The following is a transcription from the Condo Coaches Radio Show, Episode 2
FEATURED TOPICS: Budgets, Communication, Special Needs, Financial Assessments, Auditing, Planning, Impacting, Special Assessments, Board of Director Volunteers, Qualifications.
CONDO HEAD COACH: Dean Akers
CONDO COACH: Percy Legendre
HOST: Jonny Torres
Host: Thanks so much for your interest in the Condo Coaches. Find us online at thecondocoaches.com; & streaming live on facebook.com/thecondocoaches. Call us at 813-331-5415 or email us at email@example.com if you have an issue or question. We are here to help.
Excitedly, this is our second episode entitled Budget Season. We appreciate the response already received from homeowners and board members of community associations around the state of Florida. The purpose of our sessions is to bring in our team of condo experts that deal with condo and homeowners’ associations and make them available to your community. We serve as an educational and informational resource for board members, residents, as well as people living under a condominium or homeowners’ association. Our mission is to help those associations run effectively, efficiently, and on budget. We recognize the “on budget” is a critical component to countless issues in your communities so we decided to make that the focus of today’s session. We’ll be relying on the expertise of head Condo Coach, Dean Akers, for this discussion. How are you doing, Dean?
Dean: I’m awesome and excited about the unbelievable feedback received thus far including several board members. One board member reached out to us with an issue related to parking on an easement by a semi-truck in front of their association. We were happy to provide a successful resolution for them and we can do it for you, too!
Host: It’s one of those things that, if it were on Twitter, you’d probably just hashtag it “Florida,” right?
Host: I’m sure we’re going to get a lot of hashtag-Florida stories as the show progresses. The one we see most often, I would have to say, is probably the flagpole issue. Right?
Dean: Oh, yes.
Host: That one comes up all the time but, like our intro says, sometimes it’s that pink Chevy on cinder blocks. What do you do? How do you handle that?
Dean: I got a question for The Condo Coaches last week, and it had to do with not just pets, because they had a pet policy, but it was, “What do we do with a chicken?” It was a rooster and every morning at 4:00, it was raising everybody. We reached out to animal control which shows how many issues there really are that we’re going to be able to help with.
Percy: It’s a support animal, too, isn’t it?
Dean: Yes, Percy. Now, in condominium association that don’t allow pets, if it’s a support animal, then they’re allowed.
Host: They must legally if it’s a therapy some sort of support pet.
Dean: Unbelievably, the lady said her rooster was a support animal.
Host: Maybe she had narcolepsy, and it was her alarm clock going off.
Dean: Alarm clock, yes. She must have been driving something at 4:00 in the morning, though.
Host: Maybe that’s something we start integrating into our sessions. We’ll have our crazy homeowners’ association story of the day! I think I’m going to start a list, and we’ll bring those up in every show.
Percy: What is the going rate to tow an 18-wheeler?
Dean: Exactly. What ended up happening in this case was we could reach out to the county commissioner that was involved who will be getting back to us. The Condo Coaches happened to be at an association meeting and could help them and will continue moving forward.
Host: If you have an issue in your homeowners’ association, and you seem to be at a crossroads where nobody can get on the same page, give us a call, or send us an email. We want to send our team of experts there to sort things out, get you running smoothly and on budget and get you past issues that appear to be obstacles… Again, Dean Akers, our head coach here at The Condo Coaches, is here to support you. If you have an issue send it our way. Email us at firstname.lastname@example.org us at 813-331-5415. Somebody will pick up the phone; Dean will make sure of that.
Host: Again, that’s 813-331-5415 or online at thecondocoaches.com. Let’s get back to the topic at hand…Budget It’s something that, even within our own finances, it’s always a touchy issue even at home with your significant other and your family. It’s an even bigger issue when you’re talking about people’s livelihoods, the community they live in. The amount of money that some of these communities have, you were saying… we’re talking about millions of dollars in some cases that are spent every year by some of these associations, so budget is going to be our topic of the day. Our guest coach today is Percy Legendre. Percy Legendre has over 25 years of accounting, tax, and consulting experience. In 2001, Mr. Legendre was named managing partner at Bayshore and Legendre, LLP, CPAs. He frequently conducts seminars and workshops on various tax and accounting related issues, and Mr. Legendre is a member of the American Institute of Certified Public Accountants, Florida Institute of Certified Public Accountants, FICPA Section for Common Interest Realty Associations, and president and board member of the Suncoast Chapter of the Community Association Institute. You’re like the guy on TV where, “We’ve seen it all, we’ve done it all, so we can fix it all.” Right?
Percy: Every day is a new challenge.
Host: I can imagine. Percy, thank you so much for being with us today. If I’m correct, we are in the middle of budget season, and this doesn’t apply just to the business industry. This applies to these associations as well. As the fourth quarter rolls around, you should start planning what you’re going to do for the next year. What’s the starting point? How do you even get started on tackling an animal like a budget for an entire community?
Percy: Basically, you really should start in June or July. Some people wait too late, October, November. Lots of associations have their budgets passed already, but you usually start in June or July, and you look at your year-to-date numbers. A big mistake a lot of people do is look at the budget and go, “We spent $10,000 on landscaping. We’ll make it $11,000 next year.” We tell them to try to get a zero-based budget. Starting off with zero, look at your fixed contracts. What contracts are you legally bound to, and how much do you have to pay for those? Put those in. Then go back and look at your special projects and what you need.
Host: You want to start with the fixed contracts, right?
Host: You have that as a baseline.
Percy: Yes. Then you go through your other items and look at them. Your landscaping might be $10,000, but maybe it’s because we did tree trimming for $2,000. You don’t want to budget that again next year if you don’t plan on doing it. Your budget is two things: 1) the operating section, and one’s the reserve section, required by law, Florida statute. On the operating side, you start and look at your fixed contracts. 2) Then you look at your other items to see what you anticipate those being.
Host: Landscaping is a hot-button item – the one we hear a lot about. Some folks don’t understand why it fluctuates year to year. With someone like a landscape vendor, how effective is it to say, “Let’s revisit this vendor; let’s see if we can get other bids in?” Is it worth the time and effort to go down that road, or do you see it a better fit to stick with what you have and maybe try to get a multi-year contract where you can get a better rate that way with the vendor you already have in place?
Percy: Lots of times in the industry we’re dealing with, a lot of boards turn over. Some of them have the same board members for 20 years, but sometimes you have that turnover, and everybody’s got a friend who does landscaping. Everybody has a friend who’s an attorney. You want to deal with people who are in the industry.
Host: I’ve got three of them on my block.
Percy: Exactly. I tell all my board members…Do you want the cheapest attorney or the best attorney?” Too many times, they look at vendors and take the lowest bid, where you want to go out and listen to your management company, see who they say they’ve had experience with. Just because it’s the lowest doesn’t mean it’s the best. You want to be prudent in what you’re doing. You want to shop your vendors. Lots of times we’ve seen fraud. Since 2008 when the market crashed, we’ve seen a lot of fraud pick up, and a lot of that, when we’re doing our audits, just by looking at the names of the vendors, you can tell, “This vendor doesn’t look right. This one doesn’t have insurance,” stuff like that. You want to be very prudent in what you’re doing and rely on other people who you’ve dealt with.
Host: Let’s say you’re in a community that has a property management company that takes care of those things. Is it wise to let the property management company do its job, find those vendors, and manage those vendors, or do you think that the board of directors should have some say in who’s working in their community?
Percy: I think it’s a two-way street. You need to communicate with each other. Based on my experience, I think the property management company is better off getting the bids, bringing them back to the board, letting the board analyze them. The problems we run into are usually when the board picks the vendor. Then you find out they don’t have insurance or the handyman’s doing electrical work, plumbing work, without proper licenses, stuff like that. You want to make sure that what you’re doing is covered under your insurance policy. My experiences with the better management companies, they have a good feel on the vendors.
Host: We’re talking a little about working with a property management company and with vendors. Obviously, that’s ground-level and easy picking. Where does it get complicated? In our last session, we were talking about reserves, and I know that’s a touchy subject. We’ve talked a little about assessments. Where does all this get thick and complicated?
Percy: I think the main issue people don’t look at is, they try to do a budget: “We’re going to collect $100,000; we’re going to spend $100,000, so we’re fine,” but you should look and see, “Where did you start?” In your financial statements, are you in the hole? Do you have negative equity, or do you have positive equity like one year’s worth of fees in the bank? Lots of times, people do a one-year budget but they don’t look into, “Are we ahead of the ball game when we start, or behind in the ball game?” In 2008 when all the property values went down and foreclosures started all over the place, a lot of HOAs’ budgets were 30 percent bad debt. People had to make up that 30 percent or look at alternative things to get that money back in, and a lot of people didn’t want to budget $30,000, $50,000 in bad debt because the fees would go up by 20, 30 percent.
Host: We talked about a lot of that debt falling on the remaining homeowners in those communities.
Percy: So they only increased the budget by half of what they should have, and then try to catch it up. It never catches up. You as a board member have a fiduciary duty, and, if you don’t, we’ve seen some of them go into receivership where a judge appoints someone to be a receiver over the association. What they’ll do is put the fee at what it should be, keep the management company, charge you another $50,000, $75,000 for their fees, and your fees go up. As a board, you might as well do the right thing yourself and save yourself the headache later on. Too many people try to keep the fees the same because, “We want everybody to be happy,” or, “We have fixed-income people,” and you really can’t do that. It’s like a business. You must run a business.
Host: It’s certainly the costs of legal fees. Dean, that’s why we’re here. Right? That’s what The Condo Coaches is about…to help avoid some of these legal fees and some of these legal battles that come with budgeting as well.
Dean: Totally. Again, I come in the industry as a fairly new person, but having had several larger, successful businesses, and, to Percy’s point, condo associations are businesses. Million-dollar businesses that have every bit of all the components of a business up and down the street, and without the help of people like Percy. “We’re bringing in The Condo Coaches.” A lot of the folks out there are going it on the hip-shot. I attended a meeting last week and they voted to not have any reserve!
Dean: It was a real issue. Back to Percy’s point, they were trying to keep the rates the same. The problem was that this particular association, that I got invited in to visit, had previously been in the same situation he’s talking about with these big delinquencies.
Host: There’s no safety net if there are no reserves.
Host: Obviously, that’s a tough sell to say, “Look, we need to be responsible here. We need to lay down a safety net,” because, whether it’s the economy, whether it’s somebody’s personal finances and, suddenly, they’re not paying their fees, you have to plan for all those things. Year over year, what would you recommend in terms of an increase or an adjustment on your average community’s budget?
Percy: I’ve seen some where it had to go up 30% in the years when the delinquencies were bad. It’s not, per se, a percent that goes up. You should look at your budget, look at your expenses, and back into the formula of what each person has to pay. Recently we’ve been seeing 5-10% increases. The people who keep it the same for five, seven, eight years have to get a big jump because they didn’t do their job of keeping it monitored throughout the year. Same thing with the reserve section. A lot of people update the reserve study every five years. A lot can change in five years. I started in this industry in 1989 including an association reserve study. I didn’t even know what a reserve study was. The roof was $300,000; 0.001% did reserve studies back in 1989. The roof reserve – they had $300,000 because that’s what it was going to cost. Then in 1992 they had to redo the roofs. Hurricane Andrew came through Miami, didn’t hit Tampa; you couldn’t find a roofer in Tampa because they were all in Miami. The association had to do the roofs. It cost them $600,000, so they had to special assess $300,000 to make up the difference. They upped it by inflation, but inflation wasn’t a true inflation number for roofing and labor.
Host: That speaks to a point that you bring up frequently – which assessments haven’t been done in a long time, and suddenly, they realize that, “By the way, you need to replace this roof,” or, “You need to repave.” There are all kinds of things that need to be done on a frequent basis, and the funds aren’t there because they weren’t expecting it. They didn’t do their homework.
Dean: His point of the roof – if a board is not assessing those reserves properly because maybe they’re going to move out in five years, you’re still plagued with the situation where the roof’s going to fail. If you move in this year, you’ve only lived there one year, and nobody’s reserved for all those previous years, guess who’s on the hook for that roof?
Host: The homeowners.
Dean: The person that just moved in this year, who has never had the benefit of the roof the previous 20 years.
Host: This, again, is a huge topic. It’s not something that we can easily cover here, so if you want to talk about budgets, The Condo Coaches are ready to help you out. They can come to your next board meeting and walk you through the process, make sure that you’re adequately prepared for the year ahead if you haven’t done your budget yet. 813-331-5415 is the phone number; 813-331-5415 to talk to The Condo Coaches. Maybe even Dean. Maybe we’ll send out Dean to a couple of communities.
Host: Condocoaches.com is the website. We are going to be launching that, and there’s going to be tons of great information there, but you can certainly sign up there, or email us: email@example.com, firstname.lastname@example.org. That’s going to be another great way to get hold of us, and you’re going to get a response quickly. We’re going to help you out and get you through this huge budgeting issue including financial reporting. Financial reporting is a legal necessity. It’s a legal requirement that some might not even be aware is something they must adhere to.
Percy: Yes. Florida Statute 718 and Florida Statute 720. Seven-eighteen refers to the condominium; 720 refers to HOAs. If you have 50 or more units and revenues of less than $150,000, you must do cash receipts and cash disbursement. If you have revenues between $150,000 and $300,000, you must do a compilation. A compilation is taking the financial statements of the association and putting them into a formal one: balance sheet, income statement, cash flows, required footnotes by AICPA and required disclosures by Florida statutes. If you need a review between $300,000 and $500,000, a review primarily consists of inquiries. Did you balance your account? Did you look at your over/under? Are your accounts payable all booked? Analytical procedures: compare this year to last year, and compare your budget. Then the big one is the audit. Over $500,000, you’re required to do an audit. A lot of third-party verification with your attorneys, with the banks, looking at the invoices, looking at the minutes. That’s the one you get into. The big open item now is, if someone has 49 units and a $5 million budget, they’re not required to have an audit, but if you have 50 units, you do. The state’s looking at maybe changing that to do it based just on revenues and not on the number of units. The membership can waive it; a condominium can waive it three years in a row. Have to do it the fourth. An HOA can waive it consecutively. An HOA should look at their documents, though, because sometimes their documents require a certain level of reporting, and they have to use that.
Host: Are there some property management companies out that help in this, or is the board of directors all on their own in terms of financial reporting?
Percy: The management companies do the financial reports. They send them out to the board and HOAs. Some of them understand it; some of them don’t. As far as the audits and reviews, they have to be done by an outside certified public accountant.
Host: Dean, that’s where The Condo Coaches come in. Again, this is a document… This all appears to be very complicated so if you need help from The Condo Coaches, they are available. They can be reached at thecondocoaches.com – critical components required to run a day-to-day community.
Dean: When you start messing with people’s money, you start seeing emotions get pretty hyped up.
Host: Yes. We’re going to talk a little about communicating, again, issues like this. Also to the residents because that’s also where a lot of these problems stem from: lack of communication between the board of directors and the residents. We’re going to be talking about communication because it is such a big part of what leads to a lot of the issues in any given community. If you want to take part in one of our sessions, you can email us: email@example.com, firstname.lastname@example.org, 813-331-5415. That’s 813-331-5415, or online at thecondocoaches.com.
Host: Dean loves to talk to people. He gets a little lonely on the weekends, so you can reach him at 813-331-5415, 813-331-5415. There you’ll be able to talk to Dean, Chad, and probably Candace. You’ve got an incredible team of people that are all ready, willing, and able to answer your questions, help you handle your issues. We’ll come out and do a free assessment. That’s one thing we haven’t mentioned so far, this show, but The Condo Coaches will come out, they’ll take a look at your board of directors, see how that’s operating, see how your community’s operating, and give us a full assessment. Tell us a little about that.
Dean: What we’re doing is taking our experts, and we’ve put together a profile. We’ll go out and meet with a board, and we like to meet casually, and sit there and find out what their issues are. Then we’ll bring our coaches in to help them with whatever the different issues are.
Dean: We’re going to help them with the support animal that’s a rooster at 4:00, or a semi that parks on an easement, or a collection or audit information. Really, we’re there to bring an independent set of coaches in to help them out, whatever they need to help their association be better.
Host: Percy, we were talking about budgets and about financial reporting. We talked a little, using landscaping as the most common issue there, in regards to a vendor. We also talked about the complexity of financial reporting, because I’m sure a lot of folks, when they sign up to volunteer for these boards, they don’t realize what they’re truly getting into. Is that really where a lot of these boards have issues, or do you see it in some other part of the budgeting process? Where do you see, some other issues arise?
Percy: The thing you see most of the time, and it’s getting better, is the reserves. In the old days, the board would go out and get bids for the roofing, the paving, and the painting. You can do that now, but a roofer, if he’s going to put the right number down to do the roofing, five years, he won’t get the job, so the roofers reduced that number to make sure they’re in the running when they come out and get bids. We tell all our managers, “Do not fill in the reserve section. Do not put the cost, the estimated life, remaining life, unless you have proper documentation why you do it.” I’ve seen two property managers go on the court stand and go, “How did you calculate this?” “The roof, we got a bid. It was $500,000, and the warranty was 25 years, so we knocked off one year. The remaining life is whatever.”
Host: Is it better to have someone like a roofer come and give you that approximate value or that approximate cost, or is it better to have somebody like a property appraiser? Who’s the better person to bring in to make those judgment calls on cost or replacement?
Percy: They have reserve analysts who do that. That is their job, to get the costs, to get the lives, et cetera. Increasingly associations, when you do that for a condominium, you’re required to fully fund your reserves unless the membership waives it. If you’ve been having the painting at $100,000 for the last five years and the reserve guy goes and says, “It’s $200,000,” now you must collect more fees unless the membership waives it. You want to get that study, you want to follow it, and you want to update it every year. That way there are no surprises, no special assessments down the road.
Host: Reserve analysts…The Condo Coaches can certainly help you find a reserve analyst and help you in regards to making sure that you’re allocating these reserves where they need to be. Like you said, there are property managers having to go to court and really not having a lot of substance there in terms of how they’re figuring these numbers. Like you said, a vendor may adjust that bid depending on whether or not they think they’re actually going to get the work down the road.
Percy: Yes, sir.
Host: In regards to financial reporting, you also mentioned that there’s a lot to this. Typically, is it better for the board of directors to manage that on their own, or should they make it a practice to bring somebody in to help them through that process?
Percy: I think it’s a joint effort between the management company, outside accountant, and the board of directors. Lots of times, the president and treasurer do whatever they want, and the other three people are just token board members. Don’t go to meetings, don’t show up, and I’ve seen one or two times where the boards got sued, where they had to personally write checks because two guys were just running the show, doing their own thing. Asked for legal counsel, from different legal counsels, and still did not listen to what the legal counsel said. You have a lot of people running rogue sometimes, especially on the self-managed boards. Our firm deals with very few self-managed boards because that’s where you see most of the issues.
Host: Again, that’s one of the things that makes The Condo Coaches special, because we do have a team of attorneys and legal experts that can help people through these types of issues, making sure that they’re on the straight and narrow when it comes to managing these boards, certainly right now when a lot of them are figuring their budgets. You even recommended to do it back in the summer rather than waiting until Q3 instead of Q4 in determining your budget for next year.
Percy: Yes, sir.
Dean: In the next couple of weeks, we’re going to have the Florida statutes up on thecondocoaches.com, so somebody can click on “Search” and look at some of the statutes of 718 and 720. Not that they need to do that because they can always call The Condo Coaches and we’ll get the appropriate people set up for them, but we’re going to have that resource.
Host: You can call us at 813-331-5415 to talk to one of our Condo Coaches, 813-331-5415. You can email us. That’s easy for a lot of people, especially if you’re watching us live on Facebook while you’re supposed to be working. There’s already people sending us emails contacting us through our website and asking for our help. The response has been incredible. One of the things that I also wanted to get into because, aside from your financial expertise in the accounting field, you’re also president of the Suncoast Chapter for the Community Association. Tell us a little about what this organization does and what it’s about, because I’m sure there are boards out there that have no idea you guys even exist.
Percy: I belong to a lot of different organizations, and by far, if you’re looking for information about homeowner/condominium issues, the Suncoast CAI… CAI is Community Association Institute. It’s a national organization. Most states have three, four, or five chapters. We have either six or seven. The focus is to assist property managers and what they do in their job, and educate board members. A lot of seminars, free legal advice, free accounting, free management, to help these people run these boards. Ultimate fiduciary responsibility is with the board of directors, not the management company, so if people are going to volunteer for it, they should get involved and they should educate themselves.
Host: Really, the property management company is just another vendor?
Host: So really, it’s on the board of directors to educate themselves on the process, and that’s one of the things that we want to do as part of this program: educate you, if you are sitting on a board of directors, as to what your responsibilities are, what the requirements are that these associations or these boards must adhere to. Again, it’s the Community Association Institute. You’re the president of the Suncoast Chapter. You said there are free seminars, there are some workshops involved. One of the things Dean likes to talk about is communication. Would you agree that that’s the resounding issue among most boards?
Percy: Yes. No doubt about it. For more information, you can go to “Suncoast CAI,” and they’ll give you all the information about our organization: suncoastcai.com. A lot of literature and a lot of different things.
Dean: Around the state there are CAI groups in our market in Miami. There’s one in Orlando. I can’t stress enough… You can call The Condo Coaches, but CAI is another awesome group for board members to get involved with to stay in touch and to meet people like Percy. That’s where I met Percy. Got to meet him and learn about his expertise. It’s a wealth of condo experts there. They always have our conduit, The Condo Coaches. We’re there, but it’s another great organization.
Host: Again, that was suncoastcai.com. Is that right?
Percy: Yes, sir.
Host: Suncoastcai.com, and of course, thecondocoaches.com. We can certainly serve as an intermediary or provide those additional resources to you as well. That’s why we started these episodes, because there are so many issues out there. There are so many components that people aren’t aware of. When you volunteer for these boards, I don’t think a majority of the people know exactly what they’re signing up for, first of all, but second of all, their heart’s in the right place for the most part. Most of these people who sign up for these HOA and COA boards are wanting to do the right thing by volunteering, but they may not have the background. Again, these are your neighbors. These are people that live in your community. “Okay, so I volunteered to be treasurer,” which is probably the biggest job, I’d think, on the board. You signed up to be treasurer for your board of directors, and you’re not a CPA. A lot of these folks don’t have the financial accounting background that may be required in some cases, in some communities that are larger, to navigate some of this process. Am I right?
Percy: You’re correct. It’s all walks of life. Normally, if you get the CPA on the board he’s the treasurer, but a lot of places don’t, especially in St. Pete with a lot of snowbirds going back and forth. They’ll be here for six months, but then nothing gets done for six months. You must keep the business rolling; you must pay your bills; you must cut the trees; you must make sure the community property stays up to snuff. It causes a lot of challenges there.
Host: In terms of communicating, again, a lot of the financial aspects… We talk about financial reporting legally, but also the financial reporting within the community to the residents. What have you seen as the most effective way to do that, or the easiest way to translate all of this for the residents?
Percy: More and more associations are putting the full financial statements on the website. That’s a good way to start. Some people do it at the board meetings; it depends on how long the board meetings are and what they’re doing. More and more are doing online reporting, and any unit owner has access to records with a written request on that if they have anything they want in more detail.
Host: There are a lot of great online tools, too. There’s Google Drive, Dropbox, and things like that where they can make a public folder for all these documents to exist.
Percy: Yes. Obviously, just for their members, yes.
Host: Absolutely. Again, Percy, thank you so much for being with us. If you want to talk to one of our Condo Coaches, that’s really easy, too: 813-331-5415, 813-331-5415, or you can email us: email@example.com, firstname.lastname@example.org. This is an education and informational resource for those of you out there serving on your board. We want to help, be your resource, that safety net for you.
Host: The Condo Coaches help you navigate the process of being a board member on your board of directors for your community association, be it a condominium, a multi-family community, a single-family-home community g. There’s an incredible team of people behind us. We’ve got legal experts, organizational experts. We’ve got accounting experts. We have Percy Legendre with us today who’s been an incredible resource.
Percy: Absolutely, and it’s never too late to learn.
Host: Exactly. The budget part probably being the most overwhelming aspect of serving on a board. We’ve talked reserves. We’ve talked about dealing with vendors, landscapers, maintenance guys. Assessments. How much of that factors in to the budget, and what’s the most proactive way to make sure that your community is not going to get dinged by some assessments?
Percy: In my opinion, one, you must look at your operating fund. Make sure you have enough equity in the association in case some unanticipated expenses come through. Lots of times we’ll have a storm come through that doesn’t rate as a hurricane or tropical storm, and insurance might not cover the cleanup, the debris, stuff like that, so you want to have an operating cushion. Also, insurance. Insurance, they want the money day one, whereas we collect the money over a 12- month period, so you want to build up enough fund balance so that, when your insurance premiums come due, you can go ahead and pay them.
Host: Not to mention deductibles. When we were talking about storm damage, we got close to a nasty hurricane this go-around, and unfortunately the northeast part of the state got hit hard. We’re going to hear some incredible stories come out of that, I’m sure, but that money needs to be there up front. The insurance company isn’t going to say, “No, we’ll take care of it.”
Percy: Right, and a lot of people have an insurance deductible. It has a line item; they had that money set aside already. There are two different ways to do reserves: pooled and component. If you use the component method, you can only use the reserves for roofing, paving, whatever line item you have associated with it, whereas some associations vote to give the board the authority to use that money for a different purpose in case of an emergency. A lot of rules on when you can spend money, when you cannot spend money on reserves, so you want to make sure you follow those items. One other thing I want to bring about is, look at your documents. Sometimes your documents supersede the law; sometimes the law supersedes the document, so you want to get with your attorneys. We had an association where their documents said they could not raise their fees more than 10 percent.
Percy: They did the calculation; it came up to be $359.60. They rounded it up to $360, $0.40 over. Fifty-thousand-dollar lawsuit because of that $0.40.
Percy: You must be a stickler for details in this industry.
Host: Again, that’s hitting the homeowners. That’s hitting the whole community. Sure, the board of directors is there, but they’re a representation of the entire community. Now that $50,000 lawsuit falls back on the entire community all over reserves and not knowing the paperwork. We talked a little about signing those HOA documents as a first-time homeowner, and you’re right. Those are some of the things that are in the fine print that you need to make sure you’re aware of. In terms of that, in terms of capping off fee increases, do you think that that’s a smart move? You want to make sure that you have some checks and balances as to what those fees are going to be, but do you think that’s a smart approach overall?
Percy: I’ve seen it hurt associations more than help associations when they cap it. Sometimes insurance triples. We’ve been good on insurance the last 10, 15 years, but at one time it tripled overnight, and if you can’t get your fees up and you need a membership vote to special assess, sometimes it puts where you cannot really operate the association.
Host: At that point, you’re digging the community into a hole.
Host: Day one, because you’re capped off and you’re never going to make up that difference. Right?
Percy: You’re correct.
Host: When these issues arise in terms of being behind, you talked about there being some debt there when doing these budgets. Some of them obviously take it into account, and some of them unfortunately do not and try to ignore that the problem exists. What’s the best approach? Obviously, you don’t want to ignore the problem, but in some cases these are big problems. How do you begin to tackle that debt issue when you’re sitting on the board of directors?
Percy: We, as a CPA firm, will and say, “We want to meet with this board,” and we’ll go meet with the board. We usually have the attorney there and the management company. We say, “Here’s where you are. Here’s where you’re projected to go. Here are your options. You have to make a decision on what you’re going to do.” Depending on what decisions they make… Some of them say, “We’re not going to change anything.” We’ll resign from the account, tell them to go find someone else. If people want to do it right, we’ll help them work through it.
Host: Excellent. Percy, as a guest on this episode, of course, if someone wants to get hold of you specifically, what’s the best way to do that?
Percy: My phone number: 813-679-1026, 813-679-1026.
Host: Of course, he’s a guest Condo Coach, so if you do need Percy’s expertise, we’re also here to help and we’ll make sure that we get you in touch with Percy here at The Condo Coaches. You can email us, too: email@example.com. That’s firstname.lastname@example.org. Shoot us a quick little shout-out on our website, too. We are stressing the importance of educating yourself as a board member when you’re sitting on these boards of directors in a community. Community Association Institute, suncoastcai.com. If someone goes there for the first time, where would you absolutely send them and say, “You definitely need to go take a look at this?”
Percy: We actually have a table for first-time guests where we can go and explain to them what we do, but also we want to learn, “What are your issues? What are you here for,” to make sure that we serve their purpose. If we do, that’s fine, and if we don’t, that’s fine, too. We try to figure out, “What are your issues? What are you looking for?” As far as overall, information coming from national is probably the best I’ve seen.
Dean: On our website within the next three weeks, we’re going to have a portal. If somebody just can’t remember CAI, Suncoast, or our Miami group or our Orlando group, they’ll be able to go through The Condo Coaches and say, “I’m interested. I’m in Orlando. I want to go to CAI,” and we’ll facilitate it and get it all set up for them, and have a welcome there for them.
Host: That’s excellent. Again, for those of you first-time visitors, we have a radio show and broadcast throughout the state of Florida…South Florida, Orlando, Tampa Bay. We are ready, willing, and able to help communities and boards in all those markets, all throughout the state of Florida. Yes, Dean?
Dean: Interesting little stat that people get a little kick out of, or I do: it’s a rounded-off number, so it’s a round number, but the southeast three counties, Dade, Broward, and Palm Beach County, when you aggregate the amount of people living there and the homeowners’ associations, it’s the fourth largest state in the union.
Host: Wow. That’s incredible. From the CAI perspective, what are you since the most effective way communities are communicating right now, in keeping those lines of communication open between the board of directors and the residents?
Percy: I go to a lot of board meetings and, to be honest with you, I see less than five percent of the unit owners show up. They just don’t care if it doesn’t increase. If there’s an increase, they all show up to complain. (Laughter.) You must have your budget meeting; you must make sure everyone’s aware of it. Normally, if I go to a meeting and say, “Your budget should go up X number of dollars,” half the time I’ll get thrown out; half the time they’ll raise the fees more than what I said. You must get educated. The people must get involved. People say, “No one’s going to show up at a meeting.” You put the right number in that budget, what it’s supposed to be, you put the right reserve number, they’ll show up, and they’ll get educated by that. A lot of them use newsletters, use the website. Also, the state of Florida requires condominium and HOA board members to either take a class to educate them on the stuff… All you must do is sign an affidavit saying you record your documents and you understand them. I would take the class.
Host: You’re right. That’s one of the things that really inspired us to create The Condo Coaches. We want to make sure that you’re an educated board member and that you’re going to be effective, because we know that you’re doing what’s in the best interests of the community. The Condo Coaches can help you get educated, make sure that you know what you’re doing day one when you step up to be a board member. You can reach us at thecondocoaches.com; email@example.com is our email address, firstname.lastname@example.org. Are you seeing that as the most effective way to communicate in the community?
Percy: Yes and no, because a lot of them must post it at certain things, by the pool, in the front, like you were saying, so most of them still use the posting of it, but also maybe send emails or have the website for the association.
Host: If you are having a communication issue that’s something that we can advise on here at The Condo Coaches. Dean, we’ve talked about this newsletter, and it’s not a revolutionary idea, but it’s one that gets overlooked a lot, isn’t it?
Dean: It was funny, at this particular annual meeting we were at the other night, talking to the board president and everybody, we talked about the communication. They go, “Nobody cares about it.” I said, “Have you ever taken local area business,” which, by the way, they were all sitting out in a place where nobody could see it, “Coupons, and distribute those in your newsletter.
Host: Thanks so much for your interest in Condo Coaches and some special thanks for Dean and Percy for sharing their expertise!