BUDGET CYCLE AND CURRENT ECONOMIC CONDITION

 As we get ready to prepare the Budget for the Associations for 2004, I already know there will be tremendous pressure in an attempt to keep the assessments the same or reduce them.  However, to most people, their home is their largest investment, and as an investment, compared to other investments i.e. the stock market, property values have done better than most other investments with property values soaring. 

 It amazes me how homeowners feel that the cost to maintain their property should not go up even though the property gets older and the building and landscaping require more maintenance the older they become, and to keep up with the new communities and other new residential projects being developed around us. 

 In selecting contractors, be careful of choosing low bids, because sometimes it is too good to be true.  Low bids can be your worst nightmare.  Boards should be looking for the best value, not the lowest bid.  That is why in property management, the best value isn’t always the lowest bid.  Good management can often save Associations more money than the fee by providing specs to insure everything is “apples to apples” and knowing various contractors who provide services to maintain Association property.  Management companies award numerous contracts for Associations which gives them more clout to negotiate on the Association’s behalf. 

 Be careful with full service contracts.  Management should not put itself in breach of their fiduciary by having an interest adverse to the Association it manages.  For example, there would be a conflict of interest if a management company owned an interest in one of the landscape companies who is submitting a bid.  It would be in the management company’s interest as owner of the landscaping company to obtain the contract with the Association at the highest possible price.  On the other hand, the Association’s interest would be in contracting with the landscaping company offering the best value for the best price.  It is apparent that the Management Company’s interest as part owner of the landscape company directly conflicts with the Association’s interest.  It is quite common for a full service Management Company to artificially low bid the management fee to obtain the contracts for landscape, pool and other services Associations need at a higher expense to the Association.  Management should be beyond reproach as to their advice and recommendation on services that Associations need.

PROPERTY ENHANCEMENT:  The Board should now think about enhancing the property which may be the best investment many owners have.  It may also be the time for the Association to consider borrowing money for improvements which will increase the property value because interest rates are still low.  Most banks see Associations as a good risk, therefore, offering good rates because Associations aren’t going anywhere!

 LANDSCAPING:  Landscaping is one of the easiest ways to enhance curb appeal.  Many shrubs have an average useful life of 8 to 10 years before they become old looking and woody.  The cost for an average plant replacement for a mature community should be 8 to 10% of the annual landscape maintenance cost.  Look at your property to see if it needs plant replacement.

 PAINT:  A crisp good paint job is one of the best ways to improve property value.    

Painting may last 7 years or more before failure, especially on concrete or stucco.  However, few paint jobs look good in Florida after 5 years because of the mildew, and allowing the building to look old and not maintained decreases the property value. 

 RESERVES:  Reserves is an area requiring good business judgment while determining  the replacement cost and remaining useful life of various Capital Reserves.  There is a general feeling to attempt to keep Reserve funding low.  I call this the “Green Banana Syndrome”, which means “I won’t be around to appreciate the improvements, therefore, I don’t want to pay for it.”  (In other words, they are thinking they may move or die.)  Then there are the owners who when it is time to do the project and time to pay the Special Assessment, feel “It is just not fair, and what was the prior Board thinking.”  I don’t think this is Alzheimers, but it makes it difficult to catch up on the maintenance of common property and the needs of the community without adequate reserves.

 This is why it is so important to maintain “curb appeal” and to sufficiently fund the Reserves for the Association.  It is much easier to properly maintain a property with an adequately funded Budget than continually having to Special Assess the owners.  The Board is in the process of performing its number one goal which is to preserve, protect and enhance property values.      

Steve Inglis, PCAM, is President of Bristol Management Services, Inc. in Jupiter, past President of the Community Association Institute (CAI) and has earned the PCAM Designation through extensive Association Management training.

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