Many expenses, small and large, are involved in the process of managing a residential building. A majority of these are unavoidable, such as mortgage payments in the case of a co-op, utility costs and payroll; however, when large sums of money are being dealt with, it is easy for unnecessary expenses to slip by unnoticed. As a means of protecting both a building’s budget and the quality of life for its residents, boards have a responsibility to keep costs as low as possible, without making choices that will sacrifice services that residents rely on. Fortunately, it is possible to reduce costs significantly by implementing a well-thought-out system for monitoring expenses and securing the cheapest, high-quality goods and services available.
Effective Budget Reviews
To avoid superfluous expenses, it is crucial that a board clearly draws out a plan for reviewing the building’s budget. Patrick Niland, president of First Funding, a commercial mortgage brokerage firm in Manhattan, recommends treasurers of co-op boards, "sit down once a month with the managing agent and go over every expense; it doesn’t matter how small. Look at every expense and ask if you need to spend that money. If the lobby floor is waxed once a week, could it be done every other week?"
In addition, Niland recommends that boards work closely with the managing agent, making it clear to the agent that saving money is a priority. "Boards not focused on what’s going on in their buildings are giving too much authority to the managing agent. Most agents are honest and hardworking, but it’s still a dangerous situation when a board does not monitor the managing agent’s expenses. Agents might be tempted to take kick-backs that are offered to them under these circumstances. Or, more likely, they will get lazy and won’t look for the best deals, because no one is sending them the message that they are interested in saving money."
Marc Taub, a partner at Ellenbogen Rubenstein Eisdorfer & Co., an accounting firm in Manhattan, says that, during budget reviews, boards should develop a clear understanding of "the difference between their controllable and uncontrollable expenses." Between 60 and 70 percent of most buildings’ budgets are made up of uncontrollable expenses. It is by examining the controllable, expenses that buildings can make budget cuts. But, while it is important to think critically about their expenses, boards should not make budget cuts that will compromise the building’s services. "Buildings should not eliminate costs if it will have a big impact on the building’s services; they need to be considerate of the fact that people live there and that it is their home," says Taub.