(Expensive Ways to go “Cheap”)
By: Helsing Admin
Far too many Boards feel it is their duty to reduce homeowner association assessments – they are even proud of it! It certainly is something to be proud of if that reduction was obtained by purchasing more value for less money. Far too often, however, it is the goal of lowering assessments in itself – while ignoring the legal requirement to collect money “sufficient to perform [the Association’s] obligations under the governing documents and [the law]” (CC 5600(a)). I thought it might be nice to list some typical examples of where Boards “saved” money and it cost them severely in the long run.
Failure to use an attorney – The number of times we have seen Boards incur huge costs because it would be a “waste of money” to use an attorney is staggering. Examples include:
– Failure to have an attorney read each contract prior to signing it, only to find out there were clauses that made the association responsible in case of accident or injury that otherwise would not have been theirs.
– Failing to involve the attorney in vendor terminations and then finding out even though the new vendor was already hired, the existing vendor could not be terminated for several months.
– Talking to other attorneys because the Board thought they could reason the issue away – and they just harmed the association in doing so.
The bottom line – no business would do these things, and your HOA is a business. Yes, a not-for-profit, but a business nevertheless. Keeping assessments down because you are too cheap to get legal advice is a path toward huge expenses.
Failure to Maintain – This is an easy one to slip into. “The paint doesn’t look too bad, it can wait another year”, or “We should have someone inspect the slopes but it costs too much.” These sorts of money-saving decisions end up costing many times the initial maintenance costs when the wood dry rots because it wasn’t protected, or the slopes slide because some minimal preventive maintenance wasn’t performed. The examples here are endless, but the point is the same on all of them – deferring maintenance to reduce homeowner association assessments almost always costs significantly more money in the future! Preventive maintenance is a proactive strategy that saves associations money in the long-term.
Failure to Reserve – Kidding yourselves that Mother Nature and normal wear and tear will not age your components is a fairy tale. It can be even worse if you are also failing to maintain (those far too often go together). The bottom line, when those huge expenses come due and the roofs are leaking or the boilers are out – getting the money to repair them becomes both a crisis and a real economic burden on homeowners. Again, the long-term costs of dealing with underfunded reserves through reduced homeowner association assessments far exceed the routine costs of reserving properly.
Hiring the low cost vendor – Constantly going out to bid with the purpose of finding the lowest bidder is a guaranteed way to get in trouble. The low cost vendor is generally the low cost vendor for a reason. They don’t do as much, they don’t do it as well, they don’t have insurance, they don’t have a license or they don’t have something else. You are not the government; you do not need to hire the low cost vendor and if that is the constant goal you eventually will only have problems. Look for the vendor that provides the best quality performance, has insurance, and doesn’t have a contract that passes their liabilities to you. In the long run, that will save you money – and heartache.
These are the big four, but there are a myriad of lesser examples of “cheap” that just make the community an undesirable place to live and negatively depress property values. The Board’s duty is to collect homeowner association assessments “sufficient to perform [the Association’s] obligations under the governing documents and [the law].” It is not to be popular. It is not to make sure those that can’t afford to live in your community through no fault of their own are subsidized by others. It is certainly not to waste money – making sure you don’t waste money is a good thing. Having a goal that places “lowering the dues” ahead of good business judgment is a formula for failure.