In doing research for this website, I came across an article in www.siliconvalley.com that features two California startups, Association Reserves and Condofax, that will be selling Carfax style reports. I encourage you to read the entire article. I did take a look at Transparency HOA, an Oakland-based non-profit, which offers a free report, but did not see Nepenthe listed although other Sacramento area HOAs were listed. They will provide homebuyers a free report and have an interesting blog. I especially love the article’s quote from the Condofax founder, Christopher Garland, that says, “We’ve looked across the country , and really , it’s bad. Somehow condo associations have largely eluded any scrutiny. It’s pretty astonishing and we hope to change that.”
I also spent some time poking around Association Reserves YouTube channel. Richard Nordlund looks like a commercial actor you’d see in TV ads, but he’s actually the co-founder and CEO of Association Reserve’s new HOA report division called Association Insights and Marketplace or “AIM.” Reports will be provided to homeowners for free but will cost buyers $50. Their goal is to create a database of the nation’s 370,000 HOAs. Association Reserve’s YouTube content is very insightful with high production quality. I soon became mesmerized with some of their videos which took a deep dive into the more advanced topics such as investing reserves, specialty topics affecting older condos, and reserve funding during inflation but also discusses board member leadership and toxic boards.
In looking at both the Association Reserves’ website and YouTube channel, I stumbled upon their uPlanIt product which lets boards make edits to their reserve study real time instead of giving edits to their reserve analyst. For example, your reserve study might include remodeling the clubhouse every ten years but what would happen to our reserves if we were to change this to 15 years. My HOA uses a traditional reserve study firm and every time we want to make an edit to a component or model a change to funding our reserves through our monthly contribution, we have to call our reserve analyst to make this edit. He’s extremely busy and it’s difficult to find the time with him, so we often spend a lot of time waiting to hear back and sometimes have months of not knowing. Last year, our board made a pretty major mistake giving our reserve analyst the year-to-date expenses half way through the year instead of a full year’s worth of expenses meaning our ending year reserve balances were grossly overstated. It would have been great if we could have modeled this ourselves so we could maybe cut back on some of the unnecessary items such as the massive amounts of cosmetic landscape renovations my board is addicted to. Had we been able to show them how our contributions were even less adequate, this could have perhaps encouraged them to reduce their cosmetic landscape renovation addiction.
As many of my readers know, I sponsored a recall petition of the board member that is obsessively renovating my HOA’s outdated landscaping. I found a great video about recall elections where Nordlund interviews Jonathan Shan, a board member for Plant 51 in San Jose, California, a community that recently underwent a recall of the president and vice president that unilaterally chose the new paint colors that no one liked. They discussed how Davis-Stirling is not clear with respect to recalls. The board member also tells us how grateful he is for the new board members and that the atmosphere in the community post-recall is “one of relief” adding that “no one receives joy” from a recall but the “toxicity” needed to end. He believes the recall was a “restoration of trust by the community in the board.” When asked by Nordlund about those considering a recall, Jonathan advises that recalls are very expensive and they need to be “worth it.” He also explains how sometimes the intent of these board members might be there, but it’s a toxic relationship and best for the greater good to step aside.
I wonder if HOA boards will behave differently once they know that the reports will be available to homebuyers. Although homebuyers pay nearly $800 to receive the association documents, there is not a good way they can understand the financial health of the community they are buying into and most realtors tell their buyers what they want to hear in order to close the deal. The AIM report will be 11 pages long and assesses the HOA’s financial health as well as the property’s maintenance history and “how well run” the association is. I wonder how they will measure this, but I myself know what I would look for when determining this. AIM also hopes to give associations the tools to increase their FICO-style score which won’t be measured solely on dues, but also on how well the property is keeping pace with the property’s deterioration expenses. Will be interesting to see what happens as a weak report could adversely affect home values, so I am thinking that a lot of associations will be unwilling to participate and upload their financials. I do believe that the situation in my HOA would be much different had these types of reports existed.
As a financial advisor, I often give my clients third-party reports from Morningstar so they are able to make comparisons between investments. Working for a Fortune 500 insurance company, Thrivent works very hard to maintain our A.M. Best A+++ rating. Imagine if HOAs strived to achieve high scores. It will be interesting to see what the future holds as younger buyers demand transparency in reporting as well as board leadership. I hope my HOA participates in AIM’s reporting and works proactively toward achieving a higher score and increasing property values.
