Re: marketing question / right of first refusal
From: Raines Cohen (rc3-coho-Lraines.com)
Date: Thu, 19 Jul 2007 06:41:52 -0700 (PDT)
On Jul 18, 2007, at 10:55 AM, Leah wrote:
We are moving into Bear Grass Village in Ashland Oregon in a month! (where, by the way, we still have one 3 bedroom townhouse available!) We are figuring out the specifics of our HOA dues. The membership committee has requested a budget for marketing if people leave the group. We have a right of first refusal and they figure we need to do the marketing as a group to exercise this right. I understand the need to market our project but I also think it is the responsibility of the individual to pay for marketing of their house if they want to sell it. What do other groups do?

Congratulations, Leah! It's very exciting to see the first Southern Oregon group move in. I've been following your progress, and I'm looking forward to visiting, perhaps in August when I'll be passing through the area.

Some other cohousing neighborhods have a right of first refusal, which means that the group effectively has an option to purchase any unit that becomes available. The trick is, if the units are market rate, at what price? I've seen some groups (and individual cohousers) end up in some awkward situations/"perverse incentives" despite (or perhaps because of) best intentions in this area.

Most home-owner associations (HOAs), the nonprofit legal entities created by the developer to operate the common interests held by the individual condo owners (members), have a simple, single, primary function: operating and maintaining the facility, and collecting dues towards that end, including building up replacement and other reserves to be ready for any necessary expense and to avoid sudden dues increases; the finances of the cohousing-specific functions (common meals, socials, retreats) are typically handled independently of the HOA. Some general marketing for the community can be part of the operating budget.

So, while it may be the HOA that holds the "right of first refusal," it normally would not want to exercise that right unless it had a ready, preapproved, much-liked, comfortable buyer waiting in the wings.... HOA's don't normally carry the available funds (or can easily obtain the financing) necessary to purchase and market real estate, nor is it typically part of its core function/mission or a key capacity. This is different from limited-equity housing coops, which routinely repurchase shares from departing member and sell them to incoming members.

For some groups, this option is seen as an "escape clause", allowing the community to avoid a sale to someone that community members don't want in the group. However, actually using it for this purpose can make the group a party to the individual seller's resident-selection process, and could have legal (and definitely has social) effects on group dynamics.

The key challenge is this: at what price can this purchase option be exercised? The most common form I've seen is that the group (or its designated buyer) has to match the highest bona fide offer the seller has received. Some of the issues this raises are:

* Offers are more than just a price... they also include contingencies, seller financing, and all kinds of elements that make comparisons apples-to-oranges. If a seller offers financing terms to one buyer to support an inflated price, would the HOA or its buyer get the same terms, even though they have very different credit? * The seller has to make any purchase agreement contingent, which can discourage buyers (why do all the work of negotiating a purchase if it could be taken away?), and the built-in delay (typically 30 days) can lead to lost sales * Even if the community has a waiting list, unless resales are frequent (not often the case in cohousing), even the most dedicated prospective buyers will not stay preapproved and won't be ready for a quick purchase when a unit comes up. * Some mortgage-lending institutions (in particular the Veterans Administration) will not lend on units in projects with right-of- first-refusal causes, without special approval; this is intended to discourage discrimination in housing, but the net effect can make it harder for Vets to get mortgages in communities and reduce the market for and affordability/diversity of buyers * The seller has incentive to market widely and get the best offer, and won't have to deal with the integration of the buyer with the community. The community has incentive to hide prospective units for sale and NOT communicate to the people who have reached out to the community (i.e. waiting/interest lists) and who can be the best prospects / most into community. While the long term results are not a given (many people simply buying a condo have turned into great community participants), the mismatch seems at odds with best practices.

So unless there's caps on unit prices or appreciation or recapture clauses in your deeds (see my wife Dr. Elizabeth Morris's article in this month's Cohousing magazine online for info on this and other affordability strategies used by cohousing groups), right of first refusal can result in significant unintended side effects for groups. I've seen some communities with more effective practices in this area, including dedicate year-round outreach independent of particular-unit sales and availability.

If the community expects to spend money marketing units, then it should have transfer fees (payable out of each sale, by seller) set so that each resale contributes to a marketing fund. If multiple units are on the market, sellers can cooperate, ideally with community participation, for most effective outreach; consider also dedicating some of the proceeds to group development/education/new member integration processes. A small item in the annual HOA budget for general outreach, regional education/marketing efforts, and membership in Coho/US and FIC (perhaps also budgeted under member education/process, since many of both groups' activities are helpful in those areas).

Raines Cohen, Cohousing Coach, Planning for Sustainable Communities (at Berkeley (CA) Cohousing)

Boardmember, Fellowship for Intentional Community (FIC)
Looking forward to a visit by Laird Schaub to the Northern California Facilitation Intensive workshop at Pleasant Hill Cohousing this Saturday evening

Regional Organizer, Northern California Cohousing
Putting together a cohousing booth at SolFest August 18-19th in Hopland,CA, which could be a great place to market Oregon and NorCal Communities

Facilitator, East Bay Cohousing
Writing from an Oakland Planning Commission meeting that is looking pretty good for North Oakland Cohousing

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