THE VALUE OF GOOD MANAGEMENT

There are several parameters that principally determine the value of a condominium unit:  state of the interior space, condition of the exterior common property, location, age of the building, and prevailing economic conditions. The interior space is the jurisdiction of the owner, and the more updated the interior space is, the closer the appraised value approaches its highest potential. The common property is the jurisdiction of the Association, and whose interest a condominium owner owns through voting rights.  Hence, a fundamental part of the value of what one owns lies in the manner by which the common property is managed and maintained. A well-managed condominium operates resourcefully, is solvent, enforces its regulations, maintains low rental ratios, and continuously preserves and improves the value of the real estate (buildings and surrounding premises). An effective operation is highly attractive and offers peace of mind. Undoubtedly, a well-managed condominium helps maintain appraised values closest to their highest potential.

The preservation and improvement of the common property remain the chief obligation of the Association, and the responsibility of the Board of Directors, with support from the ownership. Unlike single home ownership that may experience sporadic attention based upon the whim of a single owner, preserving common property must be assured and constant.  In order to shield a condominium from inconsistent management stemming from fluctuations in new ownership, and/or the selfish interests of short-term owners and investors, a 20-30 year plan of action for maintenance, repairs, and improvements must be forged. In this manner a condominium moves efficiently forward without the costly negative influences that can easily and quickly arrest good management, and erode the real estate value of each condominium unit.

The maintenance, repair, and improvement of the common property are also the bedrock upon which most financial considerations rest. In order to minimize costly errors, it is vital that solutions to problems be intensely researched and contemplated prior to their implementation. Operating with a thorough maintenance plan of action insulates the investment of a majority of owners from myopic decision-making. There is no magic wand that can protect and appreciate the real estate investment more than a solid maintenance plan, committed to by a united majority of firm, mature, and sensible owners.

Condominium fees need gentle and continuous upward adjustments in order to adequately preserve and improve common property, and uphold requisite cash reserve ratios. While increasing fees may be unpopular, insufficient cash reserves merely postpone the inevitable and always lead to chaotic and elevated assessments.  Like most condominiums, Maplewood once experienced prolonged periods of inattentive maintenance and fiscal management. This led to robust fee adjustments and regularly elevated assessments. One critical decision error can severely impact the financial obligations of future condominium owners, let alone a bundle of mismanaged tasks. It takes years to recover from depleted capital reserves with aggravating factors such as exponentially rising costs and aging buildings needing increased attention. Too often, a condominium needs the injection of bank loans (with interest) to complete urgently mounting maintenance, repairs, and improvements when it cannot wait on the slow collection of assessments.

In summary, any lack of thoughtful and consistent long-term planning is tantamount to accelerated property deterioration (and value), and foregoing repairs (and increasing fees) always equates with condominium owners paying considerably more at a later time. Hence, a condominium’s financial stability, health, and well-maintained buildings rest with a strategic maintenance plan of action, and unwavering perseverance to implement such a plan, even during lean times. Tough decisions may be unpopular, but their virtue is necessary. Suffice to say that the good management of one’s property always lies in the hands of those that are ultimately responsible for it.

FORGING A PLAN OF ACTION

Barring unusual circumstances that accelerate deterioration, a building has consistent maintenance cycles that can be predicted. With a favorable degree of accuracy, the deterioration rate for every single common element (building and landscaping) is known. Hence, planning financially for future maintenance, repairs, and improvements begins with a listing of all known common elements and their associated estimated life cycles.

Determining the cost of maintenance, repair, and improvement for a common element rests with multiple and trustworthy contractors, and adjusting for future increases in cost-of-living, materials, and labor. Over time the management of such elements becomes actual, hence more accurate rates of deterioration and repair costs supplant initial estimates. Historical data is invaluable to improving forecasting and planning. Applying such simple methodology, the estimated maintenance, repair, and improvement cost for any given future year can be forecasted, and the amount of money needed to cover such future expenses can be planned in advance, collected, and set in escrow.

If you estimate the future cost of maintenance, repairs, and improvements for every common element over a reasonable cycle of time (20-30 years), you arrive at an estimated monthly fee that produces satisfactory levels of income to care for such common elements. The amount of money that is set aside per condo unit per time is roughly equivalent to a unit’s consumption value.  In due time, all condo owners shoulder the responsibility of all common elements equal to their consumption (length of time lived here). This type of planning is fair to short and long-term owners.

The consumption value renders moot the lament of short-term owners, ”Why should I pay for something that will be replaced or repaired after I have sold?” since such argument is based on the fallacy of total replacement cost and not upon the cost recovery of what they have already consumed or are currently consuming.  Whether a roof is older or brand new, an owner consumes the benefits from a cover over his/her unit. The date and time that the roof is actually repaired or replaced is of no consequence to equitable and responsible fiscal management, and enters the arguments of short-term owners only for the convenience of not paying into large projects close to or after their departure. In this light, short-term owners’ arguments are equivalent to, “I want to use the common elements, sell my unit, and not have to pay for what I used”. Balanced planning renders moot all arguments and makes every owner pay equal to their consumption.  Hence, all owners should pay for the consumption value of every common element, and from time to time such items are simply repaired or replaced.

Understanding cost recovery means that the longer one plans, the smaller the amount of money per unit per time that is needed to be set aside to care for common elements. Hence, if you reach year 20 and the roof needs replacing, a condominium is forced to seek financial help immediately from a bank because the membership cannot raise $35,000 in a few short months. Conversely, if you raise such funds over a period of 20 years, the pinch of the monthly amount will not be as greatly felt. It also means that the burden of payment does not rest with the ownership that happens to be existent at the time the roof gets replaced – otherwise that group of owners unfairly pays for the consumption value of owners that came before. Unfortunately, this is all too common an occurrence within condominiums, but can easily be remedied with a solid strategic maintenance plan of action.

MAPLEWOOD’S MANAGEMENT & MAINTENANCE PLAN OF ACTION

Maplewood was built in 1981, and typical of most condominiums, it fell pray to apathy for many years.  As luck would have it, newly elected and visionary Board members implemented a vast financial and managerial overhaul in the early 2000’s in order to arrest Maplewood’s continued fiscal and property decline. The Board of Directors eliminated costly and ineffectual property managers and re-established their dutiful authority and presence. Since this renaissance, owners have actively managed the property and revitalized the prosperity of the condominium. New systems of management and communication have replaced careless ones. Owners have since been empowered, involved, and highly informed. Members of the Board of Directors have remained constant, and operations have been streamlined for effectiveness and efficiency. The Association remains financially solvent and healthy. Condo fees have increased commensurate with actual needs, additional regulations have been implemented and enforced, rental ratios have been kept to a minimum, and the common property has been extraordinarily improved through a strategic and long-term maintenance plan of action. The overall improvements that have taken place can only be maintained by the strong will and determination of the ownership.

Maplewood is valued at over $2 million collectively. Owners share a percentage interest in this worth. In order to maintain and appreciate this property value, a blueprint for maintenance is essential. Maplewood follows a maintenance plan of action that creates needed continuity and centralized planning. The foundation of this plan is based upon all known common elements (building and grounds), hence taking into account the cycle of all possible maintenance, repairs, and upgrades.  This plan of action serves as a template for planning fiscal years and setting fees and assessments. Such a management tool has also helped to: mitigate rising costs, effectively and efficiently use common funds, stabilize condo fees and assessments, complete all necessary projects, respond to emergencies, take advantage of contractor deals, better negotiate contracts, and plan for the distant future. This centralized plan of action is what sets Maplewood apart from all other condominiums.

Please see HISTORY OF MAINTENANCE, REPAIRS & CAPITAL IMPROVEMENTS for a summary of work completed by the Association on behalf of all owners.