Condo Association Management Blog

The most substantial cut I find for my clients is in insurance. In today's economy, reconstruction costs are half what they were two years ago. You can have an insurance appraisal done, lower your coverage substantially (based on the report), and subsequently lower the budget by a generous amount. Lastly, shopping the vendors is always good business practice, and may net some reductions, but usually not too many home runs. Good luck!

I respectfully disagree with Mr. Fink's statement that reconstruction costs are now half of what they were two years ago. 
 
 
 
Underinsurance continues to be a major issue with property insurance (homeowners and commercial). 
 
 
 
If you get an estimate of insurable replacement cost from a real estate appraiser, make sure they're not generating an estimate of "replacement cost new" using the "cost approach". Many real estate appraisers will use cost data from Marshall & Swift's MVS manuals and/or Swiftestimator or Commercial Estimator: these tools are not intended for insurance purposes. 
 
 
 
For insurance purposes, the appropriate valuation basis is "reconstruction", not "new construction". The estimating tool most commonly used in the insurance market is Marshall & Swift/Boeckh's RCT (for homeowners - consumers can access through accucoverage.com), or BVS for commercial (condos). Ask you agent to run it and provide you the detailed report, check over the details for accuracy. 
 
 
 
Any estimating tool can be "gamed" to generate a low number. Beware of agents and appraisers who advertise such creativity. Ask them how they will share in the consequences if the estimate is low. Ask them to explain how a coinsurance penalty works in a partial loss. 
 
 
 
There are better ways to lower property insurance premiums: increased deductibles, better quality submission, etc.

Actually, Mr. Fink is right on the money. We are a small (284 units)condo association as well. One of our board members got quotes from other insurance companies because we wanted to see if we could save some money, and it ended up saving us a little over $20,000.00 a year for the same coverage. We don't have a pool, clubhouse or any amenities. What he did was researched the companies that actually deal in condo insurance and we ended up switching from All-State to Farmers. Do a little research, and I'm sure you'll save some money.

First, you are not a small association. Small is 1-50, Medium is 50-100, large is 100+. Then there are large scale communities, which are almost like small towns. 
 
That being said, you ask a broad question and I will only give you some general ideas that as a committee member you may take to your board to assist. I do need to state that saying the fees "look a little high" is really subjective, especially with no other factors or data. I think that $1000 cor a computer is high, but people buy Mac Books because they like them and think they are getting value. 
 
Typical costs are: landscaping, building maintenance, common element maintenance, management fees, insurance, some utilities, infrastructure. 
 
There should be a review of services - are the services you are getting needed and wanted? In these tough times, I have had communities work with their vendors to cut back on some of the "luxuries" while keeping up on necessary maintenance. For example, in one community we went from weekly to every two weeks on lawn cutting and cut back on the irrigation. We lowered the number of fertilizer treatments in some communities, often only doing two treatments. We met with our building contractors to look at where we could possibly stretch or cut back on some maintenance. (I am a big proponent on preventative maintenance, so I don't urge cutting back on that. It will cost you more in the long run.) We asked our service providers to work with us to keep them and build the bonds in our relationships rather than just dumping to cut costs. Some had some really good ideas on cutting costs. Some communities deferred planting flowers this year to reduce costs. 
 
If you have community lighting and the bulbs are easy to reach, form a lighting committee to change them rather than paying someone. 
 
Do a search in your community for volunteers who could perform some services rather than hiring those out. Often these are smaller items, and the small items are often the ones that can rack up costs. 
 
Most communities try to cut back on copies and postage. I think that is a mistake, as comunications is greatly improtant. 
 
You mentioned cleaning services, so I am concluding that you have common hallways or areas that need to be cleaned. Cutting back on that will start a slide that most people won't like. Instead, meet with the contractor or cleaning crew and see what they think. They can provide valuable insight. Maybe you can work out a deal and help them advertise in your community to offset any income loss they may experience if they lower service for you. 
 
As an Association Manager, I am uncomfortable with "must-do" budget cuts because I don't know your budget and I don't know your obligations. Most documents state the responsibilities. Anything can be deferred or put off - but I find that the communities who put off items to keep their fees down pay more in the long run - more in fees, more in loss of value and more in time, effort and work to get it back up to par. 
 
The board is making business decisions to keep, maintain and enhance your shared investment. They are elected to make those decisions, and the best thing you can do is to assist by volunteering while educating yourself on the costs and expectations of your community.

You can sometimes generate savings with your property insurance by shopping around. 
 
 
 
Generating lower premiums by artificially reducing the insurable values is not a good idea. 
 
 
 
Check your quote or policy to see if it's subject to co-insurance. 
 
 
 
Thoroughly review the insurable value estimate generated by your agent/appraiser.

To further elaborate, I would add that construction cost reductions are greatly regional. In Florida, they actually are 50% of what they were two years ago, based on labor and materials reductions. I concede that other areas less radically hit by this recession would be as great of a decrease.

Another approach is to have a reserve study done, if it has not been already. I have found that many management companies have pulled numbers out of the sky trying to establish reserve budget figures. Again, the labor charges to paint a building are not what they were two years ago (in Florida) and inflation is marginal. Although I'm very cautious about suggesting that reserves are over funded, it is a possibility, and deserves close review.

Jay Fink's comment about the rarity of an association's reserve fund being over-funded rings true based on our experience. The opposite is typically true.

We have cost cutting suggestions at our weekly newsletter site, the APM News Express - http://www.apmnews.org/2009/10/22/lower-expenses-for-your-association/

For self managed condo associations try finding business that bundle services like lawn, snow and cleaning.