The Value of Management
The Board of an association is tasked with “maintaining property values” for an entire community. It’s often one of the most misunderstood goals and is perceived by many as an empty rhetoric used to create and enforce rules. While rules may be a part of it, they’re only a tool. It’s the stability created by the vision and direction of the Board working hand in hand with the execution of management that helps maintain strong property values. So, what contributes to the values of a community and how does it impact individual homeowners?
First, we have to understand and find a tangible way to calculate the value and risk of a community. If you take the average community size in Utah of 311 units and multiply it by the current county median sales price of $525,000; you get over $163,000,000 in value. Now add in the value of any facilities and common areas of $7,000,000, and you get a total community value of $170,000,000. If a board makes a change in services or rules that drives a 1% change in value, that’s over $1,700,000 in value gone. Translation, that’s over $5,400 of your own value, poof, gone! How many 1% decisions does a Board make a year? How many 1% decisions over a 10-year period?
There are some obvious factors that influence the swing in value. Grounds and facility maintenance provide curb appeal to those outside of the community and create an attractive environment for those looking to buy. Performing routine maintenance diligently preserves the longevity of community assets meaning there’s less strain on reserve funds. Speaking of funds, having proper financial controls such as collecting on delinquent assessments, tracking towards the budget, and paying bills on time show the association’s fiscal responsibility. Believe it or not, people actually move into associations because of the rules. They look for and expect a consistent experience and the rules help ensure a home, street, or section of the community does not become unappealing.
An overlooked influence within the value created by an association is often the one that is felt the most. The lifestyle, or the community’s culture, is blended with the amenities and transforms a neighborhood into a community. Lifestyle allows residents to have shared experiences with their neighbors through various events and classes. This engagement promotes the melding of diverse viewpoints and perspectives. The industry as a whole has seen this profound impact on communities through decreased complaints and violations.
Like anything else in life, there are risks that threaten the value of associations. From unruly residents to changes in local or state law to even natural disasters, the list could go on forever. However, the largest risk facing communities is a board that sacrifices the services or lifestyle of a community for the sake of assessment dollars. Efficiencies should be encouraged throughout community budgets, but cutting services to save a dollar or two should be avoided. Roughly 60-70% of community budgets are made up of hard costs like insurance, reserve contributions, or grounds maintenance which are already lean. Boards who thrash through the remaining areas of the budget begin to trip over dollars to pick up pennies. Or, like the example above, stumble over millions to pick up thousands. With the way the Washington County market is and the sustained inflation over the last few years, it’s unreasonable to think assessments can stay the same or decrease while maintaining services. Boards and residents alike need to reset their expectations when it comes to lifestyle services and assessments.
With an understanding of the delicate balance needed to maintain property values, Board’s can make these 1% decisions with confidence. Management’s ability to provide continuity through Board member turnover can be a valuable asset to the community. But the most impactful safeguard against deteriorating values is the residents. With continual community education, residents can be engaged and participate in their community. This vigilance prevents the rest of the community from being blindsided by decreased services and below-average value while they ask themselves; “what happened to my community?”
