That's an average cost of $25,000 to each Homeowner, and this is not a Luxury Condominium. What are we going to do?
You, are a Board Member. You were elected by your fellow Homeowners, to serve as a volunteer providing guidance and oversight to the management of your Community Association.
As a Homeowner, you know that the building is 50 years old. The roof has been repaired. Pipes (or risers) that carry water to the units to provide heating and air conditioning to all of the homes, are leaking. The façade is showing it’s age: it is discolored, the concrete is spalling, rebar is visible in a few areas, and a few chunks of concrete are missing from the parapet wall on the roof.
Your community doesn’t look much different then many buildings and infrastructure you see as you drive through the city, with the exception of BRAND NEW construction. Of course your building needs repairs and maintenance, even new construction requires it. But, it’s what happens with age and the Board is doing the best they can with the finance available from the Homeowners to address situations as they occur. Right?
At the Board Meeting:
You are at the Board meeting and opening your Board Packet that the Manager provided to you a week ago. But, you have work, a major project with a deadline that’s due, and two kids. Your mom is sick and requires care. It is okay. The Manager conducts the meeting, you will listen and follow along the presentation and catch up in no time.
As you open the packet and start scrolling, you see that the engineer has finished their report after the drone inspection (which cost $20,000) was completed. You feel confident that it was the right decision to hire an engineer with this technical capability and look forward to seeing the results of the study and further recommendations from the engineer.
Without soliciting bids, the engineer is estimating that costs for just the façade repairs, will be approximately $20,000,000. This doesn’t address the leaking pipes in the building, or the roof repairs that continue to occur. Your mouth hits the floor.
The Community has $1,000,000 in reserves, not $20,000,000, and this is not the only project that needs to occur in the Community within the near future.
The engineer reports that major repairs need to occur to comply with the municipalities “make safe requirements”. Missing concrete and exposed rebar needs to be replaced ASAP. A bid specification needs to be created. Bids need to be solicited from qualified contractors. The contract needs to be awarded by the Board. Permits need to be filed. The municipality needs to inspect and agree to the repairs prior to proceeding.
Your head is spinning. Where will the Association "find" $20,000,000?
You put your head in your hands and say: “We just don’t have $20 million dollars. The Homeowners complained when there was a 1.5% monthly increase last year, and 2% the year prior. They were used to 0% increases and don’t understand why fees have to increase year after year. How will they accept that this special assessment will result in an average cost of $25,000 to every Homeowner? Some of the Homeowners are on fixed incomes and living off of Social Security Income. Others lost their jobs due to Covid-19. Even if we agree to pass this assessment, the Homeowner’s won’t accept it. What are we going to do?”
The Board looks at each other and turns to their Manager. “What are our options?”
At this point, you, as a Board Member, are really hoping that your Manager (or Management Company) has the knowledge and experience needed to assist the Board. Unfortunately, not all Managers or Management Companies are the same.
Manager Response 1: “Well, it’s up to the Board, what do you want to do?”
Manager Response 2: “What are other condominiums in the area doing?”
Manager Response 3: “Just assess everyone. If they don’t pay, we will foreclose.”
Manager Response 4: “I don’t know.” (and then starts looking for another job).
Manager Response 5: “The Board has several options at this point, but I think we need to speak with our trusted professionals on this matter. The Engineer can identify the most pressing areas of concern to ensure safety of the Community and create a timeline for repairs to occur. It’s possible that not all of the funds are needed at the same time – so we can look into loans, special assessments, or a combination thereof. Let’s set a meeting with the Engineer and get more information. I’ll also reach out to a few banks that are members of the Community Association Institute (CAI) to find out what funding options are available. More banks are lending now than in years past, and, for longer terms. We can then review all three projects we are facing, prioritize according to need and safety. The Engineer will help with this prioritization. Condominium ABC went through a similar situation, I will also speak with that manager and receive their insight. Then we can set up a standing working session of the Board to review this topic.”
The Board’s Response:
“But what will the Homeowner’s say?”
The Manager’s Response:
“The Board has a fiduciary duty to do what is in the best interest of all members of the community. Yes, they can vote to overturn the Board. Yes, they have a right to overturn a special assessment. They can even overturn the annual budget. This makes our presentation to the Community extremely important. Let’s explain what is wrong, how we got here, and what we are doing to fix it. And, let’s depend on our trusted professionals to be there with us --- the Engineer, the Banker, the Plumber, and the Roofer. As Homeowners, you are all paying the assessment too, so this affects you just as much as it affects every member of the Community. Let’s show the Community we have a plan and we are here with them through all of it.”
How Does it all Turn Out?
In an ideal world, this fictitious scenario turns into the happily ever after. The Board and Management would work together on a presentation to the community, that would involve a written letter and hand out, in preview to the meeting. This information would be shared on the community portal, emailed to all Homeowners, and mailed to all Homeowners of Record. The presentation would be reviewed at the meeting with a question and answer session available to the Homeowners. Presentations would occur by every trusted professional involved. Each professional would be engaged in a question and answer session with the Homeowners. This presentation may even happen more then once, to ensure that all of the community members had the ability to attend.
Funding from the reserves might be utilized until the loan could be secured, and then a multi-year special assessment would be structured for the homeowners to make the special assessment as palatable as possible (while the loan provided the upfront money to meet the current and required repairs). Repairs would be made as needed to the risers (leaky pipes) and roof, while studies on each of those common elements were conducted by professionals. If needed, the loan would be expanded to include those projects, or they may be able to be phased in over time, depending on what engineering reports and recommendations provided.
But here’s the key: Engineers need to be involved. Trusted professionals: Bankers, Roofers, Plumbers, Management – need to all work together to assist the Board. The Board is not in this task alone, even though they bare the fiduciary responsibility and weight on their shoulders for making decisions in the community.
And, the Board NEEDS TO receive the buy-in from the Community members. Why?
The ultimate authority in any decision in a Community comes from the Homeowners, not the Board.
Read that again. The Homeowners, have the ultimate authority when it comes to decision making in the community, not the Board.
- The Homeowners have voting rights and ability.
- The Homeowners elect the Board.
- The Homeowners have the ability to call for a Special Meeting
- The Homeowners have the ability to overturn the Board and create a new Board.
- The Homeowners have the ability to reject a Special Assessment.
- The Homeowners have the ability to reject a Budget.
Therefore…Homeowners need to be informed. They need to be educated. They need to know what the problems are, what the costs are, and what the level of funding available is.
Homeowners need to know why monthly fees need to increase on an annual basis.
Homeowners need to understand the importance of a quality reserve study, and how the reserve study is a tool for budgeting, as well as a roadmap to make needed repairs and replacements in the Community.
Homeowners need to know how the reserves are being funded and if enough money is being saved on an annual basis to meet needed repairs and replacements in the Community.
Homeowners need to know if there are exclusions to the reserve study and what is or is not included. Projects shouldn’t creep up out-of-the blue.
Most of all, the Board, and Management, need to work together to provide this education to the Homeowners. Remember: It’s a Community. All of the Homeowners, make up the Community. So all of the Homeowners should be educated and informed.
Happily Ever After Doesn't Always Occur.
Sometimes, the Board chooses to bury their head in the sand.
Sometimes, management is fired and new management is hired.
Sometimes, the Homeowners actually do overturn the Board and revoke a special assessment that was just passed.
But in all of these not-so-ideal situations, the problems occurring don't change. In fact, they compound and get worse. Today's cost estimates are not going to get cheaper over time, and the needed repair and maintenance are not going away.
Collectively, the Board, Management, the Homeowners, and the Trusted Professionals need to work together to find a solution before the municipality condemns the building and mandates eviction, or catastrophe happens.
Bricck Property Management is a boutique property management firm located in King of Prussia, PA. We provide best-in-class property management to Condominiums, Homeowner's Associations (HOA's), Co-Ops, Planned Communities, Active Adult Communities, Lifestyle Communities, Apartments, and Office Buildings. As a small, local business, we provide exceptional customer service in every interaction with our Homeowners, Board Members, Tenants, and Contractors. Contact us today for a proposal for your property management needs.