No homeowner ever thought to themselves, “Gee, I wish my condo association charged me higher dues!”
It’s a struggle Boards of Directors face universally. Assessments need to be high enough to accommodate the needs of the community, but not so high that homeowners struggle to pay them. If you serve on a board of directors for a Condo, HOA, Townhomes or Co-op, you’ve probably faced this same struggle yourself.
Many Boards who face this budget dilemma try to cut costs to keep from having to raise assessments. Some techniques like reducing services can work out fine, such as cutting garbage collection to once a week instead of twice weekly. Other approaches are far more dangerous, such as deferring preventive maintenance, or underfunding the reserves. These short term solutions cost the community in the long term, leading to lawsuits and/or balloon special assessments.
The good news is you don’t have to sacrifice amenities, skimp on maintenance, rob your reserves or reduce services to avoid raising maintenance fees. Here are some of the ways you can mitigate expenses, increase miscellaneous income, and keep your assessments low:
Competitive Bidding on Vendor Contracts
Just because you are happy with your current vendor doesn’t mean they have no room for improvement.
Many boards follow the adage, “If it ain’t broke, don’t fix it.” when it comes to community vendors. But if your community has had the same vendor for years and years, simply rolling over the contract each time it comes up for renewal, you may be paying more than you should. Vendors often work built-in increases in price to rollover contracts without improving the services.
Just because you are happy with your current vendor doesn’t mean they have no room for improvement. As a best practice, every time a contract is up for renewal, the board should request a competitive bid RFP to at least three vendors, including your current provider.
At HOA Strategies, we have seen this tactic save communities a bundle. We recently helped one community renegotiate their annual insurance premiums, saving them $30,000 per year!
Collect Reinvestment Fees
In the state of Utah, community associations are able to charge up to ½ of a percent of the sale price of every home sold in the community. This is called a reinvestment fee, and your community should be collecting it with every resale. This money is to be collected for the community’s reserve fund to help fund replacements of common elements (e.g. elevators, roofs or roads.)
If your community takes advantage of reinvestment fees at closing, you can mitigate a lot of the money in assessments that is earmarked for reserve contributions to help keep the monthly assessments down. Even if your community has a low turnover each year, this can result in significant reserve contributions. For a $250,000 home, the reserve contribution on that sale is $1,250. In a 400 home community with a 5% turnover rate, you’re looking at 20 home sales per year. That works out to $25,000 in reserve contributions that doesn’t need to be covered by assessments.
If you are not already provisioned to collect reinvestment fees, you’ll need to file your intentions with the county office of the recorder. Consult your association attorney or managing agent for assistance. (See section 6 A-B)
Beef Up Your Collections Strategy
Boards may not realize that they have middle-ground collection options.
Unless your community is populated by unicorns, you probably don’t have 0% delinquencies. The sad truth is that sometimes people don’t pay, and when they don’t, the rest of the community members suffer. The board has to hire someone to work to collect those lost fees, or they wind up writing off the bad debt. Delinquencies lead to an increase in assessments to cover the expected losses to the community’s budget.
For many community associations, the collections process starts off with polite notices and warning letters before jumping straight to the nuclear option: an attorney filing for a lien on the home. Not only can this be a costly endeavor for the community in legal fees, there is also no guarantee that the community will actually recover lost funds when they do take title to the home.
These boards may not realize that they have middle-ground collection options, such as denial of access to amenities, credit bureau reporting, and specialized community association collection agencies. The nuclear option is (or should be) a last resort after all other methods to collect have failed.
Talk to your management team and plan a board review of your collections policy to see if you can improve collections procedures for your community in order to reduce delinquencies and recover more past-due assessments.
Offer Amenity Rentals and External Membership Access
Swimming pools, tennis courts, gyms, clubhouses and other amenities are wonderful perks for community members when buying into a community, but they can also become a source of secondary income for the community. There are two ways communities can capitalize on amenities:
- Rental fees can be charged to rent out amenities for private functions.
- Amenity ‘memberships’ can be made available on a limited basis to non-members via a membership fee.
Before implementing any kind of rentals, make sure that the process is clearly defined in your governing documents, or pass a resolution to outline them.
It may seem counterproductive for me to tell you to spend money on maintenance in order to keep assessments low, but as the saying goes, “You’ve got to spend money to make money.” Regular maintenance and upkeep on community equipment, facilities and machinery is the best way to prolong the life of these community assets. The longer you can go before needing to replace community assets, the more you can save.
Some communities have seen savings by negotiating bulk contracts for the entire community and passing those charges on to the homeowners. We often see bulk contracts for services like broadband and cable TV, but we have also seen more unusual bulk contracts, such as lawn care, solar paneling and home security. While new developments will negotiate for these services before the HOA is turned over, communities can retroactively negotiate for bulk rates as well.
If you do decide to pursue bulk negotiations, consider negotiating through an agent, such as your management team and your community association attorney to get the most favorable terms.
Technologies used across the community association industry are frequently compatible or integrated with each other.
Whether it’s volunteer hours or billable hours, manual processes can be expensive to the community. As in any business, automating tedious or repetitive tasks cuts down on mistakes and leads to faster, more accurate record keeping. Check with your management team to make sure that they have implemented automation technologies into your community’s accounting and enforcement processes.
Many boards are not aware that the technologies used across the community association industry are frequently compatible or integrated with each other. For example, you can have a bank lockbox set up so that homeowners mail their payments directly to the bank, and the statements are automatically sent to the management software each day. Those changes can then be posted to the community’s web portal so homeowners can see immediately when their payments have been received.
Not only does such automation save time in billable hours, it has the added benefit of helping to prevent fraudulent activities, providing an added layer of protection to the community.
Have your managing agent work with other vendors such as your bank, website provider, coupon distributor, etc to see how they can integrate and automate their technologies.
Are you a Utah Condo or HOA looking for a management company that can help you implement all of the above strategies and more to help keep assessments low while keeping service levels high for your community members? Take advantage of this free strategic evaluation to see if HOA Strategies is a good fit for your community.