserves where the hit isn’t so bad.
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And finally, what you need to know. Is that a associations either have reserve studies performed or structural integrity studies performed?
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This is how You learn what your specific association needs. And what you need to do and plan for going forward.
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Another thing you need to know is in getting to structural integrity reports, there may be a time and I think we’re looking at a time in the near future where there’s going to be mandates.
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They happen every 5 or 10 years. I think some form of fashion that’s likely coming. We don’t know exactly when or why.
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We do know why, excuse me, but be on the lookout for that and that’s something that’s coming.
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And the last thing. That you need to know. Is that there are defects out there and you don’t take adequate steps.
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To look into them, investigate them, and all came you repair them, it could lead to significant liability on the board and damage the association.
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And the best example of that I’m sure that most of us know of is the surfside collapse from a couple years ago which led to settlements in total over on a billion dollars.
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So knowing what you can learn everything you can about your reserves is crucial and making sure that you’re planning, preparing, examining your association to know what could be out there.
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And then planning and funding the reserves appropriately. And with that, I will leave it back to Alison to introduce the next slide.
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Okay, so technical factors. Ralph.
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Hi, it’s Ralph Nobel, building consultant. Let’s talk about your properties, what you may know.
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Most condominiums have many exterior surfaces that are viewable from grounds, roofs, siding, windows, decks, pavement, retaining walls and fencing, just name a few.
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High-rise, condominiums, not so much. You may need staging to really look at the building.
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What you can see and can give you a feel for the overall condition of your property. Reserved study findings.
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Hopefully most of you are familiar with the current reserve study for your property. Reserve study focuses on common areas as defined in your master deed, which also defines the boundaries of the units.
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The study determines the specific items to be included, for example, roofs and pavement, the quantities associated with the items, the remaining useful lives, 30 years or less if it’s beyond 30, it doesn’t show up in the study until it’s 30 years or less and replacement costs in current dollars.
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Once the full list is developed, an annual contribution amount is determined to allow replacement of those items at the appropriate time.
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In addition to the reserve study, other common expenses are anticipated for all condominiums, mostly paid out of the operating account.
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Painting, landscaping, snow plowing, or a few, I think you are familiar with.
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What you may not know. What lies beneath the surface? The visible items mentioned earlier are only part of the story.
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What about the underlayments of plywood and framing beneath the roofing and siding?
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The strength and capacity of the wood decks along with the specifics of the asphalt pavement, the thickness, number of layers.
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Etc. Of factors and determining both. Remaining useful lives and replacement costs. Invasive examination, including test cuts, can give you a good idea what is happening beneath the surface.
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How accurate is your current reserve study? Was the list complete from the start. I know when we first started doing reserve studies in the eighties, no one listed the swimming pool.
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And I’m scratching my head going, I don’t think those swimming pools are going to last forever.
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And sure enough, a very large complex for the large pool in Stilton started their replacement project. And I think back then it was a couple $100,000.
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Now was the, the property as age, a vitamin added, again, maybe swimming pool, tennis court, septic, to the list as the ultimate replacement now falls within that 30 year window which is its standard.
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With the original estimated replacement costs affected too much by the developer’s original cost. For example, it is much, much less expensive to install roofing and siding on a new, uninhabited, non landscape building than it is to work on a completed family home.
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Starting with tearing off the existing materials. Particularly in New England weather. Was the current reserve study prepared in the last 3 or 5 years?
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I’ve been involved in construction for my entire adult life and I’m struck by the cost increases in construction partly due to COVID just over the last 3 or 4 years.
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And you have unexpected maintenance issues, again, coming out of that, that quote, pile of money.
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As properties age, similar to motor vehicles, problems arise. Roof and window leaks, broken deck railings along with flooding, wind and snow issues.
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Just a few items of concern when managing real estate. Timely repairs or a necessary component on achieving optimum useful lives.
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Now, what you need to know. Do you have a plan to maintain and preserve the value of the homes in your complex?
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Is your current reserve study taken seriously? Have there been serious discussions regarding when and how the work will get done?
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You will need a comprehensive a set of plans and specifications to properly define the project as well as a realistic schedule for the construction.
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Today’s discussion is all about your plan. With that, I’ll defer to Eric.
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Thank you, Ralph. Thank you, Norm. So the next 2, sections here, we’re gonna discuss financial factors and social factors.
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Starting with financial factors, what most, what most of us know about the communities that we work with or live in, the condominium fee.
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It’s, well understood. It’s the amount each. Each owner pays each month. Certainly a well known number.
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Annual operating expenses. Highly visible because the annual operating expenses, tend to be listed and detailed in your annual budget, which is shared with the community and most owners have.
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Visibility into that. The operating expenses are also those expenses that happen regularly and they’re the things that you see.
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The landscaping. The snow plowing the things that are that are happening throughout the year.
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There are vendors working and bills getting paid. The forecast for capital projects is something that often most or many owners will know, certainly the board will know, what’s coming up thinking about future replacement of any of the individual components, the driveway, roads, sidewalks and curbing, building envelope related items.
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So those, those are things that are fairly from a financial perspective. Those are numbers that are often people are familiar with.
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What we, might not know and is a little less clear is. How do all those things get paid for?
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The obvious, many things get paid for out of the incoming fees. The incoming condominium fees.
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And the things that are planned for the future and our larger expenses, what options do you have there? The main sources of funding are one to increase the condominium fees.
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2, to have to assess owners for a specific amount in order to fund a specific project. And 3 would be to finance a project and get money from a bank.
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Fine tuning that and thinking about those 3, options. And how you might blend those 3, is sort of a next level of thinking.
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A combination of any one, any one of those options, or potentially all 3. Second thing you might not know is do you have enough money?
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Not only for the operating expenses, which generally communities do. And also for the project expenses.
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Where usually there is a gap. The reserve study will call for you to have X dollars to pay for future capital expenses and in most cases All of that money is not in place when those expenses come due.
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So understanding that gap. Is an important part to the beginning process of right, sizing your condominium fate.
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When we think about things that you need to know. I go back to collecting enough money.
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Running a condominium and managing a condominium, living in a condominium is no different than any other.
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Any other living experience rent or owning a home where the bills that come in need to be paid.
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And the question is, do you have enough money to pay them? And then the second level to that question is, are you reserving enough money and or planning to have enough money to pay for the larger expenses.
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If you don’t, what needs to change? How do you go from having a underfunded plan to having a right size plan, a fully funded plan.
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Next is the social factors. Again, many of these would be, will be familiar to everyone.
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A community, oftentimes at community meetings and whatnot, the conversation is around our fees are too high.
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How come the fees down at the neighboring community are lower? So that becomes a conversation point.
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Talking about long term solutions versus short-term needs, the landscaping, the snow plowing, those are short-term things.
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Long-term items might be the roads, the curving, the roofs. And for folks that are thinking through their own experience in the community, and sort of looking in the mirror and saying, how long am I going to be here?
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So long term solutions may not match up with individual owner. Expectations of how long they might live there and what their priorities are.
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Certainly it’s pretty well understood that not everybody agrees on how best to spend money. That oftentimes even within a nuclear family deciding what to spend money on.
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There’s, not always perfect alignment and certainly with a broader, you know, a bunch of families in a broader, you know, a bunch of families in a broader community.
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The expectation that everyone would agree on how to spend every dollar. On how to spend every dollar. I think is unrealistic in a broader community.
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The expectation that everyone would agree on how to spend every dollar, I think is unrealistic and I think most people, embrace that and understand that.
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So what are some of the things you might not know? The importance of alignment when we were talking about a community and a group of people living together.
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Finding common ground is essential. To moving forward and making good decisions. Well maintained, good looking, high curb appeal community.
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Will potentially be associated with higher fees and potentially, connected and a fuel for higher property values.
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Often times. There is a misconception that higher, higher fees mean that it will be harder to sell home or that property values would go down.
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When higher fees are associated with amenities and or the appearance of the community then oftentimes that has a positive impact.
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On property values. The thinking through sort of the a well maintained and a fully funded community. Is it fully funded homes in that community are easier to sell.
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The hardest, the hardest hurdle to overcome, in a home sale is the list of things that need to be done after the new owner buys the home.
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So well maintained. Homes often equate to higher prices. What’s really important to know?
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One is that all of us involved in the in who have a connection and work with kind of medium communities need to under understand and appreciate the boards biduciary responsibility.
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This is an obligation that the board has to care for the community and it’s often something that gets overlooked.
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Or undervalued. When communities, when, communities are aligned, when board members lead, when they, when they put in place good plans and communicate well with the community.
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The experience is that good things happen. And I just go back to the last, you know, it may be it’s repeating, but I think.
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One of the most important factors. We’ve seen in terms of good decision making is that the board reaches alignment amongst themselves.
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They don’t always necessarily agree. On what to do, but once they make a decision, they, they come together and move forward as a group.
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And then that spills over to the community, moving the community into a state of being at least significantly aligned on how things are going forward, leads to good decisions.
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Okay.
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Great. So let’s let’s go ahead and summarize for everybody. Just as a recap before we head into QA.
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Yes, and getting back to the legal issue, you know, what’s important to do here is to plan for your specific condominium.
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That’s what it is. There is no set number that any specific or any kind of medium should have in general, it depends on what’s happening at your specific place.
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No. That you are unique in any other way. So plan specifically according to your own needs and then in order to come up with that plan.
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It’s important to study and investigate. You get the facts. What’s going on with your community?
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How old are some of the facilities? What does it cost to fix them? And do this frequent enough to where you’re up to date with.
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Current pricing the current business models and how it’s going to happen. And then finally once you’ve you’ve planned You’ve studied, you’ve investigated, you’ve gotten the results.
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Take the appropriate action. Assess appropriately and perform work that needs to be done to ensure. The your asset, your condominium, which should be looked at as an asset in total, not just your specific unit.
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Is best protected going forward and maintained adequately and well.
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Okay, you have to ensure that your data is accurate. Reserve studies I’ve looked at didn’t list all the items haven’t been updated in some cases in decades and too many assumptions were made about the property just based on a artificial view.
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You have to list all the items, put realistic current day pricing on those items with the understanding that Some interest will be earned on the reserve account that will roughly balance the effects of inflation.
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I say that in the time period now where inflation is way above the interest that’s being earned on the accounts another reason to review and update ideally every 3 years and also look below the surface.
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It’s well worth the time, the effort and the minimal expense to peek under the siding.
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Peek under the roofing, get underneath those decks, core some holes in the pavement.
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Let’s figure out exactly what we have. How long it’s gonna last, which is subjective.
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Eric talked, touched earlier on, you know, how attractive is your property? How does it stand up to comparable properties?
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Massachusetts right now. Properties are at a premium because of a lot of higher and highly educated people wanting to work in Massachusetts looking for homes.
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My experience is they want homes have been kept up well, that are attractive, and that the people running the show have got a good handle on the financials.
00:28:55.000 –> 00:29:02.000
Excellent. And nice segue, Ralph from that to the financials, knowing your numbers.
00:29:02.000 –> 00:29:04.000
And knowing all of your numbers. I think one of the challenges is right now is the numbers come from 2 documents.
00:29:04.000 –> 00:29:16.000
They come from your operating budget. Those are the numbers that are better known and are taken care of.
00:29:16.000 –> 00:29:24.000
The remaining numbers come from your reserve study. Sometimes they’re known by throughout the community. Sometimes they’re not.
00:29:24.000 –> 00:29:36.000
And more importantly, they’re not always well planned for. And so looking at all of your numbers across both the operating budget numbers and the capital.
00:29:36.000 –> 00:29:48.000
Reserve project numbers. From a social perspective, being transparent. With the, with the community with the information so that, new owners, potential owners.
00:29:48.000 –> 00:29:59.000
And owners that may be long standing owners are well aware of everything that’s going on with respect to the to the numbers and to the planning.
00:29:59.000 –> 00:30:09.000
Communicate the plan, communicate the numbers, keep everybody informed, oftentimes. When we look at things and we think it’s bad news or people aren’t gonna want to hear it.
00:30:09.000 –> 00:30:15.000
We choose not to share it. It’s been our experience. That’s the best time to share it.
00:30:15.000 –> 00:30:30.000
Share the bad news. And allow the community to, understand what’s going on. And then As I said in, when I, when I was talking about social factors, finding common ground in order for communities to move forward, there needs to be alignment communities need as a group all of the owners.
00:30:30.000 –> 00:30:41.000
Not necessarily like what’s going on, with respect to costs and projects, but understand.
00:30:41.000 –> 00:30:52.000
What needs to happen and support, the effort to get the things done that need to get done.
00:30:52.000 –> 00:31:00.000
Okay, thank you all. That was a great discussion on step one of the recommended process. We would like to open it up for questions.
00:31:00.000 –> 00:31:16.000
Now, is here to help answer legal questions. Ralph can certainly provide insight on technical questions and Eric can address our financial and social questions and we do have quite a few that were submitted via the QA during during our talk.
00:31:16.000 –> 00:31:18.000
So thank you all very much for that. Panelists, I guess we can we can start with just running through all these questions.
00:31:18.000 –> 00:31:41.000
So I’m happy to to read them out. We have a question from a. She asks before you have a reserve study shouldn’t you have a structural study to determine what the condo property might need in the near future.
00:31:41.000 –> 00:31:44.000
Well, I’ll touch on that. That is correct. I think reserve studies often have been frankly flyovers.
00:31:44.000 –> 00:31:55.000
Where people, you know, may have visited the property, may have just sat at a desk and updated the figures of this study that was done 10 years ago.
00:31:55.000 –> 00:32:14.000
I’ve always been a firm proponent of getting a self on the property site. With an experienced set of eyes, not just financial experience, but construction experience.
00:32:14.000 –> 00:32:20.000
Look closely at the buildings. And yes, if you have a question, why do I see that sag in the roof?
00:32:20.000 –> 00:32:30.000
Why does the deck appear to be out of alignment? You may have to do some more destructive evaluations, but absolutely you have to be on site with an experienced set of eyes with also the financial background.
00:32:30.000 –> 00:32:50.000
To come up with a real anticipated scope of work. And an accurate number for that scope of work.
00:32:50.000 –> 00:32:54.000
Any other thoughts on that question?
00:32:54.000 –> 00:32:57.000
No, I think Ralph covered that well.
00:32:57.000 –> 00:33:11.000
Okay, here’s a good one. I have taken the idealistic position that the only way to determine an appropriate condo fee is by looking at the replacement costs as determined by a reserve study.
00:33:11.000 –> 00:33:19.000
I’ve dismissed as a relevant where the condo down the street has likely set their fee which is probably inadequate or what people can afford.
00:33:19.000 –> 00:33:25.000
If you can’t afford the monthly fee, how do you think you are going to afford the special assessment?
00:33:25.000 –> 00:33:29.000
Am I wrong?
00:33:29.000 –> 00:33:36.000
So, I’ll take that from a financial perspective and, nor maybe you have some, a legal insight into that.
00:33:36.000 –> 00:33:44.000
Not only are you not wrong, you’re, you’re right on the mark and, and this is a, this is an approach.
00:33:44.000 –> 00:33:53.000
That more communities, would benefit from taking. The amount of money that it costs to operate.
00:33:53.000 –> 00:34:07.000
And to maintain and fund future capital projects. Is a is a is a mathematical number it can be figured out once to understand that number The whole.
00:34:07.000 –> 00:34:14.000
The genesis of right sizing your condominium fee is understanding that number. And then deciding where the current fee is relative to that number.
00:34:14.000 –> 00:34:26.000
So if that should be $800 and you’re at $600. Then the question is, do you choose to bridge that gap?
00:34:26.000 –> 00:34:33.000
If you do, how do you do it? When do you do it? It starts by understanding that there’s a gap.
00:34:33.000 –> 00:34:40.000
So I think you’ve hit the mark right on right on you’ve hit the mark perfectly on that question.
00:34:40.000 –> 00:34:41.000
Norm, are there some legal comments?
00:34:41.000 –> 00:34:44.000
Yeah, and in the end, as a board, you have the duty to maintain your pair and replace and the kind of areas and fix them.
00:34:44.000 –> 00:34:53.000
So while it might not have ever be happy, if there are real issues, it’s the board’s duty to fix them.
00:34:53.000 –> 00:35:03.000
Or perhaps be liable for failing to fix them if something should happen. I mean, it’s a hard thing because it is difficult when other people can’t afford it, but there’s other ways to do it.
00:35:03.000 –> 00:35:27.000
There’s the options of letting people obtain outside financing to do it. But in the end of the day, it is your duty to Maintain your parent and place the common elements of a condominium if you’re on the board and that has to be taken an account of first and foremost because while maybe you have some owners that are unhappy with the increased cost, that’s far better than having a significant structural
00:35:27.000 –> 00:35:37.000
failure take place and we have people getting hurt or you know in the server side case, significant amounts of loss of life.
00:35:37.000 –> 00:35:48.000
I just got one more comment there that this is the kind of leadership I was I was talking about when it was time about the social, you know, the implications of being effective, you know, looking at things.
00:35:48.000 –> 00:35:58.000
Practically and boiling them down to a to a concept like this sharing that with the community and expecting to to build community trust in a alignment.
00:35:58.000 –> 00:36:08.000
We’ve seen as being a really you know, positive correlation with with communities that are well run and well capped.
00:36:08.000 –> 00:36:14.000
And well-funded.
00:36:14.000 –> 00:36:32.000
Great. Here is one. When there is a significant range in tenorship of ownership among a community, for example, 30 plus years versus less than 5 years and a need to increase condo fees significantly for a large scale project.
00:36:32.000 –> 00:36:40.000
How can you approach this in a way that doesn’t place an undue burden on newer owners who didn’t benefit from the decades of low fees.
00:36:40.000 –> 00:36:45.000
I have essentially bought into debt.
00:36:45.000 –> 00:36:48.000
So, we again start with, with a, you want to start with this one and I’ll add a financial one after.
00:36:48.000 –> 00:36:53.000
Yeah, yeah, I mean, this, this is actually, it’s somewhat somewhat somewhat of the last question where You know, that you have to, you have to do the repairs.
00:36:53.000 –> 00:36:59.000
If they’re, they’re needed, you have to get them done. You have if I do share a duty to do so.
00:36:59.000 –> 00:37:22.000
But when you’re looking into something like this, I think as we we’ve all mentioned a little bit earlier, this is where you might want to look into the possibility of doing some of these repairs via bank loan, which may offer some owners say, hey, if you can afford this assessment, you can pay it all in full, not have to worry about months, years or whatever of interest, whereas for these other owners who have to
00:37:22.000 –> 00:37:34.000
now do it now and can’t afford it, at least it gives them a time period where yes, they will and crew interest on paying off any bank loan, but you’ll always have the flexibility of being able to take care of a large special assessment over time.
00:37:34.000 –> 00:37:43.000
So it’s nice that you can find banks that will give you this option, which might be the best way in this type of scenario here.
00:37:43.000 –> 00:37:51.000
Yeah, I think. Sort of embedded in this question is, thinking about 2 concepts. One is saving money.
00:37:51.000 –> 00:38:01.000
To pay for things when they wear out. From this person’s, perspective, that’s not the scenario they’re talking about.
00:38:01.000 –> 00:38:12.000
The money wasn’t saved. So that didn’t happen. The flip side of that coin is borrowing money and fixing things when they need to be fixed.
00:38:12.000 –> 00:38:22.000
And then paying for it over time and that spreads out the cost over future owners. So instead of incurring a large, you know, assessment.
00:38:22.000 –> 00:38:31.000
To write the ship, so to speak, because previous owners hadn’t been, hadn’t been contributing enough to reserves.
00:38:31.000 –> 00:38:37.000
You can flip the switch, look at it through a different lens and say, if we were to borrow money.
00:38:37.000 –> 00:39:03.000
Complete the project now when it needs to be done and then spread that cost out over the life expectancy of the solution so current and future owners are paying equally as whatever work is done is slowly wearing out to the point where it that loan is paid when it’s time to consider the next repair.
00:39:03.000 –> 00:39:07.000
Or restoration.
00:39:07.000 –> 00:39:22.000
Okay, we have a question from Cameron. When considering what owners can afford, if the board is forced with a building envelope replacement, how should they prioritize creating financial hardship for owners?
00:39:22.000 –> 00:39:26.000
Versus completing major building replacements or repairs.
00:39:26.000 –> 00:39:35.000
And I can, you know, touch on a little bit of this first. And it’s sort of similar to the last question so you can see it’s an important question because a lot of people are asking somewhere versions of it.
00:39:35.000 –> 00:39:48.000
But so obviously we’ve talked on the fiduciary doing the obligation to do this, but There’s to me if you’re gonna prioritize anything you need to make sure things are safe and safety comes above all else.
00:39:48.000 –> 00:39:51.000
So you gotta make sure you’re safe. You’re not putting people in harm’s way.
00:39:51.000 –> 00:39:57.000
So if there’s a way to stagger repairs. To, to, in perhaps stage off some of the costs.
00:39:57.000 –> 00:40:07.000
Focus the first focus in my view should be on safety. I can give it an example quickly the association I have that’s presently in litigation with a developer for Death of Construction.
00:40:07.000 –> 00:40:16.000
Where they have an issue with their balconies as constructed, they were not the code, but it’s going to cost a significant amount of funds to fix them.
00:40:16.000 –> 00:40:31.000
So during the course of litigation, they’ve put them in as a condition where they’re, they’ve put them in as a condition where they’ve put them in the course of litigation, they’ve put them in a condition where they’ve put them in a condition where they’re safe. They may not necessarily be code compliant right now, but at least they’re safe.
00:40:31.000 –> 00:40:37.000
They’re Correct. The deficiencies and bring them up.
00:40:37.000 –> 00:40:45.000
Yeah, and as Norm said, I think similar to, similar to other questions. The the question of hardship on the owners.
00:40:45.000 –> 00:41:04.000
I think is is a question that often gets looked at at just a snapshot in time. And what we would encourage people to do is look look at that over a longer period of time and if the work needs to get done at some point in time, once that’s known.
00:41:04.000 –> 00:41:15.000
Then stepping back and looking at it and saying what is the least what is what approach what finding what funding approach has the least impact.
00:41:15.000 –> 00:41:26.000
Or the smallest impact on the owners. That way, if you’re reducing the financial impact. And completing work that needs to be done.
00:41:26.000 –> 00:41:33.000
You’ve essentially ensured that For those that it’s a hardship for. The hardships is as low as possible.
00:41:33.000 –> 00:41:45.000
It’s the least hardship possible. And you’re getting the things done that need to get done.
00:41:45.000 –> 00:41:57.000
Okay. Here’s a question about reserve studies. Should a reserve study show funding at 100% and if not what percent is recommended?
00:41:57.000 –> 00:41:59.000
Ralph, do you have any thoughts on this?
00:41:59.000 –> 00:42:06.000
I do. Yeah, we, historically would look at reserve studies 2 ways. We would do it.
00:42:06.000 –> 00:42:13.000
Line item by line items. So every individual category, the roofing was covered 100%.
00:42:13.000 –> 00:42:25.000
The siding was covered 100%. That kind of, resulted in the amount in reserves bouncing all over the place as opposed to looking in from a cash flow standpoint.
00:42:25.000 –> 00:42:32.000
Okay, what is the size of our community? Let’s say it’s 300 homes. All right.
00:42:32.000 –> 00:42:39.000
300 homes. I’m not sure you want to draw down to a point where you have $10,000 cash on hand and that’s it.
00:42:39.000 –> 00:42:55.000
So you look at what’s a reasonable lowest point over the next 30 years where the balance in reserves should be and determine your funding so that each time an individual component like the roofs, the paving, the clubhouse renovation, the tennis court, they can all be done with funds in hand.
00:42:55.000 –> 00:43:10.000
And you don’t drop your balance in the bank. Below a certain amount, think about the recent flooding out in the Lemonster area.
00:43:10.000 –> 00:43:27.000
If a lot of those condominiums had drawn down their last dollar. To do a project. Feeling recently, now they’re hit with a huge issue that’s got to be handled and I know insurance at some point will step in, but all communities need that cushion of money.
00:43:27.000 –> 00:43:43.000
So I think the cash flow analysis is the most logical way to go. But even then, you’ll have talk about, okay, our total, you know, fee per month is X and we do 10% of X for reserves.
00:43:43.000 –> 00:43:48.000
That’s okay, Ralph, isn’t it? Cause 10% been thrown around forever.
00:43:48.000 –> 00:43:59.000
Calculations have indicated 10% is not even close for a real realistic amount. For your reserves as compared to you operating in your total budget.
00:43:59.000 –> 00:44:03.000
So you really have to, and that’s why I go back to the facts, get real numbers for the work to be done.
00:44:03.000 –> 00:44:22.000
And the timeframe, it’s going to be done. Be able to accomplish that work either with funds on hand or and a lot of good arguments have come up recently about you know what we should finance a lot of this because yes don’t punish those new people that just came in.
00:44:22.000 –> 00:44:23.000
The people that have been there for a long time paid a low fee, usually starting day one with the developer.
00:44:23.000 –> 00:44:37.000
I remember the ads, monthly fees, less than a hundred dollars back in 1986, 87 88.
00:44:37.000 –> 00:44:57.000
In fact, the fee was 96, 87, 88. In fact, the fee was 96 bucks okay for so many condominiums it was whether they had a clubhouse no clubhouse tennis court no tennis court the monthly fee was $96 and all of a sudden 10 years later it should have been $300 when it was 96 and now 10 years later it should be 4
00:44:57.000 –> 00:45:04.000
$100 and it’s now a hundred 20. So it’s so much playing with numbers has been done.
00:45:04.000 –> 00:45:18.000
I think a lot of people have gone off the reality planet. You have to have the money to do the work either in hand or with a logical, bank loan situation moving forward.
00:45:18.000 –> 00:45:27.000
And one thing to add to that just looking at the question here asking a hundred percent. Perhaps that’s not realistic.
00:45:27.000 –> 00:45:41.000
And then the next part of that question is, so what’s recommended? My contribution here would be what’s most important is to understand the gap and to make sure that the gap between what you know you need.
00:45:41.000 –> 00:45:47.000
And what you’re collecting is well understood by the community. And that there’s an appreciation for.
00:45:47.000 –> 00:45:58.000
The only way that that gap is made up. For is within assessment at the time of the project. Some sort of funding at the time of the project.
00:45:58.000 –> 00:46:10.000
So understanding the gap. Is potentially more important than the percentage so that you can plan accordingly.
00:46:10.000 –> 00:46:24.000
Okay, we are getting a ton of good questions in the QA. We are probably not going to be able to get to all of them during this session, but rest assured we will do follow-up and make every effort to get you the information that you need.
00:46:24.000 –> 00:46:41.000
Here’s another few questions for discussion. If an owner takes out a home equity line of credit in order to fund a large special assessment is his interest tax deductible on his personal income taxes.
00:46:41.000 –> 00:46:49.000
So usually not. So what happens is because the association is the borrower.
00:46:49.000 –> 00:47:01.000
Versus the owner. The income the interest wouldn’t be deductible as part of the as part of a construction event.
00:47:01.000 –> 00:47:11.000
That said, if depending on the person’s tax position. And it’s different from it for every person and the tax law changed about 2 or 3 years ago.
00:47:11.000 –> 00:47:22.000
It changed with respect to home equity loan interest. It may be that the interest is tax deductible or it may not.
00:47:22.000 –> 00:47:37.000
I think the best way to leave that is that’s a. That’s it gonna be dependent on individual circumstances and something that you should review with your accountant to get an accurate answer for your situation.
00:47:37.000 –> 00:47:51.000
Thank you. Another question. Our association’s declaration calls for certain items like staircases and railings as limited common elements allocated only to the units.
00:47:51.000 –> 00:48:03.000
How does an association conduct these kinds of repairs when they’re not technically considered an association common element capital reserve expense.
00:48:03.000 –> 00:48:06.000
So there’s really 2 different ways you could do it. One, you could reach out directly to the owner.
00:48:06.000 –> 00:48:23.000
Responsible for the limited common element. Make an indication that the the repairs are necessary and make some sort of demand or requirement that they fix it and you can even probably particularize that with how it’s to be used.
00:48:23.000 –> 00:48:35.000
Prepared and what is to look like or what’s what’s probably the better option is that the board give them advanced notice saying, look, XYZ repairs are being made, you’re responsible to it.
00:48:35.000 –> 00:48:42.000
Not only are they responsible for it pursuant to the condominiums documents, they’re responsible for under the condominium act.
00:48:42.000 –> 00:48:55.000
So then you would just assess that specific cost against that specific owner. And they would be a, that specific cost against that specific owner, and they would be a lot liable as, as a common expense directly to their unit.
00:48:55.000 –> 00:49:07.000
Thank you. Another question. The biggest challenge I have is a board member is managing the mismatch in members ownership time horizons.
00:49:07.000 –> 00:49:16.000
Those are the long term horizon, want granite stairs and trek stacks. Those with a short horizon want the cheapest solution possible.
00:49:16.000 –> 00:49:26.000
Even though the expense of the higher cost material should be reflected when selling. Do you have any strategies for dealing with this mismatch?
00:49:26.000 –> 00:49:36.000
So this is a very common question and I think it’s fundamental to this, this effort to right size the kind of minimum fee for the community.
00:49:36.000 –> 00:49:52.000
The suggestion here is to focus on the blend. Between the highest value. And the long term solution, long-term performance and finding that that balance.
00:49:52.000 –> 00:50:02.000
So that maybe neither of those constituencies is 100% happy and both. Are willing to support.
00:50:02.000 –> 00:50:20.000
The approach. I we find that the middle ground is obviously is sometimes the highest value long term solution and I’ll give you just a simple example, sometimes a higher cost product like a tracks or granite.
00:50:20.000 –> 00:50:27.000
When you look at the long, the life expectancy. Has a lower cost per year. For individual owners.
00:50:27.000 –> 00:50:37.000
So especially if a cost is spread out over time. Over the life expectancy of the product of the product.
00:50:37.000 –> 00:50:48.000
You could result you could end up with having both high quality products high value and long term solutions.
00:50:48.000 –> 00:50:52.000
And in the end, it’s up to the board to decide, you know, what is done.
00:50:52.000 –> 00:51:07.000
So. I think you you take into account what the owners want but ultimately you’re the ones responsible for making the decision that’s in the best interests of the association.
00:51:07.000 –> 00:51:17.000
Okay, a couple more questions. Hopefully before we And this session. Here’s a Pretty direct question.
00:51:17.000 –> 00:51:32.000
What’s the difference in a reserve study and a condition assessment? And they be done simultaneously. And if not, which one should be done first and about how much does a study like that cost?
00:51:32.000 –> 00:51:49.000
Oh, that’s a great question. Over the years, I think we probably did more condition surveys and reserve studies as a package than just one or the other because it and I alluded to this earlier, it’s the most thorough approach.
00:51:49.000 –> 00:51:56.000
Because what condition it’s in today is more important than what condition it was envisioned to be in 10 years ago, 20 years ago or more.
00:51:56.000 –> 00:52:20.000
So, you know, it’s difficult sometimes when everything falls around the funds, you know, the costs, it’s difficult sometimes when everything falls around the funds, you know, the cost of reserve study, may be half of the cost of a condition survey reserve study because you’re going to spend a lot more time on the property.
00:52:20.000 –> 00:52:38.000
But it’s going to be a better document. For example, when we did these types of evaluations stood the ladder up, physically got up on the roof, not only just to look at the roof shingles, but to look at above residing to look at the flashings between the roof and the siding to look at the chimney and closures, all the brick chimneys.
00:52:38.000 –> 00:52:48.000
We actually had a project where while on the roof we looked down into the chimneys which were brick.
00:52:48.000 –> 00:52:53.000
And the flus had totally deteriorated and it turned out that there was a problem with manufacture of clay flus back in that time frame, they weren’t fired at the right temperature.
00:52:53.000 –> 00:52:59.000
So they literally deteriorated in a fairly short amount of time. That never would have been picked up.
00:52:59.000 –> 00:53:27.000
By most reserve studies, where frankly a lot of firms don’t even get up on the roof. So, it seems like a lot of money, but if we take a hundred units that are worth $500,000 piece and we’re going to spend a few extra $1,000 to do a more thorough evaluation like a condition survey reserve study.
00:53:27.000 –> 00:53:36.000
It makes in my world that makes perfect sense, but oftentimes the focus is more on the dollars than the result.
00:53:36.000 –> 00:53:47.000
You want to understand. Your building’s life going forward as well as possible. And, you know, I’m alluded to Surfside.
00:53:47.000 –> 00:53:53.000
They were being told for years. They had people looking at the building constantly. They had a problem down at the pool deck.
00:53:53.000 –> 00:54:01.000
They had, you know, rust stains, some deteriorated steel. So yes, I would lean not just because I’m an engineer and a construction guy.
00:54:01.000 –> 00:54:12.000
I would lean towards the more thorough evaluation as your at the end of the day best paying for the buck.
00:54:12.000 –> 00:54:19.000
Thank you. So we have one last question for today. I did want to note we we see all of these questions coming in in Q&A and very much appreciate this engagement in the session.
00:54:19.000 –> 00:54:31.000
So please rest assured that we will be doing follow-up to answer these and we will have Q&A like this at each of our subsequent sessions.
00:54:31.000 –> 00:54:38.000
So if you have these questions and want to get more answers, please do join us for those next 2 sessions.
00:54:38.000 –> 00:54:51.000
So our last question for today. I am a property manager. I understand these concepts, but my communities often don’t listen and want me to focus on the day-to-day issues that give them headaches.
00:54:51.000 –> 00:54:56.000
What advice do you have for me? I feel stuck in the middle. Do I have them call an attorney?
00:54:56.000 –> 00:54:59.000
They’ll ask, what does that cost?
00:54:59.000 –> 00:55:05.000
Hmm. Yeah, it’s such a great. Norm, you’ve got some insight here, sure.
00:55:05.000 –> 00:55:14.000
It just, just such a great question and, and at the heart, of what we’re, trying to accomplish here today is, to start.
00:55:14.000 –> 00:55:29.000
Is to create a resource. You know Ralph norm myself we view ourselves and there are other professionals available that are a resource to help support this dilemma.
00:55:29.000 –> 00:55:31.000
You’re stuck in the middle as a property manager or a board member. You’re stuck, you know, trying to leave.
00:55:31.000 –> 00:55:43.000
A community and make decisions that aren’t popular. Lean on, lean on your experts that are that are familiar.
00:55:43.000 –> 00:55:50.000
With the legal, the technical, the financial and the social elements of working with a kind of minimum community.
00:55:50.000 –> 00:55:58.000
There are plenty of resources out there. I highly, I just encourage you to use your resources.
00:55:58.000 –> 00:56:07.000
Be the leader of finding. The resources to help solve the problem as the property manager. That’s my suggestion.
00:56:07.000 –> 00:56:08.000
Norm Ralph?
00:56:08.000 –> 00:56:11.000
Yeah, I mean, I think that’s, you know, in the end of the day, the board gets to make the decision.
00:56:11.000 –> 00:56:23.000
And I can only imagine, I can actually can imagine how frustrating it is to try to give somebody advice or born advice and have them not listen or go halfway.
00:56:23.000 –> 00:56:34.000
It is their decision. So I would look at it is your job when you’re aware of these other things put in front of them try to make any opportunities available for them to listen and hear and see the benefits.
00:56:34.000 –> 00:56:39.000
And I think some of the biggest problems that communities have and boards have is that when it comes to these big repairs, they look at it individually.
00:56:39.000 –> 00:56:50.000
And for trying to protect that individual asset and to maybe get them to understand and focus on that you’re not, this is, you don’t have an individual asset here.
00:56:50.000 –> 00:56:55.000
You have a multi multi-million dollar asset that is the economy your whole that should be looked at.
00:56:55.000 –> 00:57:05.000
And what benefits the entire association benefits you not only in your day to day living at the place, but also in the future in terms of selling or anything like that with the unit.
00:57:05.000 –> 00:57:13.000
So I think you just it’s your job as a property manager guide them put the things in front of them that could best help them succeed and go from there.
00:57:13.000 –> 00:57:17.000
But at the end of the day, the board gets to do what they want. But you can put in front of them over and over and over again.
00:57:17.000 –> 00:57:26.000
And eventually they’ll get there. It’s not a perfect answer and I appreciate that but some questions don’t have.
00:57:26.000 –> 00:57:33.000
Perfect answers.
00:57:33.000 –> 00:57:41.000
Okay, wonderful. Thank you all so much. This concludes our session for today. Thank you to everybody for joining and for asking all of those great questions.
00:57:41.000 –> 00:57:50.000
Thank you to our 3 panelists. Please do stay tuned for the recording from today’s discussion as well as for invitations to our next 2 sessions in the series.
00:57:50.000 –> 00:58:00.000
As we are discovering now, this is a topic that has the potential for a lot of questions and discussion and we look forward to continuing that conversation with all of you.
00:58:00.000 –> 00:58:30.000
Thank you so much. Have a great afternoon.
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