Tim Arel News

Tim Arel on Buying a Condo

2012-05-28T16:52:51Z

From the desk of Tim Arel

When you're looking to buy a home, there are plenty of choices available. One of them is a condominium. As you may already know, a condominium is a large property complex that is divided and sold in individual units. Compared to a single-family dwelling, ownership in a condominium includes partial ownership in shared "common property". This presents unique challenges for condominium buyers. If you're considering buying a condo, read on to learn a little more about this type of property and what ownership entails.

What's a condo?

In a condominium (commonly known as a condo) some parts - your residence - are owned privately, while others - common areas - are owned collectively by all of the condominium's residents.

A less technical way to think of a condo is an apartment that you own. In practice, condos often take the form of an apartment or similar shared complex, but theoretically, a condo could physically look like anything.

Condos are especially popular in places with high property values - vacation hotspots and urban settings are both places where you can expect to find them on the market. This is largely because buying a single-family home can be prohibitively expensive in places where additional building space may be scarce. As such, condos can open home ownership to whole new groups of people Therefore, if you're ready to own your own home, but can't quite afford a house, a condominium could be a way for you to get into the market.

Searching for the Right Condo

Looking for a condo involves the same process as shopping for a single-family home. If you're more of a do-it-yourself person, you can search real estate websites and listings for condos in the area you are interested in. If you have a specific building or complex in mind, many offer on-site sales offices where you can learn more about the condominium and perhaps even view a show suite.

The Condo Sales Contract

It's not just the sales contract that you have to think about when you're buying a condo; condos also have an agreement, or declaration, that dictates the way the condominium operates and is governed. Before buying your condo, you should request and read the documents that apply to the management of the complex. What are the hot issues for this complex? How big is the condominium's reserve fund? How does management deal with owners' requests and complaints? Does the condominium impose strict rules and guidelines on owners that you would be unhappy with? You need to get a sense of whether the condominium you are considering is well run, whether the rules and restrictions would allow you live the lifestyle you're seeking and whether the building/complex is experiencing any problems that could hurt the value of your share of ownership in the future.

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Why a condo?

There are lots of reasons that a condo might be a better fit than an apartment or single home, and money is surely one of them. Typically condo prices tend to appreciate at a slower rate than single-family dwellings, making them a more affordable choice in markets where prices are on the rise. And, compared to renting an apartment, because you actually own your condo, you can take advantage of tax deductions such as the interest on your mortgage.

Conversely, it's important to remember that the purchase price isn't the only thing to consider when you're buying a condo. Most co-ops and condos have monthly fees for upkeep of the common property (these can be costly) and, unlike renting an apartment, you'll have to pay property taxes, too.

Granted, it's not all about the money. Condos also provide attractive lifestyle choices for many prospective buyers. They're especially popular for retirees who want to be able to socialize or take advantage of services at communities that cater specifically to seniors. Living in a condominium can also free you from some of the usual chores that go along with owning a house, such as yard and exterior maintenance.

The Bottom Line

If you're thinking about buying real estate, whether as an investor, vacationer or year-round resident, condos are definitely something that should be on the radar. This is especially true if you're looking at an area where real estate is expensive. Condos aren't inherently better or worse than any other type of residence, but depending on your situation, a condo or co-op could be a fantastic choice as a homebuyer.

Tim Arel: Condo Self Management

2012-05-19T20:28:17Z

From the desk of TIM AREL

CONDOMINIUMS – CONSIDERING SELF MANAGEMENT

A condo that embarks upon the road to self-management is committed to undertaking the supervision and administration of the association without the assistance of an outside full-service property management firm. There are, however, varying degrees of participation required on the part of board members, depending upon the level of self-management the association chooses. At one end of the spectrum would be a association that hires onto its payroll its own property management staff reporting directly to the board. At the other end, all association tasks would be done using only board and volunteer labor, from billing and paying to hauling garbage. The middle of the self-management spectrum is probably the most typical: The board and volunteer owners take on some duties and contract with specialists to do the rest.

Proceed With Caution

An association is a candidate for self-management only if it expects to improve the association's value or quality of life or actually save money by switching from professional management. The ideal candidate for self-management must have certain characteristics. If your association is far removed from the ideal self-management candidate described below, further analysis would probably reveal that a full-service managing agent is economically and practically better than attempting self-management. However, an association approaching the ideal profile might take the time to do the exercise in the accompanying box and if the job can realistically be done better and/or cheaper, self-management would be worth serious consideration.

In order to be successful at self-management, an association must have an involved, competent board (plus non-board volunteers) available and willing to substitute their volunteer time for paid full-service managing agent's time. The ideal association must be in good physical shape, with all major projects completed. The association would not have on its plate window replacement, paving, boiler replacement, pointing and brickwork replacement, and/or major roof work. The association should be in a minimal vandalism neighborhood, and have good security. Strong finances are critical; over 70 percent of the units should be owner-occupied and the reserve fund should equal one to two months maintenance fees. The condo fees should be in line with current rates, there should be no assessments, and no chronic delinquent owners. Lastly, the ideal self-management candidate enjoys harmonious unit owner relations. This includes no dissident factions, significant and continual rule violators, and no occupants inconsiderate of their fellow residents.

If your association does not even come close to the ideal association described above, you may be happiest as you are. But for those who do, there are even more considerations to ponder. If it would be more economical to self-manage, and volunteer unit owners have the talent, inclination and time available to do the job better and more conscientiously than a professional, read on.

What Does the Job Entail?

The outside agent's fee is one of the few discretionary costs on a association's income statement. For that fee, the agent provides three broad services: back-office support; transfer agent functions (resales, sales, and refinancing); and site property management. Substituting volunteer owners labor for outside managing agent labor may or may not save money. Although it eliminates paying the agent's profit, contracting for those tasks not done by volunteer owner labor might be more costly than the managing agent's all-inclusive annual fee.

As for unit owner capability, sometimes it is self-evident that resident owners can do the job better than a managing agent. For example, a board member may be a professional in finance with the time to look after the association's funds. Or, a board may be concerned about stories of kickbacks from vendors, so they find three vendors and bid out the work themselves.

Many back-office sub-tasks are not actually performed by the agent, but rather by specialists hired by the association: Insurance brokers, accountants, and attorneys. Other sub-tasks are also often sub-contracted out, such as payroll services, security and grounds maintenance.

Outside support service firms exist that supply bookkeeping and basic accounting services, send maintenance/common charge bills, pay invoices, and provide monthly reports. These firms often assist self-managed associations with budgeting. Also, for a relatively small capital outlay, software systems that handle these back-office tasks are available to the volunteer board.

Some managing agents have a specialist on staff to represent the association in transactions involving resales and refinancing. However, if an association has written policies for these transactions as to the exact nature of the package to be submitted for consideration by the board, a volunteer owner can review the submissions for completeness. The association's attorney can represent the association at resale closings and can assist the association in drafting the policies covering resales and refinancing.

Identifying and Fixing Problems

Property management, the third major service provided by professional managers, can be unbundled into reactive and proactive work. Reactive property management is further unbundled into identifying the problem and fixing the problem. Owners living in the association are almost always better than their managing agent at identifying physical problems within the association. In fact, very often it is the owner who calls the property manager on issues.

Fixing the problem without the help of an outside managing agent is a concept that often stops a board from thinking further about self-management, and deserves deeper examination. Simple problems are usually more frequent than complicated ones, with the solution beginning and often ending with a maintenance person. Managing agents handle emergency problems with a list of 24-hour emergency telephone numbers and with subsequent follow-up. The association's board can do the same.

For the more complicated fixing the problem projects, it might benefit the self-managed association to establish a relationship with a licensed professional engineering/architectural firm. Such a relationship usually includes being able to phone up for advice on the steps to be taken in fixing the problem. At worst, the association would be charged an hourly rate for such advice. Such firms might also be consulted on apparently simple problems that could not be solved by tradespeople.

In addition to hiring an engineer/architect, the association should establish a Renovation/Alteration Policy. This document, coupled with the association engineer/architect relationship, ensures the maximum protection to the association against owner-caused physical damage and/or code violations. The association engineer/architect can assist in drafting the Renovation/Alteration Policy.

Proactive property management, or preventive maintenance, requires unbundling the association into its components: Roof, facade, windows, sidewalk, backyard, boiler, air conditioning, elevators, laundry room, hallways, and other common areas and systems. Then, preventive maintenance programs can be developed individually or as a comprehensive package. Individual component programs can be structured by attending classes, based on the advice of the engineer/architect, or by hiring arms-length consultants who are also equipped to deliver a comprehensive preventive maintenance program.

Getting Outside Help

Associations that want to take on only a portion of the management duties themselves can turn to firms that specialize in hand-holding self-managed condos on all association matters. Although these firms do not visit the association, for one annual fee they provide complete back-office services as well as supplying customized step-by-step solutions on demand for any on-site problem showing exactly how to get from symptom to cure. At North Point Management, we furnish clients with tailor-made three-month to-do calendars and provide a Property Management Help Line. We also supply sample association policy documents covering resales, sales, refinancing, and renovations/alterations, and checklists to assist the association in its transition from managing agent to self-management.

Even some professional management firms have begun to talk about unbundling services so that associations can choose what they need from a sort of a la carte menu. As condos explore alternatives to the traditional form of management, they will find that a broad range of possibilities exists. It depends on the circumstances of the individual association, its board and owners which is the best avenue to pursue.

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Tim Arel- benefits of using condo mgt companies

2012-05-11T01:12:38Z

From TIM AREL

When you are on the Board at your condominium association, you may consider using a condo property management company. The use of this type of company allows you to put the paperwork and legal considerations on the management company's shoulders as opposed to carrying the burden yourself.

In addition, the company is responsible for overseeing the operations and maintenance of the property, as well as responding to the questions and concerns of the Owners. This is all done at a cost of course, but hiring a property management company can be well worth the cost. Here are some of the many benefits of hiring a company to manage your condominium.

Diffusion of Responsibility

When you utilize a management company, you are able to delegate a significant amount of the day-to-day responsibilities for the property as compared to self-management. This is due to the fact that your property manager handles the intricacies of daily operations so you don't have to. The role of the Board changes to one of general oversight and establishing the directives that the management company is suppose to carry out.

Property Maintenance

Should your condo property need upkeep, the condo property management company will be on top of it. From the simplest of maintenance duties, to the more complex, the property manager will ensure that your condo is well taken-care of.

Communication

Condo property management companies take care of all communication with the Owners in your association. Owners can call the managing company with issues regarding maintenance or other property related issues, which leaves you free from the hassle of unnecessary phone calls. In addition, should the need arise, the condo property management company you utilize will be in charge of enforcing rules, so you don't have to hassle with that aspect of being a Board member.

Proactive Actions

Your property manager knows the types of problems that can occur. As a result, the condo property management company will do everything in its power to tackle issues before they become emergencies. This includes preventative maintenance and care of the condo, as well as frequent communication with owners. Though there are some circumstances that simply cannot be avoided, these proactive actions on the part of your management company will ensure as smooth a process as possible.

Ease of Mind

When you utilize a condo property management company, you rest assured that your investment is being well taken-care of. You don't have to worry about panicked phone calls in the middle of the night. You also don't need to fret over having to enforce rules or deal with the angry phone calls from your neighbors. All of these things and more are done dutifully and efficiently by the condo property management

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Tim Arel: Reviewing Documents before a Sale

2012-05-06T03:26:52Z

From the desk of TIM AREL

Reviewing documents prior to purchasing a condominium

When purchasing a condo, it’s as though you’re buying into a business or corporation. If you were planning on purchasing a business, you would do your due diligence and find out everything you can about the company. What is its income? How much are the operating expenses? Are there any upcoming large expenditures? Any pending lawsuits? The same applies to buying a condominium.

When purchasing your condo, along with your Property Inspection, it’s important to get the Condo Documents and to ensure you have an understanding of what is included in them. The following is a list of documents that you should request from the seller and have review prior to your purchase:

1. Copy of bylaws of the association;

2. Copy of the most recent financial statements;

3. Copy of the budget;

4. Copy of minutes of a general meeting or board for past 12 months;

5. Copy of the insurance certificate;

6. Copy of any lease agreement/exclusive use agreement with respect to the possession of a portion of common property, including parking stall or storage unit;

7. Particulars of, or copy of, any subsisting management agreement;

8. Statement setting out structural deficiencies, if any;

9. Statement setting out the amount of the capital replacement reserve fund;

10. Copy of the most recent reserve fund report;

11. Copy of the most recent reserve fund plan;

12. Particulars of any action legal actions against the association;

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It is very important to review these documents carefully. It is strongly recommended that you use a professional management or other company to review and provide you with an understanding of these documents.

Tim Arel on effective meeting agendas

2012-04-15T01:01:35Z

From the desk of TIM AREL

EFFECTIVE MEETING AGENDAS

We all know that some Board meetings can run longer then necessary. In most cases, though, Board meetings should take no longer than two hours. In order to conduct an effective meeting, you need to start with a concise meeting agenda.

The meeting agenda should be drafted by the community manager (if one exists) and reviewed by the Board President, since it is the President who will be conducting the meeting. At the top of the agenda should be the date, time and location of the meeting.

Agenda Points

The agenda should begin with a call to order, which is done by the President. Next, the Board should approve the minutes from the last meeting or any other outstanding minutes. Once the minutes are approved, committee reports should be given (management, finance, architectural, communication etc.) for the benefit of all in attendance. After the reports, the business portion of the meeting is typically divided into unfinished business items and new business items. Some communities prefer to break down the business into maintenance categories such as recreational, structures, repair items etc. The individual business items should be listed in order of importance because, as the meeting goes on, there is a tendency to spend less time on each topic.

Open Forum Meetings

In the event of an open Board meeting, it is recommended that an open forum for all interested owners be held after the business portion of the meeting. The reason for placing the open forum toward the end of the agenda is to give owners the opportunity to listen to community issues facing the Board, the content of which may address their specific concern.

Action Item Review

An item that often is added to the end of an agenda is a review of the action items to be addressed before the next meeting. This assures that everyone is clear about the decisions made and who is assigned what task. Finally, the Board should set its next meeting date before adjourning the meeting.

One way to control the length of the Board meeting is to use a timed agenda. To do this, the preparer of the agenda should note the actual start time next to each heading and then provide an estimate of how much time each section of the agenda should take. A timed agenda will allow the Board to re-focus on the agenda if a topic is discussed outside of the scope of the agenda or if participants simply become verbose.

The meeting agenda, along with any other meeting information, should be given to Board members at least one week prior to the meeting date. This allows time to review the meeting material prior to the meeting. A well prepared Board will result in a more efficient and effective meeting.

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Tim Arel: Ways to Save

2012-04-15T00:58:47Z

From TIM AREL

Ways to Save Money and Increase

Communication and Participation

1. Community feedback is easily enhanced with either email links or topic postings in the discussion forums.

2. Document storage and the ability to create extra pages is a feature the association can utilize to post information (and photos) regarding architectural compliance, safety issues, social groups, common areas, community events, ongoing projects, safety concerns, official documents, and anything else you believe to be relevant to the community. This can be accomplished by either uploading a PDF and/or using the website’s document creating tools.

3. A significant cost savings for the association would be the ability to publish, distribute, and continuously update its newsletter – at no cost! The newsletter can be created and continuously updated by either uploading a PDF and/or using the website’s document creation tools.

4. An online calendar would enable the association to post dates, times and information about meetings, events, birthdays, road closings, etc. The calendar can be open for anyone in the association to post information, or can be restricted to selected editors.

5. A discussion forum would enable everyone in the association to voice their ideas and opinions about issues related to their community – whenever it is convenient for them! It is a place where the entire community can dialogue, share ideas, and build relationships.

6. The addition of a map on the website, with association borders clearly delineated, can help new association members and prospective association members locate the association within the context of the surrounding area.

7. And lastly, the ability to post links to other sites would enable other community-related groups with websites to become easily accessible to association members. Groups such as local schools, the PTA, Mom’s Clubs, Boy and Girl Scouts, etc.

All of these website features help to build a homeowner association that becomes easier to manage and more informed because everyone can access information when they need it, and participate when they have time.

The Internet has truly revolutionized how homeowner associations are managed, how it communicates with its members and how its members communicate with each other. If good communication and active participation are the two biggest challenges to building and managing a strong association, then the solution is an effective website.

Tim Arel: Transitioning from the Developer

2012-04-15T00:56:22Z

From the Desk of TIM AREL

TRANSITIONS FROM THE DEVELOPER

When an association is developed, the builder/developer/declarant commits large amounts of resources and dollars to construction of the project and its infrastructure and amenities. In order to protect his investment, provisions are built into the association's legal documents which allow him to exercise control over the direction and processes of the community until a time certain either a firm date several years in the future, or when a certain percentage of units have been sold to homeowners. As you can see, that developer control period can last months or even years.

During that time, the developer's representatives serve as members of the Board of Directors, and, as such, they are bound to act as fiduciaries and in the best interest of the association. It is a fine line to walk, since some decisions which are right for the community may result in unanticipated expenses for the developer.

Also, during that time, there are usually benchmarks that give homeowners some limited participation in the affairs of the association. These benchmarks can include formation of an advisory committee to make recommendations to the Board, and/or phased-in appointment of homeowners to the Board of Directors.

At some point, however, the developer must turn over control of the association to the owners. A responsible developer will have encouraged homeowner involvement and training along the way, so that the owners are well prepared to assume the responsibility of directing association operations.

Transition is usually accomplished at a special meeting held for the purpose of electing homeowners to serve on the Board of Directors. Once the owners are in control, the real work begins! The only thing that ends at that meeting is the developer's control over the functioning of the association not his responsibility to it, and probably not his involvement and interest in it. He may still be selling homes and may still retain seats on the Board.

The newly elected owners now have a huge responsibility. They must insure that (1) the developer provides the association with any and all pertinent information; (2) the association reviews that information and questions the developer on any vague or ambiguous issues; and (3) the Board develops a strategic plan to go forward from that point.

One of the first steps a new Board should take is an audit of the association's financial situation. It is important for members of the Board, as well as all the owners, to satisfy themselves that while the developer was in control, all income and expenses were properly accounted for. That includes, but isn't limited to, the financial obligation of the developer himself, if any, and aggressive pursuit of delinquent accounts.

All association boards, but especially condominiums, should consider hiring a professional engineer to perform a comprehensive inspection of the property and its physical plant. This will serve two purposes: (1) it will determine if there are any warranty defects that may be the responsibility of the developer; and (2) it will serve as the basis for a repair and replacement reserve analysis. Such an analysis will estimate the useful life of a component, such as a building roof, the projected cost to replace it, and how much money needs to be set aside to ensure that special assessments are not necessary to maintain the association's assets into the future.

The following are examples of the types of documents an association should determine the existence and location of during the transition from developer to member control. This list is by no means exhaustive, but can serve as a checklist to guide you. Keep in mind that jurisdictional requirements may vary in terms of time frames for developer responsibility, and specific transition documents.

General/Operational Items

1. All association books or records held by or controlled by the developer.

original (or certified copy) of all recorded documents for homeowner associations and condominiums

Recorded copy of Declaration or Master Deed

Articles of Incorporation

Copies of filings

Certificate of Good Standing

Copies of annual reports filed

Bylaws

Recorded (condominiums)

Non-recorded (homeowners associations

Complete set of Board meeting minutes

Duly adopted rules and resolutions

Schedule of recordation dates

All other files and records

2. An accounting of association funds and financial statements, from the date the association is first entitled to receive funds through the date the developer/declarant control period ends.

Any audits performed during the developer control period

Current operating budget

Copies of all past budgets

Current statement of account balances, including that of developer

Current accounts payable information

Invoices both past/paid and outstanding

Current reserve/replacement schedule

Association bank accounts, checking accounts, certificates of deposit, etc.

3. All association insurance policies

4. Complete roster of unit owners and their addresses, as shown on the official records of the association.

Roster of mortgagees by unit, with addresses, to the extent that the association has such, and to the extent the information is available.

5. Any and all contracts in which the association is a contracting party.

Warranty/Physical Facilities Items

1. Complete set of site plans and as-built drawings, including detailed measurements and dimensions.

Any approved landscaping plan

Recreational facilities plans

Storm and sewer system plans and diagrams

Roads and parking areas

2. Written warranties of the contractors, subcontractors, suppliers, and manufacturers, if any, involved in the construction and/or maintenance of the association's facilities.

3. List of manufacturers of products and specifications used in the maintenance, repair or replacements in or on common areas or common elements

4. Copies of any bonds or letters of credit posted with any state or local agency

5. Schedule of quantities of the following:

Square footage of roof

Square footage of all paved area on the association property

Square footage of lawn surface

Square footage of exterior surface of each building

6. Confirmation of compliance with the local authorities

Completion bonds, either in place or already released

Traffic and safety regulatory signage

Fire code compliance

Designation of roadways and site lighting, both public and private

Throughout the transition process described above, professional management can and should serve as advisor to the Board, custodian of the association's books and records, and the entity to which the Board turns to assist in the development of long-term plans and goals to make sure that a community's early due diligence translates into future continued success and financial stability for the owners. If that happens, all parties involved developer, transition board members, future board members, owners, and management will gain great satisfaction in a job well-done.

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Tim Arel on Condo Communications

2012-04-08T18:09:00Z

From Tim Arel

Condominiums - Communication

Effective communication skills form the foundation for successful management of a condo or homeowner association. They are so fundamental that we sometimes forget their significance or assume we are skillful. Communication skills enable you as a Board member to lead others. You cannot lead without being able to communicate your ideas well. People will not go with you unless you have established with them your ability to lead. That requires trust which is a by-product of effective two-way communication.

Show me an association that is rift with problems (including, member in-fighting and discontent, distrust and a very active rumor mill, etc.) and I will show you either incompetent Board members or ineffective communications, or both!

The intent of this article is twofold. The first describes how you can improve your personal communication skills and the second describes a high return communication technique that can be used with your association.

Effective personal communication includes; speaking and listening, informing others, and fostering open communication. When you master these skills, you harness a great deal of power – the power to get things done through others.

Effective personal communication involves:

• Knowing who needs what information and communicating that information in a concise and timely way

• Choosing and effectively using the most appropriate communication medium – oral or written – for those who will receive the information and how it will be used

• Knowing how to listen effectively

Shown below are some important personal communication skills to master.

• Speak effectively. You should make an effort to get your point across when talking and avoid rambling. Outline in your mind what you are trying to say and then stick to it. Try to eliminate speech habits that may annoy others, such as talking too slowly, too rapidly, or too hesitatingly. Become more animated in your style by using appropriate gestures and body language to “punctuate” you discussion. Also, work at varying your volume, pitch, and pace to emphasize your major points in discussions.

• Foster open communication. To build trust and solid working relationships with association members, it’s important to be seen as someone who is committed to sharing information with others and who goes beyond communicating only what is necessary. Developing a climate in which you and your members are open with information is critical in order to function effectively. You should find out what members want to know. Most are interested in things that impact them personally. Use the informal grapevine communication network as a way of keeping others informed. Wander around, have coffee with people, ask them questions, and so on. A proven communication strategy is to “over-communicate” rather than “under-communicate”, even if it means that you may have to retract something in the future. Just preface those types of communications with the statement, “this is what we know at this time, but it could change in the future -- so don’t hold me to it.” In other words, don’t wait to communicate something important until everything is finalized. Provide on-going updates as they occur and if you don’t want to communicate something at a point in time, let everyone know when they can expect to hear something.

• Listen to others. Listening involves hearing the speaker’s words, understanding the message and its importance to the speaker, and communicating that understanding to the speaker. It is key to developing and maintaining relationships, making decisions, and solving problems. When listening always follow this order: 1) hear, 2) understand, 3) interpret, and 4) respond; don’t jump from “hear” to “respond” without making sure you understand.

Communications with association members should not be left to chance – it should be carefully planned and managed. A useful technique for a Board to consider is the development a “staged communication plan” that provides a regular flow of information that addresses the things on their member’s minds along with the things that the BoD wants to communicate to them. This plan identifies what information will be communicated (new information, progress to date, anticipated problems, decisions made), how it will be communicated (personal contact, letter or email, group meeting), by whom will it be communicated (President, Secretary, all BoD), and when will it be communicated (date, frequency). Below is a sample plan.

As required or immediate

BoD decisions, meeting minutes, CC&R reminders, rumor control, emergency situations, breaking news, status report on key issues, notice of special assessments (anticipated or assessed), volunteer recognition.

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Tim Arel on Condo Accounting

2012-03-28T12:16:51Z

From the desk of Tim Arel

Condominium Accounting – Cash vs. Accrual

The cash method and the accrual method of accounting (sometimes called cash basis and accrual basis) are the two principal methods of keeping track of a condominium association’s income and expenses. In most cases, condominium boards have the option of choosing which method to use, but some condominiums actually have this outlined within their documents. As a board member, it is important to understand how each of these accounting systems work and how they affect the financial statements of your condominium association.

In a nutshell, these methods differ only in the timing of when transactions, including income and expenses, are credited or debited to your accounts. Here’s how each works:

The accrual method of accounting. Under the accrual method of accounting, assessments are recorded as revenue during the period in which the services occur, regardless of when the money for those services (receivables) is actually received or paid. In other words, income is counted when your condominium association “realizes” a portion of the assessment for a specific period of time. Also with accrual accounting, expenses are recorded once the service for those expenses is performed regardless of when the bill for the services is received.

Example for Income: Your condominium association bills the membership monthly at a rate of $240 per member. In accrual accounting, if a condominium owner pays $1,440 in January, representing the first six month’s of assessments, the condominium association would only record one month’s worth of assessments, which in this case would be $240. The revenue for the remaining $1,200 must be distributed over the next five months of the year.

The cash method of accounting. Many condominium associations and area property management companies utilize the cash method because it is easier for board members to understand and is the method most commonly used by small businesses. Under the cash method of accounting, income is not counted until cash (or a check) is actually received, and expenses are not counted until they are actually paid.

Example for Income: Your condominium association bills its members monthly at a rate of $240 per owner. In cash accounting, if a condominium owner pays $1,440 in January, representing the first six months of dues, your condominium association would record the $1,440 as revenue in that month.

Example for Expenses: Your condominium association contracts a landscaper to perform some landscape design at the front entrance of the condominium for the amount of $5,000. The work is performed in November but due to budgeting issues, the landscape company is not paid until January. With cash based accounting, the work for the landscape design would appear as an expense in January as this was the month the contractor was paid.

Determining the Transaction Date for Accrual Accounting

With the accrual method of accounting, the most effective way of determining when the revenue is generated or an expense is incurred is by examining the transaction or completion date.

When to record income in accrual accounting. Not until your condominium association performs its service, or in this case, provides each month of services to the owner, do you record the income in your books.

When to record an expense in accrual accounting. Similarly, your condominium association would not record an item as an expense until the service is completed or all goods have been received and installed, if necessary. (If a job is mostly completed but will take another 30 days to add the finishing touches, technically it doesn’t go on your books until the 30 days pass.)

Advantages and disadvantages of the accrual method of accounting. While the accrual method of accounting shows the ebb and flow of your condominium association’s income and debts more accurately, it may leave you questioning what cash reserves are available, which could result in a serious cash flow problem. For instance, your condominium association’s income ledger may show thousands of dollars in assessment revenues owed to the condominium association, while in reality your bank account may be in serious jeopardy of a high percentage of delinquent owners. This is why it is essential to have a professional condominium property management company to effectively manage your financials.

Advantages and disadvantages of the cash method of accounting. Although the cash method of accounting provides a more accurate picture of how much actual cash your condominium association has, it may offer a misleading picture of longer-term stability. Under the cash method of accounting, for instance, your financial statements may reflect a substantial gain one month when actual assessment cash flow has been slow and, by coincidence, a lot of past due condominium owners paid their balances in that month.

To have a firm and true understanding of your association’s finances, you need more than just a collection of monthly totals; you need to understand what your numbers mean and how to use them to answer specific financial questions.

North Point Property Management is a Homeowners and Condominium Association management company management company proudly serving Massachusetts and New Hampshire. To find out more about North Point Property Management and why it is one of Massachusett’s and New Hamshire’s fastest growing property management companies, go to www.northpointmanagement.com. You’ll be glad you did.

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Tim Arel on annual audits

2012-03-18T13:42:54Z

From the desk of TIM AREL

Condominiums Annual Audit

Each year, a condominium or homeowner association board should conduct a legal “audit” of its corporate procedures and activities. It’s a process the board can do on its own for the most part, or with minimal assistance of third parties, and it can be very revealing.

The analysis will either confirm that the association is following proper procedure, or permit the association to make adjustments that may be necessary to avoid running afoul of legal requirements or best practices. Here is a summary of some of the basic items that the board should consider for review.

Associations need to maintain certain books and records. Confirm that:

• All of the books and records required by law, or the association’s governing documents, are being maintained for examination and copying by owners.

• Owner list/contact information is accurate and up to date.

• Minutes are being timely prepared following board and owner meetings.

• Minutes are being approved by the board at a meeting and signed by the secretary.

• Minutes reflect the annual members’ meeting, annual directors’ meeting, regular and special board meetings, and the decisions of the board and actions authorized to be taken.

There are protections afforded to an association that is incorporated and many banks require associations to be incorporated. Confirm that:

• The association is incorporated as a nonprofit corporation.

• An annual report has been prepared and filed with the Secretary of State, and that the association’s attorney is designated as the registered agent.

• The association is in good standing with the Secretary of State. If the association’s corporate status has been dissolved (for failure to file an annual report), articles of reinstatement need to be prepared and filed with the Secretary of State.

In the era of email and text messaging, more and more board members communicate and make decisions informally and are at risk for not following corporate formalities, and laws concerning open meetings of associations. Confirm that:

• The association is holding an annual meeting to elect board members.

• The board is holding open meetings periodically (that means at least four times a year for a condominium and common interest community association) to conduct association business.

Associations usually have numerous contractual obligations with different ending dates. To avoid contracts that expire without replacement or that unintentionally automatically renew:

• Prepare a time line of contract expiration dates and for when bids should be issued for new contracts or negotiations commenced for extensions of existing contracts, so there is a seamless transition from contract to contract.

• Calendar dates by which notice of nonrenewal must be provided to the contractor for contracts that include automatic renewal provisions, and issue timely notice of termination (if the board intends to cancel the contract).

Laws governing the contents of an association’s declaration and bylaws are ever changing, and documents that do not conform to the law can mislead an association. Review the association’s declaration and bylaws with counsel to confirm they are up to date with changes in the law, and amend as necessary.

The board should meet with its insurance agent/broker to ensure that the association has appropriate types and amounts of insurance. This includes:

• Directors and officers coverage for board members.

• General property damage and liability coverage.

• Workers’ compensation coverage, if appropriate (and it may be even if the association does not have employees).

Associations are organized as not-for-profit entities; however, associations are still required to file tax returns. Confirm that:

• State and federal tax returns have been prepared and filed.

• Real estate tax issues for common area and units should be reviewed, and preparations made to challenge over-assessed property.

• Real estate (common area) owned by the association should be assessed at $1, thereby resulting in no real estate tax liability for the association entity.

• The assessed valuation of units in the association should reflect current “market value.”

An annual legal review will provide assurance to the board that its activities are appropriate, will permit the board to make any course adjustments that may be necessary, and reduce exposure to liability.

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Tim Arel on creating a board resolution

2012-03-13T01:47:07Z

From the desk of Tim Arel

STEPS TO CREATING A BOARD RESOLUTION

When it comes to governing policies and procedures for homeowners associations (HOAs), there are three options: rules, regulations and resolutions. All three must comply with state and federal laws and can be modified as needed by the board. So why choose one over another?

The difference between rules, regulations and resolutions

Rules and regulations are typically used to establish policies around conduct, such as parking or pets. Resolutions deal more with establishing procedures and are typically used when an issue is more complex or formal, such as enforcement procedures or responsibilities related to maintenance.

Create an HOA board resolution

There are several steps your HOA needs to take when creating a new resolution:

1. Check the law. Your resolution must adhere to federal and state laws, so be sure to do a thorough check to make sure no laws would be violated.

2. Establish your authority. Make sure that your community’s governing documents provides your board with the authority to create new resolutions.

3. Do your research. Talk with your board members about the details of your resolution. Why is it being proposed? What are the specifics of the resolution? How will it be enforced?

4. Draft the resolution. Board resolutions typically follow a general format, which begins with the statute or bylaw that provides the board with the authority to create the resolution and then goes into the details of the resolution.

5. Get feedback. Whenever your board proposes new rules, regulations or resolutions, it’s a good idea to circulate the draft among your community’s homeowners and provide an opportunity for feedback.

6. Vote and sign. Once your feedback period ends, the board will vote on the resolution. The board president and secretary should then sign and date the document.

Enforce the resolution. Now that the resolution has been formalized, it is ready to be enforced—just be sure to do so consistently.

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Tim Arel: Who is responsible for repairs

2012-03-13T01:43:31Z

From Tim Arel

Understanding who is responsible for repairs

The easiest way to understand the concept of condominium ownership and responsibility is to see it as an apartment that is owned. Ownership extends inward from your interior walls, floors and ceilings. In addition unit owners are partners with all the other owners in the association regarding the exterior structure (the foundation, exterior walls and roof) as well as any common areas and amenities (for example, swimming pools, clubhouses, tennis courts, play areas, etc.)

How do you know what the owner maintains and what the association maintains? In general, the association will take care of all of the exterior upkeep of the buildings and grounds. This can vary somewhat from association to association, so it is important for a condominium buyer to have a clear idea of exactly what will (or will not) be covered.

What's Mine and What's Ours

Potential condominium buyers are looking for the separation of maintenance responsibilities between their unit and the common elements. The first step in determining such is researching the association's legal documents to identify the physical assets that the association is responsible for and those that the individual unit owner has responsibility to maintain.

Three Types of Elements

Generally speaking, the governing documents will address that the Association is responsible for the maintenance and repair of Common Elements. The Association shall maintain, repair, and replace all physical assets designated as Common Elements, whether located inside or outside the Units. Unit owners are obligated to maintain, repair, and replace physical assets designated as within the boundaries of the Unit or Limited Common Elements.

Common Elements mean all portions of the Condominium other than the Units. Portions of the walls, floor, and ceilings/attic are considered part of the Common Elements. Any portion serving more than one Unit or any portion of the Common Elements is a part of the Common Elements for definitional purposes.

Unit means a portion of the Condominium designated for separate ownership or occupancy, the boundaries of which are described in the Declaration. The boundaries of each Unit are defined as the interior unfinished surfaces of exterior perimeter walls, middle of interior demising walls, floor, ceiling/attic below nine (9) feet above finished floor, doors and windows of Unit, any wallboard, plaster, paint, tile, wallpaper, etc. All spaces, interior partitions, other fixtures and improvements, within the boundaries of a Unit, are part of the Unit.

Limited Common Elements means any air conditioning or heating units, chute, flue, duct, wire, conduit, bearing wall, bearing column, other fixture, whether located within or outside of the boundaries of a Unit, which serve only that Unit or are allocated solely to that Unit. Any shutters, awnings, window boxes, doorsteps, stoops, porches, decks, balconies, entryways, patios, exterior doors and windows, other fixtures designed to serve a single Unit, but located outside the Unit's boundaries are Limited Common Elements allocated exclusively to that Unit.

If the governing documents of the condominium association are unclear or ambiguous about the definition of Common Elements, Unit, and/or Limited Common Elements, it is imperative that the Board of Director’s establish the criteria for these three designations. As the association is developed, and future changes are made to the each of these designations, the responsibility for the maintenance will become muddied. Establishing and updating the criteria will save time and resources into the future.

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Tim Arel : Would you like to be on the Board?

2012-03-03T20:37:50Z

Are you interested in being on the BoardFrom the desk of TIM AREL

Getting on a condo board requires a significant investment—both in time and sweat equity. As a property manager, I can attest firsthand to the labors involved. Rarely does a day pass that I don't receive a call from a trustees who wants to ask a question, complain about a neighbor or discuss a pending issue. But in speaking to Trustees, they believe that it's all worth it, for board members are watching over and enhancing the values of their most important asset—their homes.

People usually want to join their building or association board for two main reasons: They want their opinions heard, and they want to add value to their building community. Condo boards generally seek members whose occupational skills can benefit the board. These people might be real estate brokers, accountants, architects, construction engineers, or business owners with good negotiating skills. But if you're simply a resident with good ideas, you usually can get on a board too—if you do your homework.

When moving into a new association, you should take the time to learn about the Association, its challenges, and its operations before attempting to earn a seat on the board. In fact, some community associations maintain a minimum residency rule. Before you attempt to join the board, you can and should get to know your board members, rules and the community's financial picture.

Although boards exercise firm control over budgetary matters, anyone can work to improve their building and community. In fact, such proactive involvement often paves the way to an eventual board seat.

You should always attend your condo's annual board meetings, participate in Association and committee meetings, and volunteer to help wherever needed. Some boards technically close monthly meetings to non-members, but most board members will appreciate your interest and will remember it when a board seat opens.

At board meetings, Trustees usually inform other Owners in advance when vacancies arise on the board. Those interested in being elected to serve are generally instructed to send a one-page resume detailing their backgrounds and what they can add to the board. At this stage, Owners are most interested in hearing candidates' goals. If your goals are popular, other Owners will vote for you.

The most important qualities on a condo board are smart management, common sense and good ideas. You should become familiar with the Association before you join the board. For instance, know the Owners from the rental tenants and understand that the board is not responsible for tenant issues. Instead, direct the tenant toward building management or his or her landlord.

If you're fortunate enough to be elected to your association board, don't just talk a good game. Take action on your proposed improvements. A condo owner who rolls up his or her sleeves and gets involved will always command the most respect.

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Tim Arel : Would you like to be on the Board?

2012-03-03T20:37:49Z

Are you interested in being on the BoardFrom the desk of TIM AREL

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Tim Arel: Association Financial Trouble

2012-02-25T16:38:44Z

From the desk of Tim Arel

Signs your Association may be in Financial Trouble

1. Your condo consistently spends more money than it receives in assessments.

2. The Association is not paying taxes or filing necessary reports when they are due.

3. You have special assessments for operating expenses, not for special projects or capital improvements.

4. The Association’s accounts payables (the money you owe others) are growing and are going unpaid each month.

5. The accounts receivable (the money others owe you) are growing and 10% of your owners owe more than 120 days or older.

6. The Association now regularly dip into savings, restricted funds or reserves to pay for ordinary operating expenses or when special projects are to be completed.

7. You're billing shareholders / unit-owners in advance and relying on those who prepay their assessments to pay bills or payroll.

8. Your Association has no consistent policy to collect past due assessments or to prevent this from happening in the future.

9. You do not know how much money you owe and do not receive the proper monthly reports to find this out.

10. At your board of directors meetings and annual meetings, lack of money has become the focus and dominant point of conversation.

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Tim Arel: How to increase curb appeal

2012-02-19T18:12:54Z

From the desk of TIM AREL

IMPROVING CURB APPEAL

Does your community have curb appeal? A large percentage of prospective buyers decide whether or not to look inside a home or condominium seriously based on its curb appeal—that is the view they see when they drive by or arrive for a showing. You can help make sure they do come inside by spending some time working on improving the property's exterior appearance, common areas and building systems. Board members are concerned about protecting property values. Renovating and upgrading building systems and common areas can achieve this. The board has the ultimate responsibility to set the standards and establish financial requirements needed to see that the standards are met.

Excessive traffic, wear and tear and maturity contribute to a community’s needs for renovations. The health and aesthetic standards of the community need to be met. Exterior renovations can be described as the replacement and or the refurbishment of a building's "major" components, common areas, or building systems. Examples of items to consider may be:

Roof Replacement—It is a big investment—interview and hire the right roofing contractor for your project. You may wish to consider hiring an engineer or roofing consultant to provide a set of specifications and an evaluation. Plan ahead. Due to the number of hurricanes, several issues are making roofing projects more difficult, including the demand for roofing contractors and a shortage of supplies.

Window Replacement—There are significant advantages to replacing old, single-pane windows. Installation saves substantially on energy costs, prevents leaks, and adds to the value of the building. The poorer the performance of the current windows, the more noticeable the energy savings will be. Older, drafty single-pane windows and sliding glass doors may lose as much as 50 percent more energy in heat or AC loss than new double- or triple-pane windows. The savings depend on the condition of the existing windows and the type of replacement windows.

Replacement of HVAC/ Cooling Tower—For a new cooling system, a quality contractor will perform an evaluation and explain in detail the extent and types of changes needed in the system for increased efficiency. Once the system is installed, you can expect your contractor to explain daily and periodic maintenance as well as describe what you need to do to maximize the systems performance and maintain its warranty.

Landscaping Upgrades—Working with a landscape architect can help you create an outside environment that provides valuable curb appeal. In addition to design services, landscape architects can help analyze and prepare a site plan that is functional, aesthetic, and environmentally attuned to the property. The landscape architect can also assist with the recommendation of upgrading irrigation systems.

Replacement of doors or installation of automatic doors—Replacing exterior doors can add immeasurably to a condominium association’s appearance and contribute to the ease of accessing the entranceway. A new front entry door can add style and convenience to an otherwise unimposing façade. In addition to improving the look of a condominium, new doors can add value, security and comfort.

Installation of Pavers—Pavers can add elegance to your community and give it more panache. The look can be formal or informal, but can evoke a sense of timeless sophistication.

Replacement of railings—Railing configurations can complement the building’s design... from curved tempered glass to standard pre-assembled railings. Custom railings can be as varied as your imagination.

Parking garage repairs and renovations—Develop a comprehensive approach to solving the problem of water penetration. Concrete structures may become victims of serious structural deterioration if not protected.

Asphalt replacement and seal coating and striping—Over time, mineral deposits, the sun, oil and grease contribute to the need to replace the asphalt. Seal coating and striping will improve the appearance.

Balcony Restoration/Painting—Over time, every building will have to be evaluated for this type of work. Restoration of an old structure requires many different forms of cleaning, restoring, rebar replacement, sealing, and painting in order to protect and restore the structure.

Planter Waterproofing—Although the added beauty of planters can significantly improve the aesthetics and general ambiance of a community, they can cause potential damage if not properly waterproofed. Planter leaks are often responsible for the delaminating of surrounding deck coatings, dry-rot, as well as damage to any below or adjacent areas.

Dock and Seawall Repairs/Replacement—It is important to address boat docks and seawalls for repairs. Loose deck boards, rotting frames, and holes in the seawall can cause safety issues. Pool and Spa Upgrades— Even well-maintained swimming pools eventually need repair. Tile chips, marcite wear, cement cracks, leaks, and pump and equipment malfunctions are all common problems that may need to be addressed.

Pool and Beach Furniture— Improper care and maintenance will reduce the longevity of outdoor pool furniture. The most damaging materials are suntan oils, human perspiration, and environmental pollutants. Purchasing new pool furniture is a significant investment and will add to the appearance of the community’s pool area.

Outdoor Landscape Lighting and Fixture Replacement—Decorative outdoor lighting will make your community much warmer and more inviting. Garden accents become focal points. Illumination is the last thing potential intruders want to encounter. So at the same time, you beautify the community with upgraded outdoor lighting and increase safety and security.

Fences & Gate Systems—A fence/gate systems contractor can assist the Board of Directors in making the right choice in material and design that enhances the look of the community, fits in with the neighborhood, and provides additional security.

Refurbish Tennis/Basketball Courts—Determining the condition of the asphalt or concrete tennis/ basketball court is very important. Refurbishing the surface could improve player comfort and court playability. Tracks and depressions can be treated.

Tiki Hut Thatching Repairs—Thatching tiki huts with new innovative products and adding new supports- provides durability, waterproofing and solar protection. Over time bamboo wears out and the huts loose their fronds.

Awnings—Awnings are decorative and add shaded protection. Two types to be considered are: UV-protected fabric (vinyl or polyester canvas), which prevents sun damage, keeps temperatures cool, and stays waterproof or 12 to 18 oz multilayered or multithread awning material. Make sure they are fade resistant and fire retardant.

Once a decision has been made to update the common areas, the board of directors may wish to form a committee. This committee is responsible for providing recommendations to the board of directors and may take on the task of interviewing potential contractors for the project.

If project fund planning has been done properly, the money for the project should be readily available. Owners will not have to worry about an increase in fees or a special assessment to meet the financial commitment the project entails. If not, the Board of Directs may wish to consider a line of credit, financing, or a special assessment.

Reserve fund management is extremely important when it involves re-roofing, paving, painting, or any project that exceeds $10,000. Long-term planning in any business or corporation is critical in order to avoid special assessments or bank loans. The basis for scheduled replacement of physical assets is a reserve study.

Communication is the key. The owners must know what is happening with their money. Keeping the lines of communication open fulfills the need to keep unit owners aware of the activities and scope of work. This can also assist in gaining the much needed support during an exterior renovation project.

The committee and Manager may present a preliminary budget for the project. This will assure that the project is within the budget and that the association is able to allocate the proper amount for the renovations.

Drawings and specifications may be required. Consider hiring an engineer. The engineer will provide accurate drawings and specifications and a list of qualified contractors. A pre-bid meeting may be required depending on the scope of work.

The project will then be sent out for sealed bids. The committee may open the bids with the engineer and provide a spreadsheet for discussions and recommendations to the board members.

The committee chair may present the project bids to the owners and board, and will answer any questions they may have. He or she will also explain the project at this time. This is a great opportunity to obtain owner input.

Once the board has reviewed all of the sealed bids, they will need to come to a decision on the contractor for the project. Consult with the association attorney to draft the contract.

Once you sign the contract, the engineer will need to monitor the work. It is important to schedule site meetings so that he or she can review the work, issue notices as required, conduct a final inspection of the work, and sign-off the project.

Questions to ask when considering exterior renovations and upgrades:

What needs to be enhanced or upgraded? What did we NOT do last year that we should do this year?

What item on the reserve schedule has a zero life expectancy that would require replacement, renovating or upgrading?

Before signing a contract:

Obtain contractors licensing, references, and insurance Verify with the state contractor’s board that licensing is current Contact the insurance carriers to verify that coverage spans the term of your project Read the contract and make sure you understand the scope of work.

When choosing a contractor, thoroughly investigate the references and track record of the contractor being considered. In a fully occupied high-rise building, work must be coordinated and meticulously executed. The workplace must be left clean at all times to minimize the inconvenience to the owners—selecting the wrong contractor can be a nightmare!

Consider taking before and after photos of the area and or equipment to be replaced. Exterior renovations can be effectively undertaken with proper planning. It is the responsibility of the board to assure that a qualified, licensed and insured, contractor is hired to perform the work.

It is a good idea to select a contractor that has completed several condominium renovations, including a number of projects that are similar in scope. As you interview each bidder, educate yourself about the work they suggest needs attention as well as what you want to accomplish.

Once you get started with the project, it is also advisable to have the contractor provide a detailed construction schedule that outlines the timeframes for the progress of the project before signing a contract. This will also assist in the release of liens and payment process. A liquidated damage clause may be considered to be added to the contract. This allows for the association to charge the contractor for failure to perform.

Good contractors are professionals and want to serve you the best way they can, so take the time to get the right contractor for the project. Ask questions until you’re satisfied. Work with them and establish a good relationship.

Routine and preventative maintenance programs can prolong the useful life of the physical assets. The value of the community’s aesthetic exterior renovations goes beyond dollars and cents. It's the feeling you get when you pull up to the community everyday. It's the way it enables your community to express its unique personality and style. It’s the compliments you will receive from guests, realtors and visitors.

The board of directors must focus and take a business approach in order to provide the confidence and trust that the association needs to succeed in expediting the project. In addition, communicating with the project experts, manager, and owners will ensure that the renovations will present the quality workmanship, attention to detail, superior performance, and excellent resident relations. The overall satisfaction of the improvements will add fulfillment for all members and value to the property.

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