Tuesday, June 10, 2014

Economies of Scale

At a recent condominium association meeting, one homeowner complained about having to cover the cost of a broken common water pipe.  The Board president responded, “When you bought a home here, you were buying a life style, not real estate.” Now in actuality, real estate was purchased - but one of the main benefits is of everyone pooling resources so all can afford to live in a desirable location, at far less expense than if they were purchasing individually.

To a lesser extent, this is also true for single family residential (SFR) homeowner associations.  Amenities and common area beautification combine to maintain higher property values, at a fraction of what any one of us would spend if we had to maintain it on our own.

When homeowner’s annual assessments are divided into various maintenance costs, the savings become apparent.  If you have not done this before, we highly recommend you present your annual budget with such a breakout, so that homeowners can appreciate how little their share of the assessments are paying for major categories of expenses.

The following examples compare information provided by www.homeadvisor.com with the actual HOA and condominium expenses of several hundred communities in the metro Atlanta area:
Hiring a professional, fully insured company to provide weekly mowing, annual seeding and weed care, pruning, and plant replacement may average $150/month.  In a condominium, a homeowner is paying perhaps $200 to $250 a year.  For a SFR community, the annual cost runs $300 to $500 per home.
Communities can help level large expense items, such as roofing maintained by the Association.  An average cost for replacing a 10-year roof may run $5,000+ for the individual, or at least $500 a year.  Through your Association, the average annual rate is closer to $100.  Roof repairs average $900, where the Association can have the same repair at half the cost.  Related to this is your gutter cleaning, which runs perhaps $30 a year for an HOA per home.  An individual homeowner hiring direct for this service is $150+.
Trash Service           
While basic trash removal annual averages $215 for individual homeowners, those in HOA and condo communities are paying $175 per year.  The savings are more pronounced when there is a need for an open top dumpster to handle larger items.
Pest Control             
In communities where the Association handles termites, rats, opossums, etc. the upper end of annual expense per home is $60 to $80.  Not including the initial treatment for termites, the annual maintenance charge for an independent home runs $100.  Calling out an exterminator for treating other bugs runs $50 to $100 per visit.  Handling mice, squirrels and larger critters easily runs $300+ for just basic services.  Sealing off access areas pushes this cost beyond $1,000.

There are HOA expenses that are not normal for individual homeowners, such as legal collection and management company fees.  Properly used, these ancillary services actually help the Association keep other expenses in check. 

In total, assessments are the most cost efficient way to manage large expenses that would be difficult to handle otherwise.   Besides helping to directly maintain community property values, more communities are being judged by potential homeowners when it comes to the financials.  Homeowners now want to see how successful the Association has been in partnering with vendors, setting aside funds for future high-dollar projects, and handling delinquency issues.   They do not want to see a potential special assessment on the horizon, due to poor planning and execution.

Communities that fail to increase assessments to meet maintenance needs attract fewer new homeowners.  Supply and demand causes these communities to have suppressed home values, while other HOAs are actively investing for current and future infrastructure.   Don’t let your community lose out to a competing neighborhood!

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