Double-digit annual increases common; big expenses may lurk
Since 2007 real estate values have stagnated, and in many cases slumped. The thoughtful homeowners might have asked to have their property taxes revalued and lowered. While property values have been slowly recovering, so have property taxes. For those living in a homeowners association or common interest community, the rising costs of operations and maintenance are surpassing inflation figures.
These fees, usually known as homeowners association fees, have been rising nationally over 25 percent during the last decade according to the Institute of Real Estate Management Company in Chicago. According to Mike McCarthy, a research analyst at the institute, the operating cost rose 6.5 percent but the most explosive was town homes, a whopping 12 percent in a year. Town homes and low rise condominiums represent the vast majority of common interest communities, or CICs, in Northern California so the expenses will be affecting the pocketbook of about 10 percent of all homeowners.
When a buyer purchases a condominium or even a single family home in a CIC, they are made aware that there are addition monthly expenses to take care of the building and grounds for years to come. The vehicle for maintaining the grounds is called a Home Owners Association or Maintenance Association, which is turn has a board of directors and often retains an independent management company to run and enforce the rules in the community. To keep the community functioning the cost of administration, staffing, repairs, maintenance, insurance, property taxes, and misc. Expenses are passed on to the home buyer. And these expenses have been steadily increasing. In 2010 increases of 3 percent per year were typical but now nationwide annual double-digit increases are becoming common. Most of these increases are labor for maintenance and management expenses.
What is really lurking around the corner is hidden deferred maintenance expenses requiring major infusions of cash by homeowners for replacement or repair of outdated construction. Many CICs were built in the ’70s & ’80s, the golden era of condominium construction. While annual assessments may have been collected to repair or re-roof a building, there may not be sufficient funds squirreled away to replace the deteriorated roof structure as well. Many buildings of that era have plywood siding and highly inefficient windows and doors. These need to be replaced as energy costs climb and are passed on to the individual homeowner via the monthly dues.
What should homeowners associations do to curb their rising costs? Many options are available, such as reducing staff, computerizing all communications, removing water-sucking turf and plants while replacing them with drought tolerant landscape, installing long term durable siding, windows, door, and modifying the exterior envelope for energy efficiency.
The best strategy is for each homeowner to get involved in the budget preparation and review the board of directors meeting minutes. Be aware of increases in the independent maintenance company’s expenses. At the same time, do not “rob Peter to pay Paul” with future set-asides. Be sure there are professionally prepared assessment budgets to ascertain the realistic future replacement of aging facilities. A well informed homeowner is a best defense for keeping costs in check.
Chris Craiker, AIA/NCARB, is president/architect for Craiker Associates, architects and planners,, 3154 Browns Valley Road, Napa, CA, 94558, firstname.lastname@example.org, 707-224-5060.
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