January 2012 – An owner reports online that her homeowner's association commissioned a study to see how it compared to nearby HOAs regarding their amenities, services, costs, and market value. Should your HOA commission such a study? Where do you find a vendor to conduct such a survey? Are the results of such a study open to owners’ review, or can you keep them confidential? Here are some answers.
It’s Rare but Not Unheard Of
What’s the benefit of a market analysis of your HOA? It could help you benchmark your HOA against others in terms of the amenities you’re providing, and whether your owners are paying too much or too little for them. The result might be helpful in determining whether to continue offering amenities or services or whether to increase or reduce your HOA’s fees.
That said, it’s rare for HOAs to commission such studies. “This isn’t something generally done in this jurisdiction,” says Nathaniel Abbate Jr., a partner at Makower Abbate & Associates PLLC in Farmington Hills, Mich., who represents associations. “I don’t even know what vendor you’d get.”
Ben Solomon, an attorney and founder of the Association Law Group in Miami Beach, Fla., who advises more than 500 associations and also represents developers through his second law firm, Solomon & Furshman LLP, hasn’t seen HOAs formally do this, either. “Whether it’s directly or indirectly, bigger management companies do that to compare vendors’ pricing, and developers are concerned with monitoring their competitors’ maintenance fees,” he says. “but I’m not aware of an HOA that does it for marketability.”
However, it does happen. “Yes, you do see that,” says Duane McPherson, Addison, Texas–based western region division president at RealManage, an association management firm that oversees properties in Arizona, California, Colorado, Florida, Louisiana, Nevada, and Texas. “An accounting firm might look at an HOA’s amenities. In other cases, we might want to look at the golf rounds in an HOA with a golf course and analyze whether our fees for nonresident golfers are reasonable based on what the HOA down the street does.”
Studies Are a Bad Idea?
Some of our experts don’t see the value of such studies—and think they could mislead members about your HOA’s operations.
“It’s not necessarily a good idea,” says Abbate. “There are so many variables that it’s always going to be an apples and oranges comparison. I’ve seen studies and quotes done by disgruntled owners saying the assessments for another project across the street are $50 lower even though they have a pool. Then you have to sit down and explain, ‘That HOA is still under developer control, and the developer is likely keeping assessments artificially low to attract buyers; wait a few years to see what the HOA has to charge for those same amenities.’ It doesn’t make sense to compare yourself to an association that may be operating under an entirely different dynamic because there’s usually a reason for the discrepancy. Also, in the condo context, by law, Michigan condos must set aside a certain amount for reserves. So your formula is pretty much in place for what you’re charging owners for assessments.”
Robert Galvin, a partner at Davis, Malm & D’Agostine PC in Boston who specializes in representing condos and co–ops, also believes such studies offer little value. “Some unit owners will make inquiries, so people generally know the amenities and at least a range of monthly charges in competing communities,” he explains. “So with a couple of very small exceptions, I think a study like this would be a bad idea. An owner will say, ‘Such–and–such community has much better amenities, and its monthly charges are lower.’ That community may not be maintaining itself or reserving properly, and at some point that comparison makes no sense.”
Galvin’s exceptions? If there’s a way to find out whether costs for things like utilities and insurance are reasonable, that might be worth the cost and effort. “It can be useful to find out what the average water and sewer charge is per unit in your area,” explains Galvin. “How does your insurance or heating and cooling bill compare? If you’re running substantially higher, that might be a good wake-up call that something’s wrong.”
Where can you get that information? “In the apartment industry, there are experience exchange reports you can buy where landlords and managers will report over hundreds of communities,” says Galvin. “Even though you’re comparing apartments to condos, it might be worth it to purchase that kind of report.”
Can Owners See the Results?
If you commission a market study, are owners entitled to see the results? “In most states, the law allows HOA members to review virtually everything except things like personnel records and records on legal issues,” says McPherson. “So just about the only time you could keep a study confidential is if it were done to evaluate construction defects for litigation. Otherwise, those results should be released to the members; I can’t imagine why a member wouldn’t have access to such a report.”
Galvin agrees: “If a condo association did pay to have a comparison done, it should be available to unit owners.”
That fact may be worth remembering if you’re thinking of commissioning any such study. “An argument could be made by a nosy owner that because owners have right to inspect the association’s records and books, they also should be able to review study results,” says Abbate. “It’s at least a close question of whether a board could keep that from owners’ review. That fact alone may be a reason for not doing a formal study.”
Matt Humphrey is president of the Alameda, California-based HOAleader.com, from which this article was adapted.