Fees Revisited, Spring Cleaning and Marketing, etc.

The board has taken a change in direction, and our president has reconsidered the issue of marketing our association. Our president brought this up at the last association meeting. As a consequence, our CD is now working on a sales brochure. To assist her in that endeavor, I sent her a link to a nearby association in an email entitled "What the Competition is Doing."

It's my view that this is not so much about "sales" as it is about marketing our association in a very competitive environment. Our condos are priced in the lowest 25% of all real estate in Wheaton. There's a lot of competition at the low end.

Management and I recently inspected the physical condition of each of the garages as part of an ongoing effort to quantify the finances of the association. While doing so we discovered that about 1/3 of the garages were in violation of current rules, with "stuff" stored in them. It's an expense for owner's to pay to have this hauled; currently a garbage sticker is $3.19 (going up to $3.33 on July 1) and a special pickup is $22 per cubic yard. There are dimensional and weight restrictions for normal trash pickup.

This prompted me to suggest to the board that we (the board) consider a "Spring Cleaning" event at BLMH, and also consider providing a dumpster to assist owners and tenants in their effort to clean the garages. I had discussed this with management last year, and wrote a piece in this blog. According to management, other association(s) in the area do this. So far, the LD and Treasurer have responded positively about the dumpster. Our CD is planning a newsletter notice or article, but avoided the topic of the dumpster. The president and R&R director did not respond.

The subject of fees is again surfacing. One of our retirees stopped me to ask if I am currently employed and I replied "yes." He then stated that he isn't, and doesn't have the luxury of an income beyond Social Security and a Pension. I always wonder why it is that some retirees think that "working" is such a benefit. If it was, wouldn't we all be doing that?

It might be desirable to get a  job at Ace Hardware, McDonald's or any of a number of other local businesses that are hiring part time. There are limits, of course.  I had an aunt who worked at a cellular telephone store part time until she was 85. She finally did permanently retire, but lamented not going to work! I had another female relative who worked for a bank well into retirement. Another relative is currently working as a painter at 83. Another retired couple, in their early 80's, currently maintain three residential properties, consisting of two apartment buildings and a two flat, with adjoining grounds. They tell me it's a lot of work; they do most of the maintenance and all of the cleaning and grounds work themselves! So, it seems that there are exceptions to any rule. With relatives like these, it will difficult to take an early retirement, let's say at 66. I'm sure they'll chide me for quitting early.

Returning to the issue of fees, I received an email a while ago from an owner who asked about the fees at BLMH. He asked some questions and his email was well written. He included a selected list of townhomes and condominiums in the western suburbs, with average monthly fees of $169 and a maximum of $197. There was a question posed about getting our fees "in line" with these other associations. I sent a reply to him and to our president, and later copied the remained of the board with some additional comments on the issue.

Here’s my opinion on fees and comparing BLMH to other HOA’s, based on that email. This is drawn from my email reply and the notes to the board:

Our association does have higher costs than some of the competitors.

When comparing properties there are some differences to be aware of. First, if they aren’t a PUD, then those associations have no responsibilities for street repairs, water mains, street lighting or snow removal beyond driveways. I have also been made aware of some associations which pass on certain costs and responsibilities to the owners; for example, the maintaining of patios, dryer vents, etc. Second, many of the HOA’s which some of our owners like to compare to BLMH, have no lakes or streams and limited grounds and landscaping. So monies we are paying each month in our fees for these items are not required at many other condominiums, because they don’t have these items to maintain.

I am also aware of condos in the area which have recently had special assessments, some of which were thousands of dollars. We have not.

Financially, I think owners can better handle fees without special assessments. For example, a special assessment for certain basic reserve items, such as for a roof, would require a surcharge fee of about $190 per month, per owner for 3 years at 5% interest. That could then be followed by a special assessment for driveways, etc. If an association were to use this approach, it would result in a lower base monthly fee.

However, the total of fees for operations and maintenance, plus fees for other reserves plus special assessments would result in a high monthly overall fee. Of course, if an owner could sell before that assessment came due, perhaps he/she could escape and pass the burden to a new owner. I sometimes think that could be the agenda of some owners. However once any special fee is levied, it would not be possible to sell one's unit until it was paid.

I suppose it would be possible for an association such as ours to 1) Remove some expensive items such as roofs from the monthly fee for reserves; and 2) Levy a special assessment for roofs. If we were to use this approach, then monthly fees, using what is actually a "slight of hand" would appear to decrease. Each owner statement would have a fee plus assessment. For owners, that would have a very serious consequence. All special assessments would have to be paid before a sale was possible.

Personally, I would prefer lower fees, no matter what the going rate might be. I’m acting as a fiduciary and so in some ways, my personal opinion or feelings does not matter. Nor can I operate for personal gain in these matters.

That is not to say that there is no room for improvement. There are restrictions. The Illinois Condominium Act requires that the board act as fiduciaries and maintain the property while doing so. We have no legal option of simply stopping the maintenance of the property. We can however, adjust how moneys are spent while maintaining BLMH, and we are striving to do more, in my opinion. The ICA aside, I've been cautioned by professionals and the CAI about the risks halting maintenance to provide a temporary and artificial reduction in fees.

I purchased here 10 years ago. At the time, I reviewed the finances of the association and was concerned by the reserves. The reserves have significantly improved since then, as the association built them up for roofing and driveway projects. My spouse and I purchased here because we liked the location (for example, COD very close and a park across the street, great South Wheaton location, etc.) as well as the extensive grounds and landscaping, and the general design of the buildings, which offered a reasonable compromise between home living and condo living. I had been a home owner previously and I was apprehensive about some of the aspects of “community” living in a HOA. (My apprehension has been confirmed by recent events at BLMH). However, we have stayed here for the same reasons that we purchased. I am aware of the differences between associations in the area. We looked at some of them but chose BLMH, and I have several acquaintances who live in condos or townhomes in the area, so over the past 10 years, we have traded stories.

To be candid, financial issues, including budgeting are at the top of my list here at BLMH, and so is marketing of our property. I am very concerned by the current combination of fee increases and the apparent deteriorating finances of some owners. I have other board duties and responsibilities that supersede or displace as much financial involvement as I would prefer. The discussions and information provided to owners last fall was the “tip of the iceberg” and the treasurer and I have been doing additional work. This includes improved monitoring of delinquencies and late fees, and ongoing discussions about expenditures, cash flow and funding. Our president is maintaining a separate spread sheet of expenditures. Management and I are currently in the process of reviewing the status of garages, and have prepared lists of buildings which are potential candidates for roofing in 2011. Currently, those building not yet re-roofed, have an average shingle age of 18 years.

The information gained from all of these efforts will be used to adjust the data I prepared for the board as part of my review of the reserves, and the reserve study. I intend, with the support and work of management and others on the board, to provide additional information on the state of reserves and funding of current and future projects. As our owners are aware, a significant amount of the fees collected are going to reserves. In the near future, the roofing and driveway projects will be completed.

I cannot state if fees can then be reduced, or annual increases reduced, as the association completes those projects. Last year's board authorized and selected a vendor to provide a reserve study. That study with the input of management, provides guidance to the current board and to future boards, until another study at additional cost replaces it.

Inflation is a reality, and the cost of basic services will and do increase over time. It will be necessary to begin rebuilding reserves again, for the next round of repairs. Nor can I predict the role of any material cost increases. I am monitoring the costs and would like to see such fee reduction. That may be in the hands of future boards. I can only deal with the present and plan and prepare for the future.

The board approved a nominal 1% fee increase for handling all Operations and Maintenance cost increases for 2011. What we know about true inflationary pressures, indicated that was a very aggressive minimization (core inflation as published by the Fed reduces or ignores the rising cost of fuel and food, which ultimately affects the costs of goods and services as well as the various projects here at BLMH). The board has taken other steps to either hold costs or reduce them, for the purpose of staying within budget and reducing fee increases. There has been discussions of “service cuts” and alterations to reduce landscaping fees. There will be more discussion. For example, the board has discussed and tentatively approved a change from a 5-year painting schedule to a 6-year schedule. That will ultimately reduce our annual exterior painting costs by 3.33% and management and I are also reviewing the painting specification and type of paint that is used, to see if we can achieve some savings with no loss in quality.

However, any failure to properly maintain the property will make it difficult to sell units here, I have been told by professionals, and that includes discussions during a workshop at the CAI in January. I realize the term “maintain properly” is somewhat ambiguous and subject to personal interpretation. Large potholes on Lakecliffe would seem to be pushing it. We can delay some types of repairs, but water in units, roofing or truss failure, drainage problems, a sinking building, street issues, broken water mains, a collapsing underground pump cistern, etc. would all seem to be in the category of requiring some immediacy. Would not everyone agree? We do have the reserve funds to properly address these problems.

On the other hand, I suppose an owner could take the position that if it “isn’t my roof” that is leaking, or my street with the potholes, then it isn’t all that serious. The Illinois Condominium Act also has stipulations for boards about property maintenance.

Discussions about reducing maintenance hours, or landscaping costs, must be accompanied by "how." What service is to be reduced, who is to coordinate the suggestions of board members and owners, read contracts and ultimately arbitrate the suggestions, revisions, and determine specific cost savings?

Comments, Corrections, Omissions, References

Note 1.  I've posted this because it will be several months before an article on this is in the newsletter, assuming one is approved. I am also preparing an article which breaks out some of our unusual fees, etc. so as to inform our owners.