Common Interest Property Owners

Community Association professional profiles and case study platform

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This not-for-profit platform intends to deliver operational insights to common interest property owners. Specifically board members who seek to minimize assessments and view how their community compares with other similar communities. And, for non-board property owners who seek to understand how their property values and marketability compare to properties in similarly located communities.

This is a collaboration between property owners, CID professionals and home builders.

After years of studying the industry, engaging with industry professionals is challenging for community leadership. Boards depend on referrals, but those referrals are most valuable coming from other communities.

Self-managed community leaders and professionally managed communities will participate in this effort by profiling their communities. This will provide a framework for property owners and prospective owners to view and compare the operational characteristics of targeted communities. These non-profit association leaders should embrace the opportunity to connect with their counterparts locally.

For those professionals participating it is an opportunity to feature your portfolio of communities.

Common Interest Developments and the Economy of Scale

The original goal of developing these communities was to make housing ownership more affordable than the single-family home option. Higher-density land use is the obvious economy of scale justification at the onset. Shared amenities in common areas, such as pools, sports courts, playgrounds, etc, are also obvious compared to single-family development of such improvements. This inherent economy of scale should exist in all aspects of CID ownership into the future, specifically property maintenance. Shared common area amenities, like a pool, are less expensive per property owner, however, it is not always the case the closer you get to the individual property, like landscaping or repairs. It all comes down to how you approach maintenance contracts. If you compare a privately owned apartment complex with a similarly designed common interest development, it costs less to maintain the apartment complex. Why, because the apartment owner has the incentive to maximize their profit. That “profit” determines the capitalization value of the property. The same applies to the CID, however, the value of the CID community lies in the aggregate of all of the individual separate interests. Buyers look at the assessments as an element in the desirability of purchasing and the cost over time.

Over the last 30 years, the “housing affordability” goal promised by common interest developments has dissipated. This is partly due to the rise in assessments, and we intend to correct this trend with this platform. However, inherent in common interest developments are the increased regulatory costs imposed by states and local jurisdictions.

HOA assessment increases have outpaced the general inflation rate

There is nothing out of the ordinary, that we have noticed, with rising assessments. Regardless of type and whether self-managed or professionally managed, all CIDs experience unexpected costs, although few events cannot be anticipated. But, the reason for this trend, is more complex and is somewhat systemic.

There is a practice of accepting service contract renewal increases without negotiation or seeking competitive bids, and then increasing the assessments with a flat percent increase, although higher than necessary. This is not an acceptable practice in meeting the board’s fiduciary responsibility. If the scope of the work has not changed, increases should be limited to the CPI. We want to convince boards to reverse this trend by providing case studies of HOAs that have minimized or reduced their assessments.

We have also noticed that boards will create new line items in the budget for anticipated costs, that end up never occurring. Then on subsequent annual budgets, these unused funds are either spread around the budget line items to balance the budget report or create a slush fund line item, rather than reducing the assessments for the next year. The list of line items that are based on “predictions” of future events, cannot become permanent unless they represent a permanent need. Through case studies of real communities, we intend to explore all budgetary variations and develop budgetary tools and best practices. But more importantly, the homeowners can view the entire process.

Fiduciary responsibility

The fiscally responsible way to budget for a nonprofit entity is “Zero-Based Budgeting” – The challenge for volunteer boards is that it can be tedious because it requires analyzing every line item. But the result might result in assessment “Decreases” in some years and increases in others. Overall it returns the best and most transparent outcome for the property owners.

Zero-Based Budgeting

This approach should be used for all community budgets; the complication comes from having to obtain competitive bids each year to justify keeping or making a change in providers. In the end the homeowners will appreciate the effort. We intend to provide tools on the platform to make this process, more or less, automatic from year to year.

We have been surveying communities over the last decade, we found many examples of the use of this approach. Many larger communities have budget committees, with members who possess professional expertise. In others, the community retains a financial professional who creates a Zero-Based budget. But the majority perform this function without professional help. This platform is directed at these communities.

Over the last five decades, we have prepared 1000s of initial budgets for common interest developments. In this effort, we have kept certain objectives in mind. The main purpose of the association is the maintenance of the common area. The second is to anticipate risks of common area property loss due to identifiable casualties, general liability exposure and risks related to the association administration or contractural relationships.

This site is directed at CID property owners. Whether you are a resident owner, investor or builder,

Community leadership is often faced with homeowners questioning the justification for assessment increases. What we are creating with this not-for-profit effort is a deep dive into the budgetary process and what goes into the effort to manage the assessments. The homeowners expects that the board will make every effort to minimize increases from year to year. However, when increases are needed the community deserves a detailed explanation. With the cooperation of board members, portfolio managers and other CID professionals. we will provide the tools to create an effective budget process.

In our surveys of property owners, over the last two decades, we have noted the impact of rising assessments on properties’ marketability. Buyers are increasingly sensitive to assessments and the value added to the purchase. Consequently, it behooves communities to make a concerted effort to get the most value they can for each assessment dollar. Through articles and forums, we will provide a catalog of ideas from communities nationwide.