Understanding monthly maintenance bills can be a pain. What reads like a single amount usually breaks down into many unseen parts, like insurance, contract obligations, and reserves for capital repairs. 

CooperatorNews spoke with Chuck Graziano, Director of Governance and Compliance at New Jersey-based property management company Wilkin Management Group (AAMC) and President of real estate management consulting firm Thundering Brook Associates to help decipher where the money goes—and where its value lies.

CooperatorNews: For many residents, a maintenance bill is just a number on a statement. What do residents often miss about what drives their maintenance costs—particularly when it comes to visible services versus long-term obligations like reserves?

Chuck Graziano: “Homeowners tend to gravitate to the things that they can see, touch, and feel: Whether the landscaping and the shrubbery beds look good, if the pool is clean, the lifeguards are on duty, and the snow gets plowed in the winter—the things that are tangible. They don’t necessarily follow the increasing costs in those areas, let alone the transparent things like management and reserves that drive costs. There is day-to-day planning, and there’s long-term planning that needs to be accounted for. Reserves are a particularly sticky wicket, especially now because of recently enacted reserve laws. 

“Historically, when boards review their budgets, and they believe they are under pressure to keep maintenance fees level, the first place they would look to save is the capital replacement reserve. In the past, reserves weren’t taken seriously by many. In fact, one board member who I’ve known for years always refers to it as a ‘rainy day fund.’ The reserve fund is anything but that!  

“The reserves are a schedule of big ticket items that wear out over time. Ideally (and now by law, in the case of New Jersey), you save a fixed amount every year that equates to how much that item [like a boiler or roof] has reduced its estimated useful life. By the time that item reaches the end of that useful life, if you didn’t cut your annual savings, you should have saved enough to replace it. Associations found that they could get away with cutting reserves for a while, but you can’t responsibly get away with it forever. 

“A building needs adequate reserve funding so the money will be there when needed, without levying a huge assessment on homeowners who may not have even lived in the community for very long.

“As an example, when you pay part of your maintenance fee to capital reserves, what you’re paying for is, let’s say, a share of the roof you’ve lived under for the past year. If you’ve lived in your association for seven years, you’ve used seven out of the roof’s 20-year lifespan. Your payment and reserve payment from prior owners over the previous years have accumulated what is needed for replacement—as opposed to [a new owner] moving into a condo and all of a sudden having to foot the bill for a new roof for the building. It’s only equitable if everyone pays a fair share as you go along.

CooperatorNews: What aspects of community management tend to be overlooked?

Chuck Graziano: “Most residents don’t totally get the scope of what community association management is all about. They know they have a manager, but what they don’t see is that they have a company or organization behind them that bills and collects assessments, pays the bills, produces the financial statements, bids out all the contracts, makes sure specifications for work are proper and contracts are executed properly, maintains books, records, and homeowners accounts, monitors and enforces rules and regulations, meets with the board, and makes recommendations. 

“I think one of the most undervalued aspects is that a manager is a true professional, offering professional advice taken from their training and education, their background, their exposure to the industry, and how perhaps hundreds of other community associations have tackled some of the same issues your association is facing. Consider what an appropriate compensation package would be for that level of professionalism; that makes up part of your management fee.

“All building maintenance, grounds maintenance, snow removal, recreation facilities management (and everything in between) fall under the umbrella of the management service. The value of that service is in pulling all of those pieces together and coordinating them effectively. And I think that’s something that needs to be brought to the surface so homeowners can understand what they’re actually getting for their money and see the value.”

CooperatorNews: How do you usually break down a maintenance budget so it’s easy for everyone to follow?

Chuck Graziano: ‘My suggestion is always to summarize the budget rather than go line by line. Focus on the important stuff. Once you get into line-by-line issues, boards tend to get bogged down in details rather than handling the big stuff. People may not care what office supplies cost, but they do care that your liability insurance or insurance premiums have gone up dramatically. They want to know why that is happening.

“Most budget items tend to stay relatively consistent year over year, but boards should be aware of the areas that have increased significantly. Insurance has gone up due to the number of losses nationwide, and there’s very little control over it. Capital reserves have also increased because of changing laws and requirements.

“Then there are items that may be out of whack in a given year. For example, if you had twice as much snow as a typical year, that needs to be accounted for in the budget. Some work is done annually, while other work, like mulching or bed renovation, happens every two or three years. When those projects need to happen, costs are higher.”

CooperatorNews: What parts of essential budget items tend to surprise residents the most?

Chuck Graziano: “Reserves are where most of the real surprises are showing up in budgets right now. It’s become the biggest issue, largely because it’s tied to compliance with the newly enacted law. Fannie Mae and Freddie Mac have issued new guidelines at the federal level, and some state statutes (New Jersey, for example) have changed on top of that as well. 

“The two don’t always align perfectly, but in many cases if you’re budgeting properly under your state’s law, you’re likely meeting the requirements of Fannie and Freddie. Still, I think the updated guidance from Fannie and Freddie adds another layer of confusion, especially since it seems to be aimed broadly at states that don’t require full reserve funding (as New Jersey does, for example). Their guidelines for project approval are general and not tailored to one state specifically.

“The cost of curb appeal is another area that is extremely important. A study done by the Foundation for Community Association Research found that buyers’ number one priority when deciding whether to invest and buy a home in a community association across the country was curb appeal; how the community looks, how well it’s maintained. It’s a big factor, and a big consideration budget-wise when you look into what goes into curb appeal. It’s not just cutting the grass, but deciding what to plant, mulching, painting the building, and proper maintenance. It requires a full program of good maintenance in order to look good.

“The study found that buyers’ second highest priority was security and safety. In terms of maintenance, that means things like providing adequate lighting and remediating any fall hazards. Homeowners want a place that is safe and secure, so whatever it takes to make the building feel safe is where communities should take measures to help generate that feeling. This is not necessarily about crime in your neighborhood, but about the perception of your homeowners; Do they feel safe and secure walking around the community at night.

CooperatorNews: What’s the best way for boards to communicate maintenance increases so that residents can see and understand the long-term value?

Chuck Graziano: “Communicate regularly. If you’re only communicating once a year, and that’s to send out a letter saying residents’ maintenance is increasing by 20%, you’re not going to get a lot of understanding. It’s important to send out regular updates about what’s going on in the community. I would encourage boards to be open. The more homeowners who attend meetings and listen to discussions, the better they can understand the rationale behind the decisions the board is making. It’s a huge benefit for homeowners to be able to observe a board meeting, and these days it’s easier than ever with remote meetings.

“If there is something notable coming up, that can be communicated with a special note or letter. For example, prior to the snow season, we send out a letter to our residents so they know what to expect during a weather emergency–and also so they understand there is a process, and a reason for the process. We’ll also send out a similar ‘reminder’ just before a major weather event to ease the minds of our homeowners that we’re still here for them, and explaining what to expect and how best to respond to the conditions in the forecast. 

“Regular communication often keeps the door open and leads to understanding. Still, you don’t need to overcommunicate with emails and updates on every single thing. Everyone’s inbox is crowded these days, but a good balance of putting out a quarterly newsletter (or whatever is fitting to your  community) and special announcements gets information out without overburdening homeowners.”

CooperatorNews: What’s one thing you’d like homeowners to remember about the role of community management?

Chuck Graziano: “As we’ve been talking, I was thinking about the work I’ve done as an expert witness in property and community association management. When I testify at trial, one of the first things I do is explain to the jury what property management actually is, and the reaction is almost always the same–they’re surprised by the very broad scope. I walk them through their own steps: remember when you walked into the courthouse, and you came up the steps. The snow cleared from the steps. Someone had to bid on that contract. You got into an elevator. There was a certificate that showed it had been inspected. I walk them through all the minute things they were exposed to and maybe didn’t even notice on their way into the jury room, and I explain how it got done and how it relates to property management.

“Homeowners don’t always understand exactly what their community association manager is doing every day. They might not understand all of the people involved in keeping the building or community running or all of the small things that need to be addressed.

“If you liken it to an orchestra, the property manager is the conductor or orchestra leader. You need all of the instruments to make the music, but you need the conductor to coordinate it so the music sounds good.”