Cutting Costs—Without Cutting Corners Erasing the Red

Cutting Costs—Without Cutting Corners

As the 2012 federal legislative fiasco over the debt ceiling—as well as any number of other spending bills proposed since then—demonstrated, balancing a budget can be like pulling teeth. Balancing a condo or HOA community's budget can sometimes seem just as arduous—the task can be incredibly difficult because there are so many moving parts. Making sure that a building or association isn’t wasting money is even harder but budgeting is a necessary part of running and managing a building community.

In the case of a condo or an HOA, cutting costs is one sure way to bring a runaway budget under control but cost-cutting comes with, well, costs. Cut too deep, and not only may a board’s trustees face backlash from residents if services and amenities are reduced, but they may find themselves in an even tougher spot if maintenance issues are left unaddressed and lead to bigger expenses down the road.

There are ways that HOA administrators can reduce waste and save money without neglecting necessary maintenance and services, however—it's just a matter of working smarter and consulting the right professionals.

Trim Smart

“HOA administrators probably waste the most money on indecision and the inability to make a decision,” says Nicholas Boit, president of Barrington Management in Arlington, Massachusetts. “When a property wastes money it’s not just through utilities or not using energy-efficient light bulbs. Things that can be wasteful are not being efficient with the time of the management company and the time of the board, which is usually caused by indecision on the part of the board. This tends to lengthen the process of getting things done and that translates into costing money.”

“We have seen communities with under 80 units that have full-time site superintendents or other staff save money by outsourcing those duties,” says Patty Coleman, new business developer for and Pyramid Real Estate Group in Stamford, Connecticut. “The cost of pay, benefits, insurances, etc. is relatively high while many communities complain about keeping the person busy or managing them. By choosing a vendor to do these routine services you can save significantly and also the association doesn’t have to worry about vacation coverage or managing daily tasks, as there is a layer of built-in management by the vendor’s supervisors.”

“When it comes to saving money, you have to fish where the big fish are,” says Mitch Drimmer, vice president of business and development at Snap Collections by Association Financial Services, a nationwide collections and financial services company.

What Drimmer means by that is that the first thing you need to do when you trim the budget is to figure out where the big budget-busters are within that budget. “Make a pie chart and see what the big piece is,” he says. “Usually insurance is the biggest piece.”

While Drimmer does not recommend getting rid of a building’s insurance, he says there definitely are ways to reduce the costs without shooting oneself in the foot, as it were. For example, every year that the policy comes up for renewal, try to get it reduced, he says. You can either simply ask that your current premiums be reduced, or you can get bids by other competitors to see if any other businesses have a lower rate.

But with any major move, be sure to consider all the angles. “From a general perspective, moving insurance carriers solely on price can be a risky venture,” cautions Wayne Dow, director, underwriting, for Kevin Davis Insurance Services in Groton, Connecticut.

“The insured might not be getting the same coverage for the reduced premium, and small nuances with respect to coverage features could mean the difference as to whether a claim is covered or denied. It is of vital importance to ensure you are getting ‘apples to apples’ if you are going to move on price. In addition, there is no guarantee that the ‘first year’ premium savings will be carried over at renewal,” he says.

“Annual or frequent movement of carriers can also have an effect on specific lines of coverage such as Directors and Officers liability. Breaks in ‘continuity of coverage’ may result in the denial of claims that might have been otherwise covered if the insured had stayed with the incumbent, as each time an insured moves to a new carrier, certain representations and warranties must be provided via an application.

“The bottom line,” Dow says, “is that there are costs associated with moving lines of coverage. It is important to look at the long term effects and not just the short term. It is certainly appropriate to ask your insurance professional to approach a carrier to review your loss history in order to determine if savings can be recognized. In addition, there are instances when it makes sense to move a certain (or complete) line of coverage. Just be sure to take into consideration what you are actually getting for the reduced premium. Be sure to also take into consideration the claims-paying ability of the carrier, and finally, the overall financial rating of the carrier.”

A Closer Look

You can also check for leaks in the common area pools and spas. “It’s good for planet Earth, and it’s good for the condo building,” Drimmer says. Yet another option to lower the water bill would be to submeter and to make residents pay directly for their own water. “Once people get a bill for something, they’ll strive to get it lower,” he says.

According to experts, every contract—big or small—should be reviewed yearly to make sure that you’re getting what you’re supposed to be getting, and you’re paying what you’re supposed to be paying. All of a sudden, you might notice a rash of extra charges.

Another thing that experts recommend is that associations avoid or track auto-renew contracts for every company. For example, some contracts will state that the contract will automatically renew at the end of three years unless you notify the vendor 31 days in advance.

There are other ways condo associations can save money by making sure they’re getting the best prices for goods and services.

“Associations obviously have to monitor their monthly spending very closely through proper reporting procedures and through their management companies,” says Boit. “They should have a clear policy and procedures for things they put out to bid and the number of bids required. When they are putting things out to bid they should have time to prepare proper specifications so the bids can be accurately compared when they are reviewed by the board.”

“The kind of services an association buys is not like a gallon of milk. They buy services that are not something they come across in their daily lives,” says Coleman. “The best way to make sure you get a good price is to comparison shop. The best practice is to have a board or committee set the scope of work and then hand it out to three vendors and have them all bid on the same service. Then the board can review the qualifications of the service providers and choose the best value—not necessarily the cheapest service.

Fees, Please!

If a condo building needs to collect money, it needs to make sure that it hires companies, including collection services that do not overcharge. In other words, “Are you spending $5 to collect $1?” Drimmer asks. He suggests that buildings get a traditional lawyer or engage a collection agency that is performance-based—one that would not cost the association any money unless they are able to recover money for the association.

Another big expense for associations is a real estate attorney—and many associations forget to get a competitive bid for this service just like any other service they contract for. “You quote out a painter and a plumber,” Drimmer says. “Why not quote out a legal firm? Those are the top expenses of an association.”

Other Things

One easy way to make sure the building isn’t losing money is to make sure that the laundry machines are making as much money as they should be. It’s a good idea to assign someone to supervise the person who empties the machines if they are coin-based. This person can be someone on the board or a manager—anyone. Fortunately, the likelihood of experiencing this kind of cash problem is fading, as more laundry rooms are converted to smart-card or credit card-based machines.

“One way to be creative would be to make a larger volunteer atmosphere,” suggests Boit. “Associations can have a beautification day where residents can come out and plant flowers. I’m talking about the smaller associations, not the larger ones. There are a lot of things people can do to take the weight off paid services. I’m not talking about replacing landscaping with a beautification day, I’m talking about supplementing. If they have a swimming pool they probably have someone to come in and clean it. I’m not saying replace the certified pool operator but you can also have a cleanup day the same way towns and parks do. The city is not paying for that and the taxpayers are not paying for that, it’s done through volunteerism.”

In addition to finding ways to save money, there are also ways that a condo can make extra money. If your building has a party room or a clubhouse, for example, it can bring in revenue because you can rent it out.

One money-maker that the pros don't advocate is to start imposing extra fines on the residents of your HOA, says Drimmer. He recalls a situation where a building tried to fine someone $6,500 for painting their condo a color that had been approved 10 years ago but hadn't been re-approved since. Needless to say, that didn't go over well. “You want to be received nicely, not aggressively,” he says. “Imposing fines like a cop—nobody walks away from a speed trap feeling good.”

There’s another significant place where buildings shouldn’t be cutting costs however: with their generator.

In New England, which is prone to snow storms, many condo buildings have backup generators that kick in when the power goes out. These generators keep the fire-safety equipment, the elevators and the emergency exit lights working even if the power isn’t—but some condo associations have decided to stop performing annual maintenance on their generators in an effort to cut costs, says Bob Birdsong, owner of OK Generators, the largest industrial generator dealer in the country.

Birdsong noticed this trend right around 2008 when the economy started to go south. “It’s a liability,” he says. “The fire pump system may not function if the generator doesn’t work, so you could have a fire, elevators wouldn’t work and the emergency exit lighting wouldn’t kick in.”

Not to mention the legality of it all. Birdsong says that condos are legally required to have backup generators and they’re also responsible for maintaining them. “When they break, they’re without generators for more than a year, and then they get cited and they have to fix them all at once—which becomes very expensive,” he says.

“I do believe in this economic atmosphere right now most management companies are doing the utmost to shave costs and budgets are tighter than ever, so there is not a whole lot of fat to trim,” says Boit. “So boards and management companies have to get creative and I think the volunteer side can be the way to go.”

In the end, saving money doesn't have to involve enormous sacrifices or death-defying feats of accounting skill—it can be as simple as taking a good hard look at your books, paying attention, and asking yourself and your board if you can work a little smarter to stay in the black.     

Danielle Braff is a freelance writer and a frequent contributor to New England Condominium. Staff writer Christy Smith-Sloman contributed to this article.

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