Residential Real Estate Agency and Your HOA

Published in the ECHO Journal, August 2011

Echo’s Annual Seminar in June brimmed with a diversity of vendors and participants, all offering stimulating discussion on many a hot topic – the subject of energy savings alone offered a host of innovative approaches, ranging from contingency fee-based energy audits to several solar and alternative energy providers. As both an architect and property manager, I enjoyed mingling and mixing with colleagues at the event, finding valuable food for thought on a wide range of subjects in the most efficient manner. To my surprise, I did not meet any real estate agents. I did however encounter complaints about the profession. Several association managers shared their stories, including:

• New residents left to their own devices;
• Rogue sales signage;
• Random lockbox placements;
• Transactions or resident changes not communicated to HOA;
• Spotty or erroneous HOA information passed on to residents by agents.

One example stuck out: an association manager told me how she received a phone call on a Friday evening and drove back to the HOA to help a new owner gain access to her unit that had closed escrow that day; when the association manager helped the buyer sort out her envelope of keys and unlock the front door, the grateful buyer asked her many more questions, including such basics as whether a storage locker came with her condominium. “I wouldn’t have minded so much,” the manager told me, “but the buyer’s real estate broker was also a resident owner and a board member, and should have really known better.”

All association managers seem to ask brokers the same question: Why does there seem to be such a gap between the real estate industry’s understanding of HOA governed properties in comparison to, say, the single family housing market?

The Dilemma: Twice the Work, Half the Pay

After working primarily in the condominium industry for the past decade, I have met a good number of qualified agents who specialize in condominiums, and who care about the communities they serve: usually these agents are stakeholders themselves (i.e. owner-residents) and have a long-term, vested interest in the community in which they work and live. However, this specialized group comprises only a small minority of agents, and there are several reasons that make condominiums in some sense the ‘stepchild’ of traditional residential agencies. The two most important differentiating factors are differences in sales price and disclosure.

Since residential sales and leasing is a commission-based business, the difference in sales price affects the attention of agents: depending on the local market, the median sales price for condominiums can be significantly lower when compared to the median sales price of single family homes. For example, the median sales price for a single family home in the San Francisco Bay Area in April 2011 was $490,670; in comparison, the California median condominium sales price for the same period was $238,220. (Source: California Association of Realtors.) The difference in commission right there is $15,000. In other words, the Agent selling condominiums by and large receives less pay for essentially the same work.

In addition, for many agents, the proper disclosure and documentation of condominium sales is somewhat of an unknown. Most brokers offer their agents transaction training; more often however, the emphasis is the single family home – the bread and butter of the residential sales industry. The additional disclosure requirements for condominiums can catch agents off-guard, especially if they have not dealt with a specific HOA before. Often, there may be a lack of understanding of the mutually protective intent of certain rules or disclosures. One example is the stubborn inquiry of a buyer’s agent, asking repeatedly whether her clients could install an illegal washer/dryer in a top-floor unit: were it a single family house and revolve around a renovation issue, the same Agent would probably react very differently. However, the desire to ‘do the deal’, in combination with a poor understanding of the nature and raison d’être of CC&Rs, can lead even seasoned agents to take ill-advised short-cuts.

In a nutshell: twice the disclosures for half the pay – this may be one of the reasons that so few agents take so little time to understand HOA governed properties. Where does this leave managers and boards?

What to Offer: Carrots or Sticks?

When analyzing MLS sales data, usually a small group of agents have an enormous impact on the value retention and enhancement of the properties sold in a given complex. Where such groups exist, homeowner associations are well-advised to foster the relationship with the agents responsible for the majority of the listing, sales, and leasing activity in their association. Investing in that relationship can take on different forms: reduced rates for long-term advertising contracts in the HOA newsletter; a referral system for sales and leasing inquiries that reach the HOA office; preferred on-site advertisement; and so forth. However, even without these measures, most ‘agents in residence’ are usually more likely feature higher average list prices and create less confusion for new buyers in the sales process than agents who only have an occasional transaction at the complex or who act countywide as a short sale or bank owned specialists.

The two latter groups may be less familiar with the association to begin with, and have little vested interest in learning more about it, as well. Here, a few preventive steps may help the association better influence the sales and leasing processes, and keep the activity in line with its rules and regulations.

For example, if random Open House and For Sale signage is repeatedly affecting the architectural control of the association, management and the board could consult with counsel and revise its signage rules to create a uniform, simple signage policy: since most condominium complexes disallow directional Open House signage, one solution might be to have the appropriate generic signage premade with generic lettering kits (for agent name & number), and offered for sale through the HOA, including unobtrusive directional yard signs or condo- appropriate window signs that meet community colors and architectural guidelines. Many exclusive neighborhood associations across the United States have adopted such non-invasive signage, displaying only the words “For Sale” alongside the broker phone number in a uniform color and font type. By offering a better solution than signage removal alone, everybody – the HOA, the seller, and the agent – wins. And while some agents may balk at the additional cost, this measure makes long-term agent vestment attractive and rewards agents that are willing to play by the HOA rule book.

Another measure that assists sales activity while restricting its impact on the community is a centralized lockbox station. While each HOA should review their CC&Rs and insurance policies with counsel to determine any liability or feasibility concerns arising out of lockbox stations, many communities seem to prefer them over the ‘organic’ growth of lockbox areas out of the customs of local agents. A security / courtesy patrol office or well-monitored club house / HOA office area is the perfect location for the installation of a lockbox station. Smaller HOAs may consider installing a lockbox and ad window prominently at a main entrance. Any lockbox station will require monitoring, to avoid overcrowding of suprakey boxes. A policy for removal should be in place and prominently posted for agents to review. If possible, metal bars should be avoided; a numbered slot system for suprakey lockboxes and instructions on how agents are to use the numbered slots is preferable for eliminating lockbox overcrowding. As an incentive, the lockbox station should feature a locked advertising window. This creates additional usage incentive for the lockbox station, while offering sellers a forum and providing prospective buyers easy access to information.

These are just two examples of simple measures and systems that assist both rules compliance and agent activities, making it easier to market and transact in a manner consistent with HOA policies.

Other measures may require more investment by the HOA: one possibility includes offering digital versions of HOA documents and streamlining certification requests online; especially when confronted with typical ‘eleventh hour’ documentation requests by agents during escrow, a digital cert approach can avoid upsetting day-to-day HOA management activities and interruptions.

Brief info packets for agents and new residents may also be helpful; while such one page abstracts do not replace rulebooks and other documents by any means, highlighting the most common questions (FAQs) and move-in or marketing mistakes may alleviate the majority of the headaches, especially for move-ins.

Another advanced, long-term measure is the creation of a database ‘mash up’ – the combination of public records, MLS sales data and unit information, for long term data tracking of the complex. Especially in the long term, having such data available may prove invaluable in accurate tracking of value development, especially since it is usually hard to come by data that reaches further back than ten years. Often, this is the domain of an on-site sales and leasing office, which has an interest in providing this information as a proprietary advantage. Data ‘mash ups’ of this sort can be reverse engineered, but should be only conducted by knowledgeable professionals.