Safety in Numbers vs. Tyranny of the Majority
Who wouldn’t prefer a smaller condo or co-op building, where the scale in manageable and it’s possible to actually know one’s neighbors?
As desirable as that may be, would-be Buyers (and their agents) should be aware of three issues that can be more challenging for a small homeowners’ association to navigate than a bigger one, especially in the context of a sale.
One. Professional management.
Once a building or housing development has a couple dozen units, there’s typically enough money to hire professional management — not just property management, but legal and accounting as well.
That means the association’s articles and bylaws, financial records, and meeting minutes are all well-kept and accessible (ideally online, with good security).
By contrast, when there are only a few units in a building, it’s common for the building’s residents-cum-Association members to divvy up the foregoing functions on a volunteer basis, and to engage legal and accounting services more sparingly if not sporadically.
Or for the Association’s accountant to be someone’s brother-in-law or buddy.
The result can be “looser” record keeping — an issue especially when there’s a sale, and prospective Buyers are doing their due diligence on the Association and building’s financial health, any building restrictions (pet policy), etc.**
Two. Financial Risk.
Good buildings of any size accumulate a reserve for capital items like roofs, HVAC, and new exterior siding; procure insurance for common areas; make sure contractors’ bills get paid before they turn into liens, etc.
That said, it’s easier to absorb building expenses — especially unexpected ones — when they’re being divided by 100 instead of 6 or 8.
How big should the reserve(s) big?
Bigger buildings have the money to hire third-party experts to advise them.
Just like a ship fares better in a storm than a dinghy, a bigger Association is usually more insulated from a bad housing market or economy.
So, bank-owned foreclosures — or simply delinquent Association payments — can stress a small Association more than a big one (note: Minnesota law changed several years ago to give homeowner associations higher priority getting paid by foreclosing banks).
Three. Politics. The small building ideal is that everyone’s on a first-name basis if not good friends.
But, what happens if there’s a rotten apple? (or if you prefer, a skunk at the picnic).
Then, it’s a lot easier to dilute an offending actor when there’s a bigger pool of people.
By contrast, one or two difficult residents can effectively exercise veto power in a small building.
At least from the agents’ perspective, bigger is almost always better.
That’s because volunteers — even conscientious, well-intentioned ones — are typically less responsive and organized than pros when it comes to producing needed Association paperwork.
Which can be critical, because at least in Minnesota, buyers purchasing real estate governed by a homeowners’ association (also referred to as a “common interest community” or CIC) have the right to back out of a deal (rescind) for 10 days after they receive all required records.
P.S.: One of the downfalls of a large homeowners’ association?
It’s tough to buck the majority.
So, someone who doesn’t want the latest-and-greatest exercise equipment, lobby, grounds, etc. in a complex that regularly updates (and assesses) for those things is likely to be unhappy.
See also, “Condo (& Townhome) Association Due Diligence: What REALLY Matters”; “Does the Association Allow It? Here’s a Big Clue”; “Ten Day Review Period . . . 2 Weeks Too Late“; and “How Strong is the Condo Association?” — Cont.“