Psychologically, it hurts less to have a 2 or 3% increase every year than go three years without an increase and then get hit with a 6 or 9% increase.
We tend to forget the prior years and focus on the present. People tend not to question small increases that they pay every year. In the field of psychology, cognitive dissonance is defined as the mental discomfort experienced due to two or more contradictory beliefs, ideas or values. How does this relate to annual condominium fee increases? Discomfort or stress increases when there isn’t an increase for three years, and then there is one. Most owners believe they live in a good place and that there is a need for an increase in dues, but there is a conflicting belief if the increase is large. This may cause some owners to question line items where an increase is notable enough to justify their discomfort. Often, finance committees take pride in keeping condo fees flat or very small. They do not think about the psychological stress the inevitable increase will cause the residents in the near or distant future. That is the emotional reason, but there is a financial reason as well.
I don’t know about all associations, but the finance committees with whom I’ve worked, request the manager to put together a “zero-increase” budget. CAI teaches managers to prepare a budget that will include actual contract costs; utility costs based on historical data, payroll based on actual wages and hours to be worked; insurance, repair and maintenance, and equipment costs based on historical data and professional projections. Once all these figures are gathered and totaled, the new condo fee can be calculated. Understandably, if the increase amounts to an 8 or 9 % increase, you better go back and take a look because the residents will experience significant stress (see above). Typical annual increases will be about 3%. If a manager and finance committee work together to schedule preventive maintenance and Reserve expenditures every year, there should not be a year when there is no increase in condo dues. If there is, then it would be a wise management practice to build in a small increase to add funds to the owner’s equity line item. This gives the association some breathing room if in a year or two, for example, a large, routine maintenance item comes up the same year that utility prices increase. Instead of hitting the residents with a large, stressful increase, the finance committee and manager can use the excess from owner’s equity to pay for part of the condo fee increase.
It isn’t just about numbers. It isn’t just about psychology. Condominium fee increases are also about the residents’ perception of where they live and how it is managed.
By Lee Ann Weir, CMCA, AMS
Lee Ann has been in the community association industry for 27 years. She is currently the general manager of Lionsgate at Woodmont Corner Condominium in Bethesda, MD.