Page 1 - New England Condominium July 2021

July 2021
NEWENGLANDCONDO.COM
actual? Too much stuff is on autopilot.”
He goes on to list other areas that should be scrutinized: “Are we
looking at real estate taxes and protesting them every year? Energy
repairs, supply and maintenance, and service contracts should also be
evaluated every two to three years. Th e same should be done with pro-
fessional services like auditors, attorneys, engineers, and architects.
205 Lexington Avenue, NY, NY 10016 • CHANGE SERVICE REQUESTED
THE CONDO, HOA & CO-OP RESOURCE
CONDOMINIUM
NEW ENGLAND
How Has COVID
Aff ected the Multifamily
Housing Market?
The Answer: It Depends.
BY DARCEY GERSTEIN
Accrual vs. Cash
Determining the Best
Accounting Method
for Your Community
BY JIM MERSKI & RYAN GALVIN
Th e vast majority of co-op and condominium boards are well intentioned and work dili-
gently with their management and accountants to draft and monitor their annual budgets—
and recalibrate them as necessary. Despite their best eff orts to keep costs under control, how-
ever, many communities fi nd that expenses oft en exceed their projections. Even in the absence
of an unforeseen crisis or major repair project, it oft en seems like money is just leaking out of
the system. Th e question is, where does it go—and how can we plug up the leaks when we fi nd
them?
Financial Leakage Defi ned
Avi Zanjirian is a partner at the accounting fi rm of Czarnowski & Beer and works with cli-
ents in New Jersey and New York. According to him, fi nancial leakage is more oft en a result of
inattention than of outright negligence or fraud. To fi nd these blind spots, “We look at it from
an auditor’s perspective,” he says. “You might be paying electric, water usage, and repairs, and
all are within budget. But at the same time, you may not be looking at all the line items regularly
to make sure they’re working effi ciently.” Zanjirian recommends taking a hard look at every
line item in your budget on a year-to-year basis, and assessing whether you’re getting the most
for your money (or even just getting what you’re paying for) from your community’s vendors
and service providers. “Do you have the best vendors, contract terms, etc.?” Zanjirian says. “As
contracts expire, you should be checking this.”
Another factor Zanjirian points out is the popularity of using autopay systems to send out
payment for recurring bills. While the convenience of a ‘set it and forget it’ payment option is
undeniable, it can oft en mean that less close attention is paid to cash outfl ow every month. Th is
is why it’s important to periodically take a close look at your community’s accounts payable,
as well as to conduct an end of year review to determine whether costs went up, and if they
did, why? “It could be because no one negotiated a new contract or a misplaced charge,” says
Zanjirian. “In terms of metered services like electric and water, are meter readings estimates or
One year-plus into the largest public health
crisis in a century,
New England Condomini-
um
spoke to real estate professionals across
the geographic regions we cover to learn the
eff ects that the COVID-19 pandemic has had
on their specifi c areas. What we found out is
that the co-op, condo, and HOA market has
taken several twists and turns over the past
year—and a lot of that movement depends
on where you live. In fact, even within the
same region, the pandemic has had varying
impacts in luxury sectors versus middle-mar-
ket, as well as in urban centers versus more
outlying areas. A number of tangential factors
are playing into trends and forecasts as well,
making for a patchwork of experience across
the country.
The Bounces
Perhaps unsurprisingly, the biggest dips
in property value and activity were seen in
the second and third quarters of 2020, when
the nation was experiencing its second wave
of infections and states were in various levels
of lockdown to contain the outbreaks. Real-
tors across the country were unable to show
properties in person for months in many
cases, and transactions were further ham-
pered by limits on travel, gatherings, and long
backlogs in the courts. In many U.S. cities, the
civil unrest following the murder of George
Floyd by Minneapolis police offi cers last year
also had a compounded impact on real estate
in those markets—some of which is still felt
today. Condos and co-ops struggled as dense
urban living and shared spaces lost some of
their appeal when less was known about CO-
VID-19 contagion and vaccines were still a
pipe dream.
But all that is changing. In Boston, condo-
minium sales are not only bouncing back—
Th e successful fi nancial management of
a condo, co-op, or homeowners association
relies upon accurate, timely, and consistent
fi nancial statements. Th ese statements repre-
sent the fi nancial position and results of op-
erations of the association, and understand-
ing the details of these fi nancials is essential
to making sound management decisions.
Also fundamental to this process is choosing
the appropriate accounting method for your
association.
Accrual vs. Cash Basis Accounting
In selecting an accounting method, trust-
ees or board members should fully compre-
hend the diff erences between accrual and
cash basis accounting. Th e diff erences in the
methodologies have a material impact on
how fi nancial information is presented and
evaluated by users, and therefore infl uence
how they make far-reaching business deci-
sions for their associations.
Th e fundamental diff erence between the
two methods is rooted in the timeline in
which expenses and owner assessments are
recognized and recorded in fi nancial state-
ments. While each method has its advantag-
es, our company primarily uses accrual ac-
counting to create detailed monthly fi nancial
packages for our client associations—though
sometimes a modifi ed cash basis is requested
and used.
What Is Cash-Basis Accounting?
In cash-basis accounting, transactions are
recognized in an association’s fi nancial re-
cords at the time when cash is received or dis-
bursed. Put another way: the association only
records transactions when they are refl ected
in the association’s bank account—cash in,
and cash out. Th erefore, assessment revenues
are recorded when an owner pays their as-
sessment and cash is received. Likewise, ex-
penses are recorded only when a check is cut
and payment is made to a vendor. Th is meth-
od is familiar to anyone running a household
budget with a checking account, and so is
oft en requested by smaller associations look-
ing for a more simplifi ed fi nancial overview.
Under a cash-basis approach, Accounts Pay-
continued on page 6
continued on page 8
Where Does It Go?
Th e Problem of Financial Leakage
BY A. J. SIDRANSKY
continued on page 6
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