the overall perception of the value of the community, it could cause current owners to have to pay the price for past low assessments. New buyers may experience financing issues when the lender sees the funding of the community’s accounts was not adequate to maintain the elements. This whirlpool of negative events can all come from the bad decision not to increase assessments.
So how do we start to increase assessments? Using the annual budget alone is not a responsible way to determine assessments. It would be well worth the time and investment to turn to a professional to generate the long-term financial plan for the community. A good resource to help guide the board in determining the right amount of assessment income needed is a reserve study. Managers, attorneys, accountants and bankers will agree that a reserve study is one of the most powerful resources for any community. It will show the realistic predictions of the life of elements that will need attention in the future and will be a guideline for just how much income will be necessary to keep the association maintained and healthy over the years.
The expectation should be set for the association to have annual increases. If a reserve study is not currently available, an annual 1%-3% increase would be a step in the right direction. Starting small will make the financial changes easier for the membership to accept. If expenses are currently manageable and it appears to the owners that an increase isn’t necessary, be sure to provide explanation that the increase will help fund the reserves for future repairs and replacements. Owners are likely to be unhappy with the initial increase, so be sure to communicate the reasons for it and that it is to protect the community and their investment in the long run. It is the board’s responsibility to keep the community’s value strong and the income of the business is the most important part of achieving that.
A home and property are usually the most valuable things people own and are trusted to the hands of a board making decisions for their investment. Responsibility is high and should be taken seriously. Keep the income strong and set the expectation that it will continue to increase with the cost of living so the association is ready for anything. The membership will be grateful in the long run!
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