Is Your Homeowners Association Effectively Managing Risk?
According to Community Associations Institute, it is estimated that, as of 2015, 68 million Americans lived in common-interest communities such as homeowners associations, condominium regimes, and co-ops. Even a mid-size association of fewer than 700 homes can have a significant annual budget in the hundreds of thousands of dollars. Given the large budgets and the fact that a significant portion of the population lives in common-interest communities, it is reasonable to ask whether HOAs (and other common-interest associations) are effectively managing risk.
When people hear the term “risk management” they generally think of insurance. While the proper type and adequate amount of insurance coverage is an important part of any risk management plan, there are other parts of an effective risk management plan. These include education and conflict avoidance strategies.
Educating the homeowners about what the HOA does is vitally important. For example, an HOA board may have its attention diverted from other priorities to deal with a homeowner complaint. The complaint might arise because of a misunderstanding of what the HOA does or is supposed to do. Homeowner knowledge of what the HOA does and, conversely, does not do, could help reduce homeowner complaints arising from misunderstandings of the HOA’s powers and its role in managing the community. Clearing up this misunderstanding would allow the HOA to focus its attention on the priorities it establishes.
There are a number of conflict avoidance strategies. One way is to build community. Hosting community events, making sure people have a say, ensuring fair treatment of all members–all of these things can help build community.
Another conflict avoidance strategy is making sure that all representatives of the HOA, from the person who answers the phone to the HOA’s legal counsel, are committed to “win-win” scenarios rather than zero-sum games. When a conflict begins to develop, the natural instinct is to try to “win” the conflict. HOAs must realize that they are not typical corporations with a laser focus on only the bottom line. They have a higher (and some would say nobler) purpose–to manage the affairs of the community in such a way as to foster a better, livable environment. Any “I win, you lose” approach to managing would contradict this purpose–and cause homeowner unrest and, potentially, resentment, leading to conflict.
Fostering a culture of “win-win” rather than “I win, you lose” requires recognition of a basic fact–people are concerned with fairness. If someone feels they have been treated fairly and have had the opportunity to have their side heard, they are much more willing to live with a decision that goes against them. Fostering a culture of fairness requires that HOAs not be unnecessarily antagonistic. Antagonism shuts people down, and they are unwilling and unable to work with others. They would rather fight than cooperate. As a corollary, HOAs should pick their battles. Do you really need to send that letter to the widow who left her trash can out one day past trash day? While HOAs should certainly be sensitive to the potential of waiving the benefits of restrictive covenants, that sensitivity should be balanced against a common sense enforcement policy.
The financial well-being of an HOA is important. Without a plan for ensuring the HOA’s financial health, many associations can literally wither on the vine and simply not have the resources to properly manage the community. Implementation of appropriate risk management strategies can help ensure an HOA’s financial viability.