When Condo Association Budgets Don't Reflect Reality
Posted on Thu, Jan 29, 2009 @ 06:57 PM
Some condo associations adopt condo association budgets that have little relation to reality as to forecasting assessments needed to cover expected condo expenses.
Brad Schneider of Condo CPA in Elmhurst offered an example based on a real situation. A manager prepares an accurate condo association budget that reflects a 15 percent increase in condo assessments but the board rejects it, ordering the manager to drop it dramatically.
He then comes back with a 3 percent increase that he is sure will likely result in adverse financial consequences to the condo association later. But this is what the condo board wants and the directors ratify it quickly.
"The condo expenses are not really reduced and the year ends with a deficit," said Schneider. "That deficit first is paid with operating reserves and then they borrow from the capital reserves."
That ultimately leads to a special assessment to pay for capital work or for diminished or depleted condo reserves.
Some condo associations slash services to a minimal level. "If they cut back on condo security or on basic services like cleaning, they are reducing the value of their condo units indirectly," he said. "When prospective buyers see the condition of the condo association property, they will discount how much they will pay for the condo units."
Schneider encourages condo associations with central heating plants to look into energy-efficient boilers. "They can reduce the amount of gas so much that the payback can be less than three years," he said.
Condo boards also should not delay collecting from condo owners delinquent in their assessments. "This can help avoid some unit owners having steep balances that they have no way to pay," he said. No one wants condo owners to default.
Larger condo associations should set up inventory systems that monitor supply usage.
"If supplies are tracked, costs will go down," he said.
Condo Associations with unionized employees should make sure that union monthly assessment forms contain the names of all employees in the union. Check to see if part-time employees have to be included.
"If a condo association owes past-dues for employees, the union charges exorbitant rates of interest," he said.
Here are other ideas from Schneider:
- Pay condo association insurance premiums in advance if this results in lower rates or no interest charges.
- Deposit funds and condo fees in interest-bearing accounts.
- Seek to reduce charges for lock boxes.
- Keep condo reserves within the $100,000 limit for FDIC insurance.
- Check with several vendors to find the best deal on phone/Internet combinations.
- Determine if leasing rather than purchasing copiers is less expensive.
Energy savings
Tim Allwardt of Aegis Properties added some energy cost-saving tips that both condo associations and individual condo unit owners can follow.
Use energy-saving light bulbs. Dialing down thermostats in winter, and up in summer. Lower shades to retain heat in winter and to deflect the sun's rays in summer.
Tracy Davis of McGill Management, however, cautioned against one means by which associations might try to control costs: always selecting the low bidder for a service or a job.
"Lowest price won't always be the best," she said. "You sometimes have to end up paying again if the job wasn't done right. Make sure the company hired is the right company for the job."
Always check references and inspect work a contractor has previously completed before making a final choice. An option is always a HOA loan for your condo association
Freelance writer David Mack