Why Should you Increase your Condominium Maintenance Fees?
It’s that time of year again–the budget season is upon us. If you are a board member, there is a good chance you know the steps to create your budget, but what drives your process? Are you focused on achieving a particular vision for your property? Anticipating a major capital improvement?
Or are you avoiding increasing condominium maintenance fees? If it’s the case, you may want to reconsider. As a board member, your leadership responsibilities include protecting property values. Sometimes increasing maintenance fees is a necessary action and ensures that your property operates efficiently and has a healthy reserve fund.
There are many reasons why board members may avoid maintenance fee increases. Sometimes, the reason is as simple as attempting to evade conflict. In other instances, board members may be concerned about the political nature of asking their neighbors to pay more to maintain the property or invest in enhancements to the building. But the reality is that things have and will continue to become more expensive. Insurance rates fluctuate, labor and utility costs increase, and new regulations require capital improvements that you may not have planned for. When devising condominium maintenance fees,at some point, a flat budget will become a problem.
So how can a fiscally-conscious board fulfill its fiduciary duty to a property while keeping conflict and anger to a minimum?
It is all about communication. It is important to illustrate the narrative, so residents understand why an increase in maintenance fees are in their best interest and a necessary investment.
Did you know that 72% of boards don’t have adequate reserves? Drew Ahrensdorf, vice president of FirstService Financial, explains that up to 10% of that shortfall stemmed from boards not wanting to increase dues during the 2008 recession.
Eventually, funding will be required for necessary projects, and too often, it’s in the form of a special assessment. Is there a solution to keep owners content while ensuring that your budget is well funded? The simple answer may be to suggest small, annual increases to your condominium maintenance fees and common charges, in order to avoid special assessments down the road.
It is also important to note that a building that has limited funding in their reserves may be viewed as a red flag to future investors and can negatively impact property values. Therefore, it is important to maintain reserve contribution levels.
“Today’s buyers are savvier than in the past,” explains David Jandak, vice president of finance at FirstService Residential. “They want to see financials and to know what’s in the reserve study, that the reserves are funded and that the board isn’t kicking the can down the road.” You don’t want people to pass on buying because they see gaps in your financial planning, eventually leading to lower property values for everyone.
Property upgrades like a new gym, rooftop pool, or playground are popular and can improve overall property values, but they require an investment. Residents are more likely to embrace an increase in dues when they see the value in investing in the property and their quality of life.
However, not all increases are centered on popular amenity projects. Major capital improvements are becoming more common as new laws and regulations are passed in New York City. Local Law 87, elevator regulations and the Climate Mobilization Act are among the recent laws that board members must keep in mind when planning their budget. The good news is that most regulations are not required to be completed immediately, which can give a property the opportunity to gradually increase fees over time.
Unfortunately, there will be owners that want to avoid increases regardless of the work that needs to be completed. Deferring maintenance is often suggested as a way to keep common charges and fees steady, but it will generally lead to higher costs for emergency repairs down the road.
Sean Kent, senior vice president of FirstService Financial, points out that neglecting to fund your reserve or deferring maintenance creates a snowball effect. “It will lead to an inevitable increase in operating expenses and even impact insurance costs and claims.”
We understand the temptation to keep your property budgets flat. It may seem easier, but in the long run, it costs more money, time, and stress for everyone involved. To learn more about how a professional property management company can assist your building with effective, long-term budgeting, contact FirstService Residential today.
To learn more about budgets please read our guide below
- Budget Guide