Homeowner Satisfaction: Here’s what HOA residents have to say

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Americans who live in community associations are overwhelmingly pleased with their communities, expressing strong satisfaction with the board members who govern their associations and the community managers who provide professional support.
More than seven in 10 community association residents expressed satisfaction with their community experience, according to a survey conducted by Zogby International, a leading public opinion research firm. Almost 40 percent of community association residents say they are “very pleased,” with only 10 percent expressing some level of dissatisfaction. Almost 20 percent express neither point of view.
An estimated 54 million Americans live in some 274,000 homeowner associations, condominium communities, cooperatives and other planned developments.

Here’s what community association residents say:
88 percent believe their governing boards strive to serve the best interests of the community.
90 percent say they are on friendly terms with their association board members, with just 4 percent indicating a negative relationship.
86 percent say they get along well with their immediate neighbors, with just 5 percent reporting a negative relationship. Of those who reported issues with neighbors, the most common problems were pets, general lifestyle, noise, and parking.
78 percent believe community association rules “protect and enhance” property values, while only one in 100 say rules harm property values. About 20 percent see no difference.
88 percent of residents who have interacted with professional community managers say the experience has been positive.

*The research was sponsored by the Foundation for Community Association Research, a non-profit organization created in 1975 by Community Associations Institute (CAI).
Based on telephone interviews conducted in August 2005, the survey has a margin of error of +/- 3.5 percentage points. A summary of the results is posted at www.caionline.org/about/survey.cfm.

Strategic Planning

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My community association will soon begin strategic planning. What does that mean, and what will be happening? Simply stated, strategic planning is a process we use to determine where we’re going and how we’re going to get there. It includes these steps:
* Assessing our current position. We will identify our strengths, weaknesses, opportunities, and threats. Knowing where we are now will help get us where we want to be in the future.
* Identifying our purpose. This will become our “mission statement.” For example, “Our association exists to ensure the highest possible quality of life for all residents.”
* Setting goals that identify what we need to achieve the mission. Our goals will be specific and measurable, and will provide an indication of how we’re doing as we progress.
* Deciding how to meet our goals. We may have to allocate resources, create committees, or undertake other tasks to achieve our goals.
* Developing an action plan. Each step will require a specific action plan. For example, if a committee is needed, who will serve, exactly what tasks will be assigned, and when will the results be needed?
Monitoring and updating our plan. We’ll review the strategic plan regularly. . If we learn that our earlier ideas and goals were shortsighted or uninformed, we’ll update accordingly.

Bill Huyler Achieves CMCA

Release: December 1, 2015

 

 

 

Bill Huyler Attains CMCA Certification

 

East Hill Property Management congratulates Bill Huyler for attaining the Certified Manager of Community Associations (CMCA) credential through the Community Association Institute (CAI). Accredited through the Community Association Managers International Certification Board, the CMCA designation is the only certification program designed exclusively for managers of homeowner and condominium associations and cooperatives.

East Hill Property Management is committed to providing the highest standards of professionalism and skills to its community association clients. Professional certification and continuing education as well as active participation in local chapter activities of CAI are just some of the ways we provide our clients with state-of-the-art community management.

Determining Long-Term Financial Soundness

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As much as everyday Americans buy condominiums and community-based houses (HOAs), one suspects that very few have a clue how to assess the financial soundness of the association they are about to join. Every buyer receives a hefty package of governing documents and financial statements. How many people do you guess read them? How many attempt to read but don’t understand them? How many buyers accept on faith that their new community is well governed and financially sound because it looks well kept up? Considering that they are investing hundreds of thousands of dollars, that approach doesn’t really seem very sound, does it? Here’s a better one.

It’s not very practical to try to teach people to be more financially sophisticated, and waiting forPinching Pennys the state legislature to mandate easy-to-understand, self-revelatory financial statements is going to be a very long wait indeed, so what approach can we use immediately that will work for anyone?

What you need to do is make two determinations about a potential new community. How well is it managed today, and how well is it prepared for the future? The best way to answer the first question is the way everyone already does—look around for yourself. If it looks clean, neat, and orderly, it probably is reasonably well managed today. Everyone has their own standards, of course, but that’s all you need to do to answer the question for yourself. If you’re comfortable, and happy with the community as you see it first hand, then that’s all you need to know. That’s the easy part.

Now it gets a little trickier attempting to tell what the long-term financial soundness of a community might be. Here’s a crude, but effective, simple, quick, and fool proof way to do just that. First, determine the number of units in the community. It’s stated in the governing documents and probably in the marketing literature provided by your real estate agent. Next guess what the average cost of a unit is. You don’t have to be terribly accurate as long as you’re not wildly inaccurate. Now multiply the two to get the total asset value of the community.

Don’t worry about the precisely accurate number as long as you are within $10 million of the right number. For example, you are considering buying into a community of 75 units and your best guess is the average unit cost is $325,000. The total community asset value, therefore, is 75 x $325,000 = $24,375,000. Let’s make this very simple and just round off to an even $24 million.

A general rule of thumb is that the community’s reserve fund should be 10% of the total real estate asset value which in this case would be $2.4 million. Now look at the financial statements and especially the independent audit and see what the reserve fund balance actually is.

In the overwhelming majority of communities, it will not be remotely close to this 10% threshold figure. Most communities underfund their reserves. The reasons are many and varied, and some of them are much more reasonable than others. Some communities might have just paid for a large capital improvement and the fund is temporarily low. Other communities just never adequately funded their reserve in the dangerous belief that low monthly fees will increase the value of their property. This is a disaster in the making, but it might take many years before they learn that the very opposite has occurred. Whatever the reason, it’s never very comforting to know that the reserve is significantly underfunded. This calculation is just as valid, and probably even more important, to current owners who want to know if they are likely to face crippling special assessments sometime in the future. What’s an owner or buyer to do?

That’s a complicated question, actually a multitude of questions rolled into one, which we will need to address in future blog postings.

How to Financial Plan For An Association’s Future

Financial Planning

 

“Banks are not your friends.” Whoa! Did I get up on the wrong side of bed this morning? What’s my beef with banks? Actually, at one point in my career, I worked for the largest bank on Earth, so I’m not venting some personal gripe here. I am trying to make a very critical point: banks are businesses, not social companions. They are in the business of lending money at interest. They are an additional cost to the borrower. The decision of whether or not it is a good business move for you to borrow money depends on what your need is.

For community association boards, that need should not be to pay for projects that we failed to reserve adequately in the past because we wanted to keep the monthly dues “as low as possible” (emphasis on the word possible).

There are banks who have divisions or departments that specialize in lending to communities. They are good people. They do their best to help communities manage their finances and pay for projects by smoothing out the immediate cash flow crunch so that monthly costs can be maintained in an “acceptable” range for owners. The problem is not with the bankers; the problem is with the borrowers because they have totally failed to budget responsibly or realistic for their true long-term needs. Because they were unwilling to face the reality of what their true monthly dues ought to be based on a comprehensive, up-to-date reserve study, they discovered that they now have a “special” need. And rather than impose the dreaded “special assessment,” they worked out a plan with their “friendly” banker who was more than accommodating in showing them how they could pay for their project by extending the cost into the future with a loan. Everyone was happy because the “special” project was done and the cost sort of disappeared into their monthly dues in a way that wasn’t all that visible to anyone, so they kind of just forgot about it as if it wasn’t there at all. In fact, they are paying the higher monthly dues which they tried to avoid, only it’s higher now because the cost of the project didn’t change and they have the bank’s interest to add to the total cost. The New Jersey Cooperator has a good article of how to plan for the future Solid Community Association Planning

Does your association handle its finances like that? Well, you should be ashamed of yourselves. Here’s what you are doing, what you should be doing and, just for good measure, here’s a financial plan for your community where borrowing money from a bank is a great move.

First, what are you doing when you borrow money to avoid “special” assessments? A bank loan is just another form of special assessment. It’s a one-time financing plan to pay for something. The only difference between a bank loan and what most people call a special assessment is that a bank is involved. The bottom line is that you are paying money that is not part of your regular budget to do a project. And, in the end, you are paying more because you have the additional interest cost on top of the project cost.

Second, what should you be doing? You should be honest about the financial needs of your community. What is the true long-term cost to maintain your community? How does that divide itself into an individual unit owner’s monthly dues? Whatever that number is, that’s what the dues should be. A Board’s job is to figure out that number, and have the courage to communicate it to owners and make it stick when the usual complaining starts about “our fees are too high.” Any Board can “save” money by deferring maintenance, or assuming that this Winter’s snow will be average, or whatever management game they want to play. If you do this annually, over a period of time, these unplanned costs will accumulate to a point where the burden to pay may overwhelm many owners’ ability to pay. That’s criminal in my book, but I never passed a bar exam so no one cares about my Solomonic pronouncements.

Finally, when are banks your friends? There is a time when borrowing from a bank to do projects to improve your community is not only a good move, it’s a fantastic one. The problem is that circumstance will never occur to any properly managed community. Let me explain.

If it doesn’t make good business sense to borrow money at 5% in order to pay your everyday costs to live (which is what non-profit community boards are doing when they use loans to finance their projects), it makes great sense to borrow at 5% if you can earn 10% on the money. If a community unanimously agreed that their asset was grossly undervalued, and that by fixing it up, they could dramatically increase its value, sell it, and pocket the profit, then by all means, using a loan to finance this upgrade is a sound business decision. That, after all, is what real estate developers do.

But, community owners aren’t flippers. They are not going to sell their entire community to someone else all at once. They are non-profit, not for-profit, organizations. So, there is not going to be a situation where borrowing at 5% to earn 10% ever occurs. That’s why bank loans to finance community projects are not sound business decisions.

Bankers, you’re good people, we love you, but we don’t need your loan because we are willing to pay a monthly dues that sound business planning tells us is appropriate to meet our needs.

“Saving Money”

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Pretty much every owner in every community wants to “save” money. “The lower the monthly dues the better” would seem to be the near universal mantra at every owners meeting. All board members feel the pressure to keep that annual budget as low as possible. Most all of them agree after all because they are owners too. They might have even run and gotten elected to the board on a platform of keeping costs under control. But what exactly does “saving” money mean?

Does it mean spending the fewest dollars you possible can next year? Or, hiring the “low cost bidder” for every project? Or, does it mean deferring maintenance on your long-term common elements? Does it mean waiting for something to break down or wear out before you spend money to fix or replace it? Does it mean underfunding your reserve, or using unrealistic financial assumptions about inflation, replacement values, and “end-of-useful-life” estimates?

You can keep next year’s budget low by doing all those things—and many communities do. But are they saving money? Is spending less dollars really “saving” you money, or is it costing you more money when the true long-term cost is due and paying the bill can no longer be avoided? Check out this webinar by Kipcon on how being green can mean green Money growing on trees

 

Maybe the way to really save money for the community is to spend whatever it costs to do the right thing this year. Maybe the mantra for saving money should be “steady as you go, pay as you go.” If you run a tight ship, and pay whatever is necessary to keep your community in excellent condition, over the long-term you will indeed “save” money even if it costs a few more dollars today. Falcon Engineering captures this on their article on reserve studies and the importance of them. Importance of Reserve Studies

Deferring this year’s costs to future years is a mistake that every community owner should be on the lookout for. Many of the boards that make this mistake, and their owners, don’t even realize it until the damage becomes impossible to ignore. When the bill comes due to correct the damage, the “savings” they enjoyed reveals itself. Long-term budgeting, based on a thoroughly comprehensive Reserve Study with your reserves properly funded each year is the only way for a community to truly “save” money.

 

Hiring Contractors

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At some point in time, every community will need to hire an outside contractor to perform some essential, and usually expensive, project. Even the smallest project will cost several thousand dollars, and the big ones can run into the millions. If you’re a board member, you don’t really want to mess up one of these projects, do you?

While many, hopefully most, projects go well, there are too many horror stories of those that fail. There is no guarantee of the future, but there are some good practices which the community industry recommends that will improve your odds dramatically of having a positive outcome.

Space doesn’t permit a detail review of all the things you should do, but a visit to the Community Associations Institute (CAI) website is a must. The national website is www.caionline.org, and the local chapter is www.cai-padelval.org. Both are loaded with valuable advice and resources. You should become a member—but that’s a story for another day.

Here’s one lesson I learned the hard way (the best way!) from decades of consulting work in corporate America. Meet and talk to your consultant/contractor—the person who is actually going to do the work—before you sign any legal contracts, and make absolutely certain that both of you have identical expectations of what the final results of the project will be. Mitch Frumpkin the President of CAI and founder of Kipcon has a cool blog on this Kipcon Webinar

“Communication breakdowns” happen especially when people assume that the other party is thinking the same way they are. They probably aren’t. Don’t wait until your project is advanced, and thousands of dollars are spent to discover that your contractor is doing something you didn’t expect. The fatal mistake is usually relying on paperwork to substitute for face-to-face communication. Requests for Proposals (RFPs), proposals, marketing brochures, websites, even contracts can miss vital information which might unhinge your project from what you expected.

Meet and talk. Ask questions. Get comfortable with the actual person. Tell the contractor exactly why you hired them. You want a specific result. Spell it out. Don’t assume anything. Tell them why you want it that way and not some other way. Ask them if that’s what they intend to do. Ask what they need from you to insure that result. Make sure you both agree on what keystone events will trigger progress inspections to catch problems while they are still correctable. Become a working partner with your consultant, and do whatever it takes to achieve the result you want.

Do this and your project will end with a parade down Main Street and not a date in front of a judge.

Quality First

Quality First

 

What is the first thing most community boards do when they manage some project? They manage the cost! The create Requests For Proposals (RFPs) which state the specifications of the work to be done and send it to at least three, preferably five, service providers. When they get the bids back, they carefully scrutinize the bids, concentrating on the two lowest, and select the vendor which they are the most comfortable with to do the job they want.

Is there anything wrong with that? No. That’s what they should be doing. But, a strange thing starts to happen as the project process continues. It’s almost imperceptible, but if you pay attention you will see it. People naturally want to make sure that there aren’t any untoward surprises, which is another way of saying cost overruns. They often get obsessed with the costs of the project. Mitch Frumpkin the President of CAI and founder of Kipcon has an informative blog on this Kipcon Webinar

It’s a good thing to focus on the money being spent, but not at the expense of the work being done. The first thing any board, or any manager, needs to concentrate on is not the cost but the quality of the work being done. The crucial point of any project that matters is whether or not it is done right, not did it come in on budget. The community members want their new roof, or landscaping, or Clubhouse redesign to be an upgrade to their lives. They don’t focus on the price tag. They don’t want to spend any more money than they have to, but the price tag is not what they see when the project is complete. IREM (Institute of Real Estate Management) has many resources on their website to help the bidding process IREM . CAI also has many tools (checklists, RFP’s, product referals) CAI as well that help take the guess work out of quality project management. Quality

Always make sure that you are getting the best work you can afford when you do a project. It isn’t your only priority, but quality should be your first priority.

Someone once asked Aldo Gucci, scion of the Italian luxury brand, why his products were so expensive. “Very simple.” he said, “Quality is remembered long after price is forgotten.”

Serving On A Board

Serving On A Board

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The single most essential people in any shared space community—HOA or Condo—are the people willing to serve on the Executive Board. Without them, there is no functioning community. Despite their obviously essential nature, board members are volunteers. They don’t get paid. That last point is critical to understanding what board members do and don’t do—or, at least, should and should not do.

Board members are managers. They a legally responsible to manage the community according to state law and the governing documents. They shouldn’t do much (remember they’re volunteers), but should manage a lot. More on this in a minute. First, let’s get straight what board members are not.

Board members are not scapegoats, whipping boys, complaint hotlines, psychological therapists, your buddies, social directors, nor are they dictators, emperors, royalty (of some sort) or Lord Grantham of Downton Abbey. Sometimes board members have been known to fall into any number of these categories.

Board members are the executives in charge of running a multi-million dollar real estate asset. They need to have a vision of what the community should become in the future, create a strategic plan to achieve that vision, and manage the tactical execution of that plan with a combination of hired help and volunteers. IREM Board Check List

They need to hire a great management company and work closely with it. Depending on the size and type of the community, they need to develop good working relationships with a legal firm and an independent auditor that specializes in community work. Most communities will also need to develop a rolodex (I’m showing my age here) of engineering, landscape, plumbing, roofing, electrical, mechanical and other service providers. The management company is primarily responsible for this, but a good board will be actively involved in not only hiring these experts, but guiding them to deliver the services the board expects.

Board members aren’t “know it alls” but they need to hire a bunch of “know it alls” and manage them effectively. Management is an art, and good board members are artists. If you can rise to that challenge, then you should consider serving on your community’s board.

Community Living:

 

 

Community Living—home owner communities and condominiums—are one of the fastest growing types of living arrangements in the United States. There are several hundred thousand different communities across the country with tens of millions of people who’ve chosen this way of life. Is there any problem with that?

Community living offers people the opportunity to increase their standard of living by sharing amenities in common with their neighbors like sports and recreation facilities, landscape improvements, clubhouses, as well as shared expenses like grounds maintenance, snow removal, etc. Is there any problem with that?

For most people there’s no problem whatsoever. According to First Community Management in Chicago, most owners are happy living in an association Click for the article.  Community living has been a great improvement in their lifestyle and they wouldn’t ever go back to single home ownership. But, not everyone is cut out for shared living space.

Individualism is a long established, deeply entrenched part of American culture. Our homes are our castles, aren’t they; and, we can do whatever we like with them, right?

No—not if you live in a community. A community is more of a tribe with norms of behavior which are enforced by its members. Wise Management of Tampa says this about rule enforcement in an association  Click for the article . If you don’t want to fit in, you’d be happier living somewhere else. Let me put it differently. In a community, you put your neighbors desires above your own. If some behavior bothers your neighbors, you don’t do it.

If you are willing to fit in, prioritize your own personal desires to fit in with everyone else’s, then community living is a great choice for you. If you want to do things your own way, and believe you have a right to do that, you should by a house by yourself.

Is that American or un-American? Does it really matter after all? It’s a big country and there’s a place for everyone—it’s just that shared communities aren’t the best place for everyone.