Condo & Home Owner Association BEST PRACTICES
Training for Board Volunteers and Owners
Misconceptions About Association Living

Thomas Hardwick - Association President

I think the biggest misconception people have going into an association is that a lot of them are coming out of homes and they think they have as much control in their homes as they do in the association and they don't.

Kim Brice - Full-Time Onsite Community Manager

I think the biggest misconception is maintenance free.

Ray Paulin, Jr. - Association President

Probably the thing that we run into the most, when people move into the association, they think that everything that I need is going to be provided.

John Payne CPA - Portfolio Property Manager

Many condominium buyers come in and they're like I'm done.

Nancy Stanbery - Association Treasurer

They're not informed. They just feel that it's (A) the same as their single family home or (B) the same as renting an apartment. And they're very, in some respects, similar but mostly very different.

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Reserve Study (Planning For The Future)

Joseph Waldron, PCAM, CIRMS - Insurance Specialist, Former Property Mgr.

Reserve Studies are basically looking into the future for condominium associations. And it protects the capital assets of the community.

John Payne CPA - Portfolio Property Manager

The reason why a Reserve Study is important is because it's preparing for the eventual, I call it, capital replacement and major renovations necessary. The most common features requiring a Reserve Study are roofs, and roads, and painting along those lines.

Glenda Winchell, CMCA - Full-Time Onsite Community Manager

Reserve Studies really helps as far as budgeting. And a process that boards use is when they begin their budget process they go to that Reserve Study, review what is deemed necessary for that year. That is worked into the budget with the operating budget. So now you have your reserve improvements that need to be done plus your operating budget.

Patrick Hohman - Author, Association President

Operating expenses are usually the same year to year, and they're very predictable. It's what you pay for insurance, what you pay for management administration, the people that keep the books, the lawn care service. And it might go up 3% a year for inflation and you need to count on that because that might mean that your fees would also go up at least 3%. But on the other side are the major repair and replacement expenses like siding, like roofing, a huge paint job. Those, one year you might have no expenses, and the next year it might be a million dollars. So that's why you need to have money in the bank, and be prepared, and at least know when it's going to hit.

Nancy Stanbery - Association Treasurer

If you have a community with a Reserve Study done, a well funded, well managed community, it's possible that you would never have an assessment.

Patrick Hohman - Author, Association President

It's like a cost account in a manufacturing plant. How will you know what to charge for the product that you manufacture unless you have a cost account and say here's our component costs and here's what it will need to cost. Otherwise it's as crazy as manufacturing a product at a corporation and saying let's just guess about a price. You can't. And at most associations they start out with, often the developer, pulling a monthly fee out of the air and it's just a guess, and usually it's on the low side.

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Reserve Study (Underfunding Issues)

John Payne CPA - Portfolio Property Manager

And if you don't have the funds to pay for them you'll either need to special assess the homeowners. And many of them may not be in the position to be able to pay for it in a one big lump sum; such as, a 5 or 10 thousand dollar request for funds in the next 30 days or even over the next 12 months.

Nancy Stanbery - Association Treasurer

When a community does not have a Reserve Study they're not on top of what needs to be done in the proper time frame.

Patrick Hohman - Author, Association President

Well we've already seen examples from different places in the country, in most major urban areas, where older properties have been condemned. Now that's a small percentage, and that's the extreme. But if you consistently don't collect enough money, and you can't pay your bills, and you can't maintain the building then it starts to fall apart.

Joseph Waldron, PCAM, CIRMS - Insurance Specialist, Former Property Mgr.

I think this is a situation over the course of years Reserve studies have not been in place. And what the nature of the industry has been is that these condo associations start to really die out when they've reached the roof situation over 20 or 25 years or any of their capital assets. They just don't have the money set aside.

Barbara Vetter - Former Association President

To me the importance of the Reserve Study, and thank Heavens we did this, because we found out so any things that we had never thought about, that we needed to be concerned about and to have money in the future for.

John Payne CPA - Portfolio Property Manager

The other part that's even becoming more of a bigger issue is because with the banking meltdown over the last couple of years they're becoming much more stringent in their lending to prospective home owners. And they are actually looking at the Reserve Studies or lack of Reserve Study in place in neighborhoods. And they may choose not to fund a potential homeowner thereby making the market very difficult to sell your home in that neighborhood.

Patrick Hohman - Author, Association President

Sometimes a question I hear often is...could the owners just do their own Reserve Study? And there's a lot of well meaning board members, they mean well, they want to go out and get quotes. But there are a couple of problems there. One is that volunteer board member is carrying a tremendous amount of liability risk if they get the numbers wrong and they make inaccurate predictions. The other thing is that once you start to deal with a professional Reserve Study Firm you see that they have engineers at the front end and accountants at the back end who do this all the time, and they understand all the details very well. To hire an outside third party who does this all the time makes all the difference. There's a whole different level of professionalism that you can only come to appreciate once you've been dealing with them and you see what their product is like. This is not, not something for amateurs.

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What I Need To Know

Alisa Jones - Association Treasurer

How old is your roof? What is your, you know, do you have an individual heating system or do you share a common heating system? How is that paid for? How old are your pipes? These are important things. It's things you look at when you buy a house. I'ts the same thing that would catch your eye when buying a single family dwelling are the same things you're going to want to look at in a condo. But people get lulled into a false sense of security; because you're buying into an association that somehow those things don't matter. You don't think to look at that.

Nancy Stanbery - Association Treasurer

The first thing I'm going to look at is...are you self managed? Or professionally managed? I want to look at the financials.

Kim Brice - Full-Time Onsite Community Manager

...and see, you know, how much cash they have in the bank, and find out if they have how much is in the reserve fund set aside for the future, because some people have no reserve fund.

Thomas Hardwick - Association President

Make sure that it's funded enough to take care of the association dues or needs and secondly get involved. Make sure you know what's happening with the money.

Kim Brice - Full-Time Onsite Community Manager

Try to talk to some people that live there now. Just stop by one day and talk to the people at the pool or the people walking out to get their mail and just ask them how they like living here. What's it like?

Nancy Stanbery - Association Treasurer

Truthfully those folks who live there are going to tell you what's really going on. The management, self managed may say to you everything is just beautiful. Well, that may or may not be the case.

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Can You Afford To Live Here?

Patrick Hohman - Author, Association President

A critical question to ask is..."Can you afford to live there?" And by that I mean, once you do the reserve study and you establish what the monthly maintenance fee should be on top of your mortgage, maybe it is now a place that you can't afford to live. And if that's the case, its better if you do not put your energy into sabotaging the efforts to maintain the building; because, really the building needs to go on and be maintained. What you need to do is find a housing arrangement that you can afford.

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Simple Concept: Pay As You Use It

Les Weinberg, MBA and Reserve Specialist, Los Angeles, CA

Well, the fundamental concept is very simple.
It's essentially, "Pay for what you use, while you live there."
Whether its 6 months or 6 years.
You pay for a portion of the roof, of the pool, of the paint, whatever makes up your complex.
Using a roof as an example. Say a roof has a 20-year life, every year, you'd be paying for 1/20th of the roof.
You live there for 6 months, its 1/40th.
Very simple equation.
Doesn't matter when you move in. When you move out.
When the roof is paid for. You pay for what you use.
Very simple.

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Cost Benefits of "Group Buying"

Les Weinberg, MBA and Reserve Specialist, Los Angeles, CA

With respect to common interest living, there is the benefit of economies of scale. And for example, with the roof, it will in a multifamily structure, end up covering so much less of what you might have been used to living in a single family home.

For example, in a three story complex, the first two floors don't have roofing directly over it. It's just at the top. So essentially, three people are sharing the same amount of roofing, which equates to a much lesser cost per person. You'd be paying far less for your roofing living in a common interest development than you would in a single family home.

There's also the aspect of economies of scale. For example, you're going to have an entire complex re-roofed at the same time, it's going to cost less per square foot, than if you were doing a single family home. Another benefit.

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More Banks Now Require Reserve Studies

Les Weinberg, MBA and Reserve Specialist, Los Angeles, CA

It's inevitable that there will be a higher emphasis on the reserve studies as we go forward, coming out of the financial crisis, because lenders have been burned.

Irregardless if a state requires a reserve study or not, formally, with respect to their civil code and laws, FHA, VA, Fannie Mae, Freddie Mac, all of the quasi-lending institutions are going to be requiring that as a part of a purchase or a refinance and in a reserve mortgage situation.

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Preventive Maintenance Check Lists

Barbara Vetter - Former Association President

That list comes in handy for the board members. It's kind of a tickler file for them to keep on track of what needs to be considered as the year goes on, various projects.

Ray Paulin, Jr. - Association President

When it comes to roofing you should have a check list and annual inspection of all your roofs. Even if the roof is brand new you should look at it every year. Things on a roof change. You have expansion and contractions. If you have a high wind you can have nail pops. You've got flashings around chimneys that can come loose. These things should be checked every year. Even if you inspect them in the spring, you have a bad storm that comes through town and you get high winds, they should be inspected again. Little problems caught early can be taken care of, but little problems can soon become large problems especially when the water is pouring into the attic.

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Types of Management

Kim Brice - Full-Time Onsite Community Manager

The three types of management are Self Management, where the volunteers take over the responsibilities of the day to day operation. And then there's a Portfolio Management where one property manager manages 7 to 10 properties at a time. And then there's the Onsite Manager and that's what I do, and I'm there every day, full-time, and pretty much have a finger on the pulse of what's going on in that community.

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Self-Managed

John Payne CPA - Portfolio Property Manager

Some neighborhoods, condominium neighborhoods, are self-managed. The benefit of being self-managed is it's a reduced expense. You're not paying the management company for that.

Patrick Hohman - Author, Association President

A place that is run by volunteers it can be good, it can be good, if you're lucky enough to have a competent and committed person who's volunteering. And they've got the time and the energy to volunteer. Plus they communicate a lot with everybody because that helps to build consensus and trust. That's possible, but then after a year, 2 years, 3 years they get tired of it. Sometimes their spouse says you're not going to volunteer 10 or 20 hours a week, and that's the end of it.

John Payne CPA - Portfolio Property Manager

Those home owners, you may rely on them so strong, and then they may eventually leave or resign from the board. And you may have a big gap and some continuity problems.

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Portfolio Manager (Part-Time)

Thomas Hardwick - Association President

They handle all of the contractors; the roofing contractors, the landscaping contractors, everything like that. They develop the bills; board members are responsible for signing it.

Joseph Waldron, PCAM, CIRMS - Insurance Specialist, Former Property Mgr.

The portfolio manager can basically only function as a reactor. Again, when he attends a meeting, he or she attends a meeting, the board gives them direction as to what they want implemented.

John Payne CPA - Portfolio Property Manager

The Association Management Firm is only carrying out the directives of the Board of Directors.

Barbara Vetter - Former Association President

For a Portfolio Manager I look to them to keep the Board out of legal pits, to keep us on track as to what is important and what is not important. In other words, how to set our priorities. And I rely on them to send us the people that do work on the property that are qualified.

Patrick Hohman - Author, Association President

I live in a smaller association and there's no way we could afford a full-time Property Manager, but we do have a part time Portfolio Manager. And I think owners need to know how under the gun some part time Portfolio Managers are, so they can feel more compassionate toward the job that they have. It's a hard, hard job. If they handle between 10 and 20 properties they could very well be trying to take care of 500 to 2,000 owners. I still think there are real useful services that the part time Portfolio Manager can provide to our association. The first one is that they would take all the day to day phone calls regarding maintenance issues. Secondly, the part time Portfolio Manager can send out the enforcement letters, so that we board members don't have to be the enforcement cops among our own neighbors where we live. And third, they have an insured bookkeeping department. They pay all of the vendors, and they take in our money and counter sign the checks, which is a good safety measure. And at the end of the month we get our financial statements.

Joseph Waldron, PCAM, CIRMS - Insurance Specialist, Former Property Mgr.

For Portfolio Managers it's very difficult to establish themselves in an identity fashion with the association. Again they become extremely knowledgeable of the board members, but they may not know the unit owners as well as they would if they were onsite. That's the major stumbling block for Portfolio Managers. They're very limited as to their contact with the individual unit owners of the community.

Patrick Hohman - Author, Association President

A Door fee is so much per month. It's the fast and easy way to figure what a Portfolio Property Manager would charge. They would take the number of doors that are there at a certain fee. For many years, for about 25 years, it's been about $15 a door in the mid-west for simple suburban properties. Might be $60 or $75 a door for a high rise, downtown property just because it's more complex and the people might be higher income and have more demands for service. But that's a fast way to do it. I think a better way to do it is to look at the services that would be provided and a fee for service. You'd end up probably with an amount for management that's higher than a door fee, but you get what you pay for.

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On-Site Manager (Full-Time)

Glenda Winchell, CMCA - Full-Time Onsite Community Manager

A full-time Manager reviews budgets, works with contractors, vendors, maintenance issues and most of all Deed Restrictions.

John Payne CPA - Portfolio Property Manager

An Onsite full-time Manager provides the benefits of being available in some cases it's 24/7.

Kim Brice - Full-Time Onsite Community Manager

Since I was a Portfolio I really have a true appreciation for the Onsite. And basically you can respond immediately to whatever comes up. Whether it's we've had a water main break and somebody will call me and we immediately can get the water company out. We've had neighbors call with some neighbor to neighbor dispute and we can resolve it right away.

Joseph Waldron, PCAM, CIRMS - Insurance Specialist, Former Property Mgr.

Onsite Management is very good in that, again, the communication level is so much stronger than if you had somebody that wasn't onsite. People get to identify who this individual is and know that he or she is knowledgeable of what the current issues are for that association.

Ray Paulin, Jr. - Association President

If the Full-Time Manager is not a resident it's easier for that person to say no than your next door neighbor. Because if it's your next door neighbor that's causing a problem it can be very difficult.

Glenda Winchell, CMCA - Full-Time Onsite Community Manager

When you have a large community there needs to be a Full-Time Manager. Residents expect service. And by being on the property to answer the phone when you have a Deed Restriction violation, an application for an architectural review it makes it much easier to respond to that resident.

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Fees and Assessments

John Payne CPA - Portfolio Property Manager

Maintenance fees are, again, they're very important to understand, and our natural instinct as consumers is sometimes they get the lowest price. But again best value doesn't mean the lowest price.

Joseph Waldron, PCAM, CIRMS - Insurance Specialist, Former Property Mgr.

Because all too often when a development is being built onto the ground the developer has one modus operandi, and that is to sell these units. Build them as quickly as they can and sell them as quickly as they can. And the negativity of that has been that they don't necessarily charge the appropriate maintenance fees in the initial years. So when the transition takes place & the developer comes off the board, unfortunately, a lot of these community associations are underfunded; leaving them in a desperate situation right out the chute.

Ray Paulin, Jr. - Association President

If you move into a condo association and, if you haven't investigated "do they have enough money for future expenses?" you might be there a couple of years and all of a sudden you're hit with a big assessment. Because you didn't do your homework, and find out do they have their money to take care of the expenses coming up?

Patrick Hohman - Author, Association President

Part of the problem that we have is that for the last 35 years there's been an advertising slogan with association living, particularly with condominiums. "No Maintenance. Low Maintenance." And a problem is that at a very deep level some people really believe that advertising slogan. They truly believe it.

Thomas Hardwick - Association President

When I first started looking I lived in homes for like 40 years, and I didn't want to be tied down to a home anymore. So what I looked for was...Okay, this is a nice place, it looks good, and it's got the amenities I want. And I started seeing a lot of difference in what the maintenance fees were. You know $50 to $180. And I thought $50 would be better.

Patrick Hohman - Author, Association President

I have seen that before & people have said they would buy at the condominium association that has the lowest monthly fee. But there can be a real danger in that, because if you don't know what that fee covers is it really not enough to cover all the expenses? And if it isn't, there are a couple of things that can happen. One, you could have a very large special assessment. Ten, fifteen thousand dollars. And think, are you prepared to pay that in the next 30 days? Probably not. The other, even worse thing that could happen is that nothing gets fixed at all. And then it becomes a leaky dangerous place to live, with plummeting property values. And neither one of those are very good options.

Thomas Hardwick - Association President

Don't go for the lowest dollar. I'll tell you that right off the bat.

Patrick Hohman - Author, Association President

A special assessment is different from the regular monthly assessment. Some people call it a maintenance fee, but a more popular term now is the regular monthly assessment. And then a special assessment would be a special infusion of cash where there's a cash shortfall to pay for new siding or a new roof or whatever.

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Deed Restrictions

Thomas Hardwick - Association President

First thing I would make sure I was very cognitive of is what the Deed of Trust, what the bylaws, what the rules and regs are. I would know that so there wouldn't be any surprises.

Kim Brice - Full-Time Onsite Community Manager

Even if the realtors could give them the Deed Restrictions ahead of time that would really help. Because you hate for somebody to move in the neighborhood and they put up a satellite dish on a pole in the front yard and that's not allowed. And then my first experience with them is telling them you've got to move that.

Glenda Winchell, CMCA - Full-Time Onsite Community Manager

You would be surprised how many people move into an association and don't understand what Deed Restrictions are and that they have to abide by those Deed Restrictions.

Michael M. Hoskins - Association President

Well, you are living communally and the element is there's got to be some sort of rules and regulations by which to live communally. And I guess that's really what Deed Restrictions do for you. They give you a guideline by which to understand what you've chosen to do and what you can and can't do.

Nancy Stanbery - Association Treasurer

They're there to keep the community looking like we want it to be for the safety and for the common good of the whole community.

Glenda Winchell, CMCA - Full-Time Onsite Community Manager

The Deed Restrictions are very important. I would say number one is to increase the value of your home; because, if everyone abides by the Deed Restrictions, then naturally the value of your home is going to be increased.

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Boards and Committee Members

John Payne CPA - Portfolio Property Manager

A Board member is elected by the home owners to vote & make the business decisions of the condominium association.

Kim Brice - Full-Time Onsite Community Manager

Every association is required to have a certain amount of board members. And there's officers, president, vice president, secretary, treasurer and then there's other just general board members.

Joseph Waldron, PCAM, CIRMS - Insurance Specialist, Former Property Mgr.

The boards of directors have a fiduciary responsibility to maintain and enhance property values in the association. The committee person, I've always looked at, is someone that you are trying to groom to, at a later date, become a board member. So they get involved in the actual answering of the concerns of the board. And then they report back to the board in a sub-committee approach and try to respond to the boards needs.

Kim Brice - Full-Time Onsite Community Manager

The best board members are ones that will listen, and they don't come in with a preset agenda.

Thomas Hardwick - Association President

They get involved with the people. They listen to what the owners are saying they need. And they listen with, you know, compassion, but also with a financial skepticism of what is possible.

Ray Paulin, Jr. - Association President

The most important thing the board can do is communicate, communicate & communicate to the co-owners. What are you doing? Why are you doing it? Make all your board meetings open. Put out a newsletter. Because the more information going to the co-owners, the less that's kept secret, the happier the co-owners are going to be.

Nancy Stanbery - Association Treasurer

Condominium owners get involved in your association. It's important to the well being of the community to be involved, to know what's going on and to care about what's going on. I think that's very, very important.

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Conflicts of Interest

Ray Paulin, Jr. - Association President

It's like a self imposed, mandatory thing in our sub-division that if you've got your own business, conduct your business elsewhere and not in our neighborhood. Don't be soliciting your own neighbors to do work and fatten your pockets.

Patrick Hohman - Author, Association President

Even the appearance of the conflict of interest can be a problem & you want to guard against that. A Woman condo president told me an example of where she lives. The vendors, in their desire to please her and maybe get more business, whether it's the painting crew, or the lawn care crew, the pest control people, would start at her building and then work their way to the other side of the property. But unfortunately the non-verbal signal that that sends out is that she's taking care of her building first. So now she gives the directive to the vendors to start at the opposite side of the property and work their way back and do her building last.

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Persuasive Communications

Patrick Hohman - Author, Association President

In persuasive communication there are a couple of tools that you might be able to use. One is we frequently use a digital picture to help get our point across. For example, say if there are crumbling porch steps and you want to let people know that. Take a picture of that. And then have that in a one page memo. They might walk past it all the time and not notice it. But the picture would be fairly stark so it helps to prove that that problem exists. The other idea is to emphasize the benefits of a certain action when you have your one page memo. An example of that would be, say if you're attempting to raise the monthly maintenance fees because you need to stay solvent. We'll talk about some of the benefits of that action. Some examples of benefits would be that you'd like to protect property values, you want to continue to be able to buy insurance as an association and that you'd like all the owners to enjoy the curb appeal on a day to day basis. Those are examples of benefits.

Ray Paulin, Jr. - Association President

One of the things I've learned over the years, as a board president and many of the roles that I've had, that when you go into a meeting, if you know that there's going to have to be a tough decision made, there are probably going to be some politics beforehand that you've got to gather support and you've got to have someone helping you. If you go in as a one person, individual, and you want to change everyone's minds, it's not going to happen. But if you as president and a couple of other board members if you want to make a change, and if you want to make a change that IS for the good of the community, and if you can prove your points...you'll get a change made.

Patrick Hohman - Author, Association President

The other part of persuasive communication is the second half of the loop is active listening. And that can happen outside of the regular association meetings. It can happen when owners run into a board member in the parking lot, in the grocery store or somewhere in the neighborhood. And I think it's an important idea to go ahead and take the time and listen to their concerns, listen to their ideas. Quite often you can brain storm a range of ideas right on the spot. And that helps you to run a great association if board members are willing to go the extra mile like that.

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Curb Appeal

Michael M. Hoskins - Association President

Well, I think Curb Appeal literally begins at the curb. If the building is an attractive building and well maintained then people are going to be more interested in looking on the inside. But the moment they walk in the door if everything is tired and dowdy and dirty it's an immediate turn off.

Patrick Hohman - Author, Association President

I think curb appeal is important for a couple of reasons. One is the people who live there can enjoy it day to day. And secondly within an association, unlike a single family home that might be sold as is, people are buying and selling there all the time. So you always need to be ready, you always need to be ready for a buyer. And therefore you always need to maintain the curb appeal. That might only be a smaller percentage of the budget, maybe 20%. Keep the brass polished on the doors and make sure the landscaping is taken care of, the hallways are painted & carpeted and it's a nice lobby. But people make a lot of judgments on that.

Alisa Jones - Association Treasurer

In hindsight I was a little embarrassed after we spent the money and I finally gave in to repaint our hallways, to redo the carpeting, to freshen up all the brass number plates on the doors. It really did make a difference. And I didn't realize just how much a difference it would make. Because you going from the front door to your door, you spend about as long as it takes to fiddle with your keys, so what difference does it make what the lighting fixture looks like? But you know what? When you come in and there's fresh tile, the painting is fresh, that 5 seconds that I'm fiddling with the keys I'm already home once I'm in the door.

Michael M. Hoskins - Association President

Oh I think it makes them feel much better about where they live. They have a happier more contented demeanor. I know of instances currently going on near me where the people are actually very depressed, because they can't seem to get their association to move off of square one to maintain the property. And really their saying to themselves "why'd I ever do this?" So if it does have good curb appeal and if you do walk up the front door and you think "gee this is great to walk in here." That's got to have an uplifting feeling for whether you're a guest or whether you're the owner.

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Board Member Courage

Patrick Hohman - Author, Association President

The hardest decisions a lot of times hit close to home. Even the thought of raising the monthly maintenance fees still causes me to lose sleep. But it's something that we have to face. If we want to remain solvent we need to go ahead and address that issue.

Ray Paulin, Jr. - Association President

Any board, sooner or later, is going to have a really tough decision to make. The expenses are going up. We don't have enough money. That's when the board has to have the courage to do the right thing and raise the fees. That's not going to be a popular thing to do. There are many people on fixed incomes and they're going to say "we just don't have the money." But if the board doesn't have the courage to raise the fees then, sooner or later, there are going to have to be hard assessments.

Patrick Hohman - Author, Association President

Another area of courage, another example of that is, I've heard before where boards get a reserve study done. And they see how much they're underfunded and the board says..."we can't give this out! Everybody will flip out if they see how underfunded we are!" And what they do is put the reserve study in a drawer and lock it away and they never show it. That's not a good idea. You need to go ahead and lay your cards on the table. You can say this is not the best scenario but at least we have a long term plan for righting the ship. It has to be that way.

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Private Sector Innovations

Patrick Hohman - Author, Association President

The bottom line for consumers is quite often the reserve study is hard to figure out. It's 40 to 80 pages in length; usually tables and type. There are different firms present the information differently. There's a 2 to 8 page overview at the beginning of most of the reserve studies. I think it's a little complicated to figure out. There is an 11 year old business model in San Jose, in Silicon Valley, which has now spread throughout California which I think might be a model for other parts of the country. And with that, for example, you've heard of a brick and mortar home inspection where you check the physical structure of the home before you buy. With this, for about a similar amount of money, they will come in and check the reserve study against other documents that are required by the association. And they can help the consumer to clarify the financial status of the association. It also makes owners accountable; because, if there is an accumulating deficit, that is reported too. It's called the Deficit per Door. And then that would come off of the sales price of your unit. So we'll see if that Silicon Valley idea spreads through the United States and other parts of the world.

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Financial Disclosures: A Business Model for Consumer Protection

Jacquie Berry
San Jose, California

We provide a service to purchasers, and also sellers and home owner associations, that the disclosure packages that need to go to prospective buyers, so they can evaluate the business plan of the Association and see whether or not its somewhere they want to purchase and live.

Because the value of the property is directly related to the value of the reserves, the reserve studies are extremely important. And part of that comes from the disclosure of the percentage funded.

And how that's calculated, is they list all the components that they're responsible to maintain, what the life expectancy is, their best guess of course. Then they list how much it would cost if we had to do it today, in whatever locale you're in. Then you take an evaluation of how many years you've already used each of those components. And how much should be in the reserves.

Then when you add up everything that should be in the reserves, you get a total number and you subtract that away from what you do have. Once you've done that, you divide it by the number of units, and it will tell you the deficit or the unfunded reserve liability on each of those components.

So the total overview, zero to 30% is generally a very low funding in the reserves. And that will guarantee that a homeowner will be buying into a property where they're going to have to do special assessments in order to have the funds in order to do the work.

At 31 to 60% (funded), they're going to have to raise the assessments over the cost of living, defer the work, or to increase by doing a special assessment.

And if its 60% or over, they can generally do it through small increases in the assessments over a period of years in order to have the funds available.

Now remember that the value of the property is directly related to the value of those reserves. It's important to understand what that is and how they came about doing it. Some boards do it on their own, because they feel they have the expertise. Others hire companies that will do the reserve studies.

And yet others don't do them at all, they just wait for something major to happen by saying, "Well, I'm not going to be here when it needs a new roof."

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State Laws Needed

Patrick Hohman - Author, Association President

Reserve studies are only required in a handful of states, but I think there would be a lot fewer neighborhood food fights if the reserve study was required in all 50 states. Any jurisdiction in the world for that matter. Keep in mind though that the legislature rarely requires that the association fund the reserves. That's totally up to the association and quite often they do not choose to fund the reserves. However, these kinds of laws are an excellent consumer protection & each association has a financial roadmap for the future.

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What You Can Learn From This Book

Patrick Hohman - Author, Association President

I've volunteered in my Association for more than 20 years.

This is a reference book that I always wanted to find, but couldn't, so I created it, along with the help of 50 subject matter experts around the United States.

I like to teach by example, using color pictures and visuals.

At five different types of Association properties, we look at:

  • sample budgets and financials
  • simplified reserve studies...and
  • preventive maintenance check lists

Those five sample properties are:

  • An older apartment building that's been converted to a condominium
  • A larger townhome or patio home complex
  • A mid-rise building
  • A high-rise building
  • And a single family home in a home owner Association.

We show sample renovation costs.

We have troubleshooting lists about solutions to common problems with board members, with managers and with owners.

There are check lists of what to look for when you BUY in an Association.

And on this web site, you'll find sound bite interviews that may help you.

So, I hope you find this a useful, and an easy-to-read reference book. ENJOY.

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Benefits of an On-Site Association Administrator

Patrick Hohman - Author, Association President

The idea for the On-Site Administrator came as a result of my volunteering in my own Association for more than 20 years.

The concept is simple. In a perfect world, the best way to take care of everybody's needs in an Association is to have a full-time, onsite Administrator....but not every Association is large enough to afford that.

Instead, my idea for smaller Associations, is to have one Administrator who looks after just a SMALL number of properties -- not more than 3 at a time -- instead of trying to service up to 15 to 20 properties, where it's easy to spread yourself too thin, especially where problems are complex and time consuming.

Having an On-Site Administrator may initially add to your expenses, but ultimately, it may SAVE you money over time, because of the efficiencies that it produces.

Another benefit of this idea, is that it can result in a smoother, more predictable quality of life for you and your neighbors.

And for a lot of people, that level of service and convenience is why they moved to a condo in the first place.

So if you live in metro Louisville Kentucky, and this idea sounds like it may work for your association, call me and let's discuss the details.

Thanks for watching.

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PBS | Condo Association Happiness

Patrick Hohman - Author TV appearance on PBS

...What's really important is to buy into a place that has ongoing communication with all the owners. You have to keep communicating what's going on in the building.

People naturally don't come to meetings very often. A lot of times I run into owners in the grocery store or in the parking lot. They ask me questions and we talk. That's how they get their information.

An Association that's always communicating with all the owners, in whatever way, that's going to be a much better run Association where there's more like a pure democracy.

People are happier if they're being informed all the time about what's going on.

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