Proactive vs Reactive Maintenance: Which Saves Associations More Money?

Robert Nordlund:

Welcome, everyone, to today’s program. We often present reserve study webinars, basically on a monthly schedule, to set you up for success at your association, and that’s what we’re going to try to do today.

Before the end of today’s program, we’re going to help you with the decisions you make for your association when it comes to executing reserve projects. Now, it may seem that not performing a project saves you money, but throughout this program we’re going to caution you about the implications of timing, the decisions that you make, and leaving those projects undone.

We want to start with a clear understanding that owning real estate is expensive. It doesn’t stop when you purchase the home or property. Maybe you could say that’s when the costs start, because Mother Nature and Father Time see to it that everything is in a continual state of deterioration. That’s going to drive your responsibility for repairing and replacing all the common areas.

That’s where we want to go today, because the common areas are the board’s responsibility. That’s driven by the governing documents and the whole institution of community association living. Someone is in charge of the common areas, while every individual is in charge of their own separate space. That responsibility isn’t something you can transfer or discharge to someone else.

The deterioration we spoke about never takes a day off. The roofing, pavement, siding, elevators, pool, carpet, or whatever you have that’s common area at your association is deteriorating day after day.

There’s nothing you can do about that. Mother Nature and Father Time are part of life here on planet Earth, but fortunately, they’re very predictable.

I want to make sure it’s clear that this webinar is about your reserve components. It’s not about optional things. It’s not about costs that the board may decide to add to life at the association. We’re talking about the cost of deterioration of major, predictable projects: replacing a roof, resurfacing or sealing the pavement, painting the trim, painting the ironwork, painting the siding, and other major projects like those.

Since these projects are predictable in timing and predictable in cost, there’s no excuse for being surprised. You can plan ahead, and that brings us to the question: Should we be proactive on these projects, or should we be reactive?

Again, laying the foundation, delaying doesn’t make a project go away. It’s still there waiting to be done, and the board members have the responsibility to get it done and care for the common areas.

For all the managers here in today’s audience, you’re responsible for assisting and encouraging the board. Sometimes that means providing proposals. Sometimes it means reminding them that it’s a requirement in the governing documents to take care of the common areas. Sometimes it means encouraging them to get the finances together or form a committee. There are so many ways a manager can help, but they’re there to assist and encourage the board toward fulfilling its responsibility.

We want to say this very clearly: A delay doesn’t remove the project. Not doing it doesn’t mean it goes away. It simply means it still needs to be done, likely next year or the year after.

But delaying a project can remove your good choices.

Sean came to us many years ago as a college graduate with a football background. When I think about timing, I think about how different a football game is when you’re behind in the second quarter compared to when you’re behind with two minutes left in the game.

Sean, can you walk us through how timing makes a difference?

Sean Andersen:

Absolutely. As most of us who watch football know, being down 28–7 in the second quarter isn’t the end of the world. We’ve got time. We can work our plan and ultimately still win the game.

If we’re down 28–7 in the fourth quarter, we have very specific things we can do to even approach success. Unfortunately, a lot of that involves throwing Hail Marys. It involves throwing the ball downfield as much as you can and hoping for the best. As any of us who watch football know, that very rarely works out. It’s always miraculous when it does.

As we’re looking at the life of our communities and the life of our components, we want to make sure we’re going into the fourth quarter well prepared. We’re going to execute our plan, make sure projects are getting done, and make sure we’re planning for them in advance so we’re not throwing Hail Marys just to get a roof replaced before the rain comes.

Robert Nordlund:

Yeah, and I was thinking that if we had an attorney on the program with us, the attorney would probably be reminding us that hoping for the best isn’t the way to fulfill your responsibility as a board member.

Sean Andersen:

Yes, absolutely.

Robert Nordlund:

Okay, well, we’re not attorneys, but we want you to keep that in mind.

Let’s talk about the choices you have with respect to those projects. We’ve outlined them today in three ways.

You can prepare in advance. You can do it right on time at the last minute, saying, “Oh gee, we need to do this. Let’s get it done.” Or you can do it late.

Preparing in advance means you can choose the best timing. Do you do it in the summer? Do you do it in the fall or spring? Can you negotiate with the provider to fill a gap in their workflow when they need a job to keep their crew busy for two weeks? You have opportunities to achieve the best result.

Doing it right on time means you may be rushing. You might need to get that roof or painting project done before it starts raining or before winter arrives. When you’re trying to get something done before the weather changes, that can raise the cost because you’re paying to fit a job into a narrow window.

Doing it late commonly means you have fewer choices. It can turn into a bigger and more complicated job because maybe you need to repair it quickly and then replace it later. All of that can lead to higher prices.

Sean, can I get you to talk through preparing in advance and what that looks like among your clients?

Sean Andersen:

Yes. As we were preparing this, I immediately thought of a client of mine down here in Orange County. A number of years ago, they were caught completely off guard by failing roofs, and they needed to do a special assessment.

The board felt they really didn’t ever want that to happen again. They didn’t like the idea of a special assessment. It caused a lot of consternation in the community and a lot of loss of trust in the board.

The board understood that they had this document, the reserve study, that was going to help them. It’s a budget planning tool. They were going to use that and start planning ahead for these major projects.

In particular, they had painting and asphalt projects coming up next, so they got ahead of them. They referred to the reserve study, looked at the projects that were coming up, and on their own timeline began gathering three bids for each component. They started vetting the vendors and doing the projects in a well-thought-out and timely manner.

At the same time, they held town hall meetings and wrote newsletters informing people, “Hey, look, we have this asphalt project coming up. We have the painting project coming up.”

Ultimately, all these projects were done successfully. They had that one special assessment, but they increased their reserve contributions to the point where they exceeded their rate of deterioration. The strength of the reserve fund increased, and they were able to complete these projects on time.

They were able to do it in a way that the association members were very happy with, and now the community is very well funded and very well maintained. Property values have increased significantly there. Having that planning really did bear a lot of fruit for them long term.

Robert Nordlund:

How many years was that process? Was that about five years?

Sean Andersen:

It was about an eight-year process.

Robert Nordlund:

An eight-year process. Okay, so it does take time.

I’m also hearing a couple more things. We billed this webinar as being about proactive versus reactive project execution, but there’s so much more involved.

You mentioned the financing—making sure the money is there—and that may mean raising assessments years in advance so everyone is paying their fair share over time rather than facing last-minute special assessments.

I also like the communication aspect, where everyone understands where their money is going and what’s being done. They may think, “Oh darn it, the assessments went up another $25 a month this year,” or whatever the number is, but at least they know that next year the buildings are going to be painted.

Is that pretty accurate?

Sean Andersen:

No, that’s exactly correct. When you have that kind of communication, the more communication you have, the more people can anticipate what’s coming.

Really, the math works out so that it’s not so significant. If your assessments are going up $25 a month, it’s annoying. But if you can have a situation where I’m saying to myself, “My assessments are going to go up $25 a month; however, mathematically, that’s going to help me because my property values are going to go up because my property is so much better maintained,” then people can understand the benefit.

The more communication we have, the better. It makes sure people are prepared for this and that the projects get done on time.

Robert Nordlund:

Yeah, I think I can hear my mom’s voice saying, “Don’t be penny-wise and pound-foolish.”

If you can spend that $25 a month, it’s not that your home suddenly got more expensive. It just means you won’t have an emergency special assessment in three or four or five years.

Sean Andersen:

Yes, exactly.

Robert Nordlund:

It’s the same cost.

Preparing buys you the things that money can’t buy. It gives you time to develop the specifications, get competitive bids, shop around for a provider that suits your timing, suits your budget, suits your style, and works well with the association.

It gives you a board that decides instead of a board that’s forced into reacting.

Okay, let’s talk about doing it right on time, but at the last minute. Walk us through this, Sean.

Sean Andersen:

This could be a situation where you’re doing it right on time, but “right on time” might mean that if you’re looking at a roofing project, you’ve waited until December and now the rainy season is coming.

Your options are very limited. You need to get those bids in a hurry. You need to get somebody hired in a hurry. You don’t have the time to sort through the bids, discuss things with the vendors, and optimize costs.

If you’re doing that roofing project in September, you might get a better deal. There are times when vendors want to make sure their crews are busy, and if we can keep them busy, they might drop that price quite a bit.

It’s always better to be prepared and not leave things until the last minute. You don’t want to go into December with a leaky roof that has to be done immediately, because then it really becomes a matter of, “Who can we get out here to do the job? We need to do it now.”

Robert Nordlund:

You know, Sean, you’re showing that you’re from Southern California.

There are a couple of properties I’ve worked on in alpine regions where they had me come out for the site inspection because they wanted it done well before Christmas. I think it was September or October.

I remember doing the roof inspection and feeling snowflakes on my shoulder and realizing that I might be the last human being on that roof for six months because pretty soon it was going to be covered with snow, with no opportunity to even do an inspection.

So yes, there’s a timing issue. You can get worked into a corner, and you simply don’t have a lot of options when you don’t have the time.

I keep coming back to that football idea. Running out of time means you have fewer opportunities.

If you’re doing something at the last minute—whether that’s September, October, November, December, or whatever it is—and you’re in a time jam, the painter, roofer, or asphalt company may say, “We just don’t have the time to mobilize and do that. But can we do one section? Can we do one part? Can we make some repairs?”

The short-term repair trap is that a patch is only a patch. You still have to replace the component later.

You don’t want to get into a jam where you end up replacing something you just repaired. All those mobilization costs tend to add up.

So be careful with that.

Sean, talk about doing it late. What does that look like, and what are the problems with that?

Sean Andersen:

Doing it late is that situation we talked about earlier where you’re constantly throwing Hail Marys.

The project is going to have problems from the start. Take a roofing project, for example. All of a sudden, there might be a lot of scope creep.

If we’ve done it late, maybe we’ve had a lot of leaks, and now all of a sudden we have to make structural repairs to the buildings themselves because we’ve had water intrusion.

Now the project has become much more expensive. We’re hoping to get it done on time, and we’re looking at emergency pricing for materials and manpower. Everything is getting more expensive.

This could have all been avoided by some wise planning.

We want to avoid a situation where we have fewer choices and we’re forced to say, “This one roofer is available now, and we have to do it now.”

Robert Nordlund:

But he’s expensive.

Sean Andersen:

And he’s very expensive because he can be.

Robert Nordlund:

Oh yeah. If they’re mobilizing, they’ve got to get cold-weather crews, and there’s the danger of being up on a roof when there’s bad weather. I’d want to get paid well for that, too.

Now, talk to me about seeing this project coming. In a reserve study, you can see a project 15 years away, 10 years away, five years away. It starts to become significant and real as you see it getting closer—five, four, three, two, one, zero.

Doesn’t the average board get a lot of warning if they’re looking at their reserve study?

Sean Andersen:

Yes, absolutely.

As you and I always say, we can see these projects coming, and we can predict them.

If you have a 25-year roof and you know it’s a 25-year roof, your reserve analyst may tell you, “Hey, your roof is 10 years old. Hey, your roof is 15 years old. Hey, now your roof is 20 years old.”

You should really be paying attention to that, because as we get closer to that 25-year mark—or even the 24-year mark—the roof is really going to start showing its gray hairs.

But it may start showing those gray hairs at 15 years, so we want to be paying attention to it and keeping our eye on that roof so we’re ready to execute the project when the roof is getting ready to fail.

Again, we don’t want to wait until it’s absolutely dead and leaking all over people’s interior units.

Robert Nordlund:

“Holy moly! How did that happen?”

Sean Andersen:

Yeah. “I couldn’t see that coming.”

Robert Nordlund:

Exactly.

So when do you start really paying attention? When it hits 10 years of remaining useful life? Five years? Is there a magic number?

Sean Andersen:

I don’t know that there’s a perfect magic number, but I would say five years is probably the closest we have to one. That’s when the true gray hairs really start showing, and the component starts letting us know, “Hey, I’m starting to get to the end of my life here.”

Robert Nordlund:

Yeah. So you may want to do a minor repair at the northeast corner of Building Three, but that’s because it’s old.

Sean Andersen:

Yeah.

Robert Nordlund:

No big deal.

Late means you no longer get to choose because you’re already in a jam. By then, the circumstances are dictating when the work happens, who’s available to do it, and what it ends up costing. You simply don’t have a lot of choices.

The idea we want to build here is that when you do things on a prepared basis, you have time. You can work things through, and that’s generally the least expensive type of project.

There’s doing it on time but at the last minute, where you’re limited by the price, calendar, and provider availability.

Then there’s doing it late, where you’re crammed into emergency pricing, crews are dealing with inclement weather or a bad time of year, and you have any additional damage caused by the delay added to the project.

That’s why preparing early gives your association more choices and puts the board in control of the project rather than allowing the circumstances to control the board.

Robert Nordlund:

I want to turn to the audience here and get a poll. Can we get your help here, Jenn?

Type one, two, or three in the Q&A and let us know. Generally, are you preparing in advance? Do you have committees that help the board get things done on time? Are you doing things at the last minute, number two? Or are you often running late, number three?

Jenn:

Type your answer—one, two, or three—into the Q&A. The chat box is disabled, so it should be pretty easy to get that one in there.

They’re coming in strong with the ones. Love it.

Robert Nordlund:

No surprise. They’re the planners. They’re ready at their mouse and keyboard.

Jenn:

Lots of ones across the board here.

Sean Andersen:

That’s great news.

Jenn:

There we go. We’ve got our first three. Hey, you’re here. That’s a step, right?

Robert Nordlund:

Yep.

Okay, well, we’re learning something about our audience, and that’s good to know.

This is the reality of life in a community association. You may be preparing in advance. You may be doing things at the last minute. You may be running late. We want to help you frame the conversation so you at least know what you’re talking about.

As we get to this point, we want to say it very clearly: delaying doesn’t lower the cost. It moves the cost and often raises it.

You save nothing by waiting. It’s not like the project goes away. It may fall onto next year’s board of directors’ shoulders, and it will likely get more expensive. You have to be very clear on that.

But we also want to be careful because not every project punishes a delay in the same way.

You have the classics, where delay costs real money. The cost may increase significantly—25%, 50%, or more. Then there are the more forgiving projects, where a delay isn’t necessarily a big deal. And finally, there are the crisis makers, where a delay costs you more than just dollars.

Sean, let me turn it over to you here. Talk through the classics.

Sean Andersen:

The classics are asphalt, painting, and roofing. Coincidentally, those are also usually some of the most significant components in a reserve study, so they’re going to have a major impact on your funding plan.

They all have very predictable lives and very predictable costs, so ignoring them is going to have significant consequences.

I always encourage my board members and managers to look at the component significance table because it’s a very important table. It’s going to tell you which numbers are truly driving the reserve study.

The consequences of ignoring those components are that the costs simply escalate.

For example, in this situation, an asphalt resurfacing project wasn’t done. It was ignored. Obviously, they hadn’t been doing their slurry seal every four years, so eventually the base failed.

Now, all of a sudden, instead of having a resurfacing project, you have a reconstruction project.

Instead of costing approximately $5 per square foot, it might cost $8 or $9 per square foot for reconstruction. That’s a significant difference in cost, all because things were pushed off and ignored.

Robert Nordlund:

And is that maybe driven by thinking that a seal coat at 25 cents per square foot was just cosmetic and making a big mistake there?

Sean Andersen:

Yeah, exactly.

We’ve said before that asphalt slurry seal is like sunscreen. It protects the skin. It keeps it from failing.

We want to do that because, as you and I both know, the premature failure of an asset can be significantly more expensive than simply maintaining the asset.

We want to make sure we’re not doing that. To me, this represents a very big waste of money based on bad decision-making.

Robert Nordlund:

Yeah, and we want to help you, our audience, see this, understand it, and learn from the mistakes of others.

There are also some projects that can forgive a delay. Sean, can I have you talk through those?

Sean Andersen:

Absolutely. Coincidentally, these are also usually some of the least significant assets in the reserve study.

Take a clubhouse water heater. It’s not necessarily the end of the world if it’s not working. We still have time to go get bids to replace it. If people don’t have hot water to wash their hands in the clubhouse, it’s inconvenient, but it’s not the end of the world.

A seldom-used pool or spa can sometimes fall into that category as well. It’s not necessarily affecting people’s daily lives if they temporarily don’t have access to it.

The same could be true for something like a wood fence replacement.

Robert Nordlund:

Well, let’s be careful there. What if that clubhouse water heater is actually the boiler for the association?

Sean Andersen:

Oh, well, yes. That’s a very different situation. That’s a very big deal.

What we’re talking about here are projects with relatively low consequences to people’s daily lives and relatively low consequences to the funding plan. They’re easy to reschedule.

With that clubhouse water heater, for example, we may have some time if it’s starting to fail. It’s not the end of the world.

That’s very different from the boiler that allows everybody to have hot water in the mornings.

Robert Nordlund:

That’s a big deal.

Well, let’s talk about that. Some projects create a crisis, and we’re not even talking about the cost here.

Open that door for us. Talk about these projects.

Sean Andersen:

As you know, Robert, these are bad scenarios no matter what.

Even in the best-case scenario, an elevator modernization is a headache for a community. The same can be true with access controls and fire and life safety systems.

If these projects go sideways, you have a significant problem.

We talked earlier today about elevator modernizations and how long they take. It takes a long time to hire somebody and execute these projects.

If an elevator is failing, that’s going to be catastrophic for a community, and it can become extremely expensive to get somebody out there to fix it because it’s something that’s literally integral to how people are living their lives within the community.

Elevator modernizations, boilers, and similar projects are things we absolutely cannot wait on until they become an emergency.

Robert Nordlund:

Yeah. On elevators, isn’t that now potentially a six-month to one-year project?

Sean Andersen:

Yes. Yes.

Robert Nordlund:

So it’s not like, “Well, we’ll wait until next Tuesday. They’ll come out and fix it.”

It’s not necessarily going to be down for just a couple of days or a week while they’re modernizing it.

It’s amazing how some of these projects are really big deals.

I don’t want to focus this entire presentation on how projects get more expensive because sometimes the bigger problem is how incredibly disruptive they can be to the association.

An elevator being out of service isn’t simply a budget problem. It’s a resident problem. It’s a manager problem. It’s going to be all that people are talking about.

The same thing happens if the boiler goes out and there’s no hot water, or if there’s no heat and it’s winter. Nobody is going to be concerned about what it costs. They’re going to say, “We want a solution.”

And they’re going to want to know why the board didn’t get it handled correctly.

Some projects aren’t things you can simply throw money at because it takes time to get the parts, get the project scheduled, and get the work completed.

People can get pretty grumpy when they’re not getting warm showers.

Sean Andersen:

Yes.

Robert Nordlund:

Okay. Well, when can you stretch a 10-year life into 12 years?

Can you do that for the clubhouse water heater or a clubhouse kitchen remodel? Is that a big deal? What’s the cost? What’s the benefit?

Sean Andersen:

It’s not necessarily a big deal.

Those projects also tend to be a little more subjective. Take a clubhouse remodel, for example. Stretching that from 10 years to 12 years isn’t necessarily a problem. It’s not going to create a major issue, and it’s probably not going to cause significant ill will in the community.

On the flip side, when I talk to boards about this, I remind them that they’re also not necessarily getting the savings they think they’re getting by pushing the project out a couple of years.

It’s not a big deal either way.

Where it becomes a big deal is when we’re pushing projects like roofing, painting, and asphalt out by two years.

Robert Nordlund:

Well, I’m just doing the math in my head.

If it’s a $2,000 water heater that’s averaging $200 a year and you stretch it from a 10-year component to a 12-year component, you’ve saved the association $400.

Spread that across 100 units, and that’s trivia. It’s going to be eaten up in inflation.

No offense, but the landscaper, pool service, or janitorial expenses are probably going to consume that savings. It’s going to amount to almost nothing.

I want to make sure you understand that if you have a question about something like this at your association, reach out to your reserve study provider.

If you’re unsure, you don’t have to make the decision by yourself. Reach out to your reserve study provider and get some wise counsel.

To say this plainly, a delay does not eliminate the expense. Sometimes it only adds costs.

Those costs may be measured in dollars. Sometimes they’re measured in appearance, which affects your property values. And they can definitely be measured in community spirit and goodwill.

Be careful about the different ways a delayed project can really come back to bite you.

Let’s move on to the next part of our discussion: your decisions.

We want to make sure you understand that this isn’t all about numbers.

We’ve talked about elevated costs if you delay. Sometimes there are elevated problems. But let’s look at it from the board member’s point of view.

The deterioration is real. We know the reserve study says it’s coming. Eventually, you can see it yourself.

As Sean said, you can start to see the roof getting old. You can start to see the paint getting old. You can see those kinds of things.

But the decision to execute the project is human.

What we find very interesting is that, from a board point of view, the process often follows something similar to the five stages of grief.

There’s denial: “Oh, it’s fine. That’s not true. It has more time left.”

Then there’s anger: “Well, the last board should have dealt with this. Why do we have this problem?”

Then there’s bargaining: “What can we do to stretch it one more year? Can we patch it? Can we fix it?”

Then there’s depression: “We just don’t have the money.”

So many associations are literally in that position.

Eventually, we get to acceptance: “Okay, what’s the plan? What are we going to do?”

That’s where we want to take you today, because sometimes there’s a big element of simply having courage.

Sean, can I get you to introduce this idea of having the courage to look into the subject and take action?

Sean Andersen:

Yeah, absolutely.

A lot of times we’re talking about large projects with big price tags. It takes courage to do the right thing, create a plan, and complete those projects.

I always admonish my board members and managers to remember that the reserve fund is not a savings account.

We don’t ever want to get into the idea of it being a savings account because that creates an instinct in all of us that says, “If it’s in a savings account, I don’t touch it.”

That money is there to be spent.

As board members and managers, we want to be spending that money appropriately. We’re collecting these assessments so people’s homes are well maintained and we’re completing projects on time.

As Robert knows, I was a board member at the previous community where I lived. I was the board treasurer.

Our buildings hadn’t been painted in 10 years. They were wood buildings. They needed to be painted.

Robert Nordlund:

That’s probably showing at that point.

Sean Andersen:

Oh, it certainly did. There was wood rot occurring.

I needed to take the bull by the horns and say, “We’re going to do this painting project.”

We got three competitive bids. I started the process of talking to people about it. We had discussions in board meetings and said, “Hey, look, this is going to cost 10 times more if we don’t do it.”

The other board members were a little nervous about moving forward because it was a big price tag. There was also a minority of people in the community who were really pushing back and saying, “Oh no, we don’t have the money for this.”

We absolutely did have the money for it. We were well funded enough that we could do the project.

Ultimately, we did it. We were able to stop the bleeding with the dry rot. We repaired the wood, and today the community is very well painted and very beautiful.

Property values increased. The property looks very good. It’s aesthetically pleasing when you go onto the property, and there are no more wood rot problems there.

It really did take a lot of courage.

I got a lot of blowback from my neighbors about being reckless and spending money. A few years later, when I was doing their reserve study, I didn’t get that blowback anymore.

Everybody was very happy with it.

Robert Nordlund:

Did you sell that condo unit, or do you still have it?

Sean Andersen:

Oh, we sold it.

Robert Nordlund:

Okay. And I would imagine you were very happy that you pushed for spending the money to paint it, and that reflected nicely in what you got for the sale price.

Sean Andersen:

Very much so. That’s exactly correct.

Robert Nordlund:

Yeah. I sometimes like to think of it this way: the money goes from your wallet to the association, then into the building, and eventually it comes back to your wallet in the form of equity—a better sales price and a better property value.

Then there are also those intangibles, like community spirit and pride of ownership.

Let me give you a tool to help you wrestle with the question of when to repair something versus when to replace it.

Let’s use the hypothetical example of a $200,000 roof project that gradually deteriorates over the course of 20 years. It starts new, and after 20 years, you need to replace it.

Now, what do you do if you have a $50,000 repair project around year 13?

Do you repair it, or do you replace the roof, Sean?

Sean Andersen:

This is clearly a good time to do the repair project. You’re well within the timeframe where it makes perfect sense to make that repair.

Robert Nordlund:

Yeah. And I have a feeling that if you do the repair project, that may push the replacement out to year 21 or 22.

Sean Andersen:

Yes. Again, that’s a win-win situation right there.

Anytime we can do repairs that are going to increase the remaining life of the component, it’s an absolute win.

Robert Nordlund:

Yeah. But let’s look at another scenario where we’re doing that same repair project in year 18.

What does that tell you?

Sean Andersen:

That tells me they should be replacing their roof.

It tells me the roof is failing a little earlier. By doing this repair project, they’re eating soup with a fork.

They need to be thinking, “It’s time. It’s time to start getting bids to replace that roof.”

The section they’re going to spend all this money repairing may need to be replaced within a year anyway.

Robert Nordlund:

Yeah. You don’t want to repair something and then just turn around and replace it. That’s not a cycle you want to get into.

Again, if you have questions about what to do in a particular situation, reach out to your reserve study provider. That’s what they’re there to help you with—to give you wise counsel and help you read between the lines about what’s a better or worse decision.

There are some guiding principles, and we just wanted to show you one of those.

We’re talking about decisions. We’re talking about courage.

When’s the best time to plant a tree?

Well, 20 years ago.

It would have been nice if the prior decades of boards had been reserving sufficiently.

But the second-best time is today.

Start getting your association pointed in the right direction. Being a board member takes courage. Start today and work your multi-year plan.

Robert Nordlund:

So, what does a delayed project really cost?

It costs dollars in wasted homeowner money when things get more expensive. It costs political capital when the board’s credibility takes a hit. It costs community spirit and pride of ownership when the property doesn’t look that nice. It can affect resale values because the property doesn’t look that nice.

Then there are safety concerns, whether we’re talking about balconies, a roof, the pool, furniture, or other common-area components.

Of course, the first thing that comes to my mind is Champlain Towers South. The deterioration there was documented, and repairs over the years were debated and deferred. Ultimately, the building experienced a significant collapse, and 98 lives were lost.

We don’t want to do that.

When you look at pictures of that building, you’re often looking at the collapsed portion, and that is horrible. We know there were people who were killed instantly under that rubble.

But also look at other portions of the property. Look at the roof and how deteriorated it appears. There are large, dark portions that are aged and ready for attention. This building had significant deterioration.

You want to stay on top of things for so many reasons.

That brings us to the conclusion portion of today’s program, and I want to wrap up the whole webinar in one sentence:

Delaying a predictable project doesn’t save the association money. It can create an avoidable crisis that causes owners to pay more.

So be very careful.

Again, those costs may be measured in dollars. They may be measured in community spirit. They may be measured in equity and home values. And we certainly don’t want them to affect safety.

You also need to beware of what I call the “cost vortex,” where you start delaying one project because you need to complete another project somewhere else. That means you’re delaying yet another project, and before you know it, you have continual delays and continual underfunding.

Worse leads to worse.

Sean, do you sometimes see what we call the “death spiral,” where some of your associations look like they’re about to fall into that situation?

Sean Andersen:

Yeah, we really do.

The California balcony legislation really brought this to a head a number of years ago.

Robert Nordlund:

You’re talking about the California balcony bill from—was it about 10 years ago?

Sean Andersen:

It was about eight years ago.

It really brought to the forefront the amount of deterioration that was happening. The state mandated that these inspections take place, and those inspections showed that significant repairs were needed.

What ended up happening was that a lot of communities that had artificially kept their dues low and pushed off components hit this death spiral you’re talking about.

They were going from crisis to crisis to crisis, trying to find money to pay for things.

What ends up happening is that I find those kinds of communities, when they hit this death spiral, actually have dues that are higher than they otherwise would have been because they’re paying a premium on everything.

They’re going from crisis to crisis to crisis.

Robert Nordlund:

They’re spending money inefficiently.

Sean Andersen:

Inefficiently, exactly.

They’ve made these choices, and now the assessments are significantly higher, and they’re also looking at special assessments.

It really is a worst-case scenario.

This cost vortex or death spiral is an important thing to talk about because I see it quite a bit when communities fall well below that 30% funded level and things start spiraling.

Robert Nordlund:

Yeah. I’m just thinking about it.

They have high assessments. The assessments are increasing. They’re so much higher than they were 10 or 20 years ago. They’re getting a special assessment, and the place looks lousy.

They’re thinking, “Why am I putting money into this place?”

It’s a tough situation.

I heard someone else describe it this way: on top of delays and underfunding, when you get into this situation, you can get far enough behind that you no longer need a doctor—you need an undertaker.

We want to avoid having you peer into that death spiral.

We want you to address the reality of the issues: the financial side, the communication side, the courage, the execution, and making sure you’re taking great care of your property.

Because owning and maintaining real estate is expensive. There’s no two ways about it. It’s going to cost a lot of money.

When we look at our clients, we typically find that reserve funding takes about a quarter of the average association’s budget, with a range from approximately 15% on the low end to 40% or 45% on the high end.

It’s a big chunk of money, and you have to appreciate that skimping on it doesn’t really save owners money. It simply pushes those costs into future special assessments.

There’s no avoiding the cost of deterioration driven by Mother Nature and Father Time.

So when you’re thinking about proactive versus reactive, proactive wins.

Look at your reserve study. Know what’s coming. See the trends and watch those projects coming year after year after year.

Prepare early enough, both physically and financially.

And let me add something, Sean. You were talking about communication. Help the homeowners know what’s coming. Help them understand that the board is leading them and taking care of their property.

When you do that, you have choices. Everyone knows that these projects are going to happen, and you can complete the project on your schedule rather than the emergency’s schedule.

To say it plainly: proactive costs less. Reactive costs more.

If you’re trying to save your homeowners money, get in front of these projects and be bold.

That brings us to the wrap-up.

We’re Association Reserves, and you can find us at ReserveStudy.com. We have more than 100,000 reserve studies under our belt, and you can learn more about us and find additional resources on our website.

You can also find videos like this webinar on YouTube. There are plenty of free resources available there.

If you’re a reader, we have a book called Understanding Reserves. It’s a great resource with graphics, stories, and practical applications that help you understand what it takes to lead your association safely and successfully into the future.

For the board members and homeowners joining us today, we also have a weekly 30-minute podcast designed to encourage and equip board members. It’s called HOA Insights: Common Sense for Common Areas.

You can subscribe on all major podcast platforms or listen at HOAInsights.org.

We discuss these subjects and a wide range of other topics affecting community associations. We feature Board Hero episodes, subject-matter experts, and other resources designed to help you with the hard work of running your association.

Again, it’s all free.

At this point, let me turn the microphone over to Jenn, who will coordinate our Q&A time with the remaining time we have.