Some condo associations adopt condo association budgets that have little relation to reality as to forecasting assessments needed to cover expected condo expenses.

Here is an example based on a real situation. One of North Point’s managers prepared an accurate condo association budget that reflects a 15 percent increase in condo assessments but the board rejected it, ordering the manager to drop it dramatically.  He then came back with a 3 percent increase that he was sure will likely result in adverse financial consequences to the condo association later. But this is what the condo board wants and the directors ratified it quickly.

The condo expenses are not really reduced and the year ended with a deficit and that deficit first was paid with operating reserves and then borrowed from the capital reserves.  That ultimately led 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.  When prospective buyers see the condition of the condo association property, they will discount how much they will pay for the condo units.

Board should look to solutions to address potential increases in the monthly condo fees or improving cash flow.  Condo boards 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. 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.

Here are some other ideas that a Board can utilize:

▪                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 $250,000 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 such as switching to energy-saving light bulbs; dialing down thermostats in winter, and up in summer; lowering shades to retain heat in winter and to deflect the sun's rays in summer.

However, a Board should use caution 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.  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

More about TIM AREL