Increasing Number of HOAs Drives Data Procurement Complexity, Cost and Risk – Part 2

In Part 1 of this 3-part series, we told the story of the rising number of HOAs and the resulting complexities created for data procurement.  In Part 2 we identify the drivers of the cost and risk of procuring HOA demographics and other data.

Part 2 – The Four Drivers of HOA Data Cost

In 1970 there were only 10,000 HOAs in the US.  These HOAs governed 700,000 properties and represented 2,100,000 people.  As of 2016, there are over 340,000 HOAs governing 26,300,000 properties representing 69,000,000 people.  Today, over 68% of all housing starts are built in an HOA community.  As these numbers increase so do the costs and risks of gathering and processing HOA data.

In addition to the sheer numbers, the industry is fragmented and compartmentalized with data being housed in thousands of private, decentralized databases, systems, and networks.  Chances are if you need HOA data for purchasing, titling, lending, or selling a property you are going to have to work with an HOA.

While there are many elements that create costs, our research has identified four major categories of expenses driving the cost and risks of procuring HOA data.  These are: Time, Resources, Fees, and Opportunity Cost.

Time is the number one factor driving increasing HOA data costs and associated risks. 

Gathering HOA data is inefficient and relies on manual processes.  Determining if a property is in HOA can be difficult if the information is not provided by the property owner.  There are no centralized databases for this information.  Researching multiple sources with multiple methods is often the only solution.

Identifying the HOA is just the tip of the iceberg.  The who, how, and when of contacting an HOA is another separate and time-consuming activity.  In many cases, volunteers and rotating boards run the day-to-day operations.  Contact information and personnel are constantly changing.  HOA staff may not be experts at locating and accessing the information needed.  Multiple calls and correspondence may be required to procure the needed data.  As a result, data may be untimely, incomplete, or inaccurate.  This can lead to processing delays that create additional costs and missed opportunities.

The second factor is the amount of human and other capital resources required to procure HOA data. 

To date, there are no reliable automated resources for gathering and processing HOA data.  Most of the effort requires manual processes.

In addition, there are no uniform standards for requesting and reporting dues, assessments, and other data.  Varying accounting and reporting methods make it difficult to determine if the data is timely and up-to-date.  Verifying the data may require multiple steps and contacts with the HOA and other entities.

Varying reporting methods and formats mean the information may be difficult to use.  In many cases, the data requires manual data entry or reformatting to load the data into internal databases and other information and accounting systems.

Processing delays resulting from inaccurate or untimely data leads to more customer calls to service provider and vendor call centers.  This creates additional expenses for more call center staffing, hardware, and systems.  Slower call center response times due to the increased number of calls can reduce the customer experience which may result in unhappy or lost customers.

The third factor is Procurement Costs and Additional Fees. 

A fee is may be required for an HOA to report data to a third party.  Often, these fees are authorized and set by local or state regulations.  There may also be a transfer fee when properties change ownership within an HOA.  Our research shows that these fees can range from $25.00 to over $300.00 per property per request.

Frequently there are delays in the notification of lenders and other parties when there are missed payments or delinquent assessments.  This can increase the amounts owed to the HOA due to penalty and interest charges.

The use of private attorneys may be needed to resolve issues related to titles, transfers of ownership, liens, and bankruptcy.  Lack of knowledge of local regulations and default processes require legal and other consultants to navigate processes.  In some cases, local or state regulations may dictate the use of an attorney to collect any data related to a property in an HOA.

Finally, there are the hidden impacts of opportunity cost and financial and reputational risk.

Human, financial, and information technology resources that are tied up in procuring HOA data cannot be deployed to other important functions in an organization.  Time lags and inaccurate data cause delays in processes such as title and closing and may result in increased risk, lost revenue, and customer experience issues that impact business reputation.

 

Avanta Risk Management, LLC is a property risk management, data analytics and service provider specializing in HOA solutions. We provide a platform that helps identify, analyze, evaluate, mitigate and proactively monitor property conditions that affect your portfolio. We use life-cycle risk management concepts and leading technologies to simplify the process and eliminate the challenges of data acquisition. We help reduce your financial and reputational risks and enhance the customer experience for your clients.

To Get Started with Avanta click here: https://avantarisk.com/get-started/

 

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Avanta Risk Management is a risk management, data analytics and service provider. We use life-cycle Risk Management concepts and leading technologies to provide a platform that helps identify, analyze, evaluate, mitigate and proactively monitor a wide range of conditions that could lead to financial and reputational risks for our customers.