“The PARScore is similar to a credit score for condominium and homeowner associations, or a CARFAX for condos,” said Michael Reilly, chief operations officer for Association Evaluation LLC, a Chicago-based real estate data analysis firm that created PARScore.

“Through our proprietary algorithm, PARScore provides a standardized rating between 400 and 900,” said Sara Benson, CEO of the company. Financially healthy and well-run associations receive higher ratings while risky associations plagued with low bank balances, non-paying owners, special assessments, and lawsuits receive lower ratings.

Every association is assigned a unique Permanent Identification Code. More than 140 data sets are analyzed and scored against the coded individual associations by using a patent-pending point system.

Launched in November 2012, Association Evaluation has run scores, processed reports, and currently has more than 70,000 homeowner associations nationwide in its proprietary database.

The newly designed, consumer friendly 2015 PARScore report shows how your association compares with others.

“Just because you live in the Gold Coast doesn’t mean your building will have a 24 karat gold PARScore,” noted Benson (right). “Wealthy neighborhoods can be an asset due to the walkability, proximity to recreation, and quality of life, but there may also be individual buildings representing high risk to a new buyer.”

Some vintage Gold Coast buildings have had lower scores due to low reserve balances, lawsuits, and deferred maintenance. Life safety compliance is also an issue in many older buildings.

“Always remember condominium and homeowner association boards are run by volunteer homeowners with different backgrounds, experience, and goals,” Reilly said. These boards of directors have a major impact on the financial health of an association. That fiscal – and physical – health will directly impact their PARScore.

Report favors investment in infrastructure

Some condo boards make decisions that may negatively impact the other owners. For example, instead of investing in the future mechanicals and infrastructures, the board may choose to spend money on redecorating the lobbies or outfitting the workout room with new equipment, leaving few to no dollars left for critical infrastructure maintenance.

“Following a professionally prepared reserve study plan should rule the investment dollars spent from the association’s reserve fund,” Benson said.

Imagine two identical, adjacent buildings on the North Side. Both are six-unit 1920s walk-ups. One building has $60,000 in the reserve fund, 100 percent owner occupancy, and a strong condo board. The other building has no money in the reserve fund, less than 50 percent owner occupancy, and a condo board with no leadership.

“Although the location, age, and materials of construction may be identical, owners in the first building may expect their sale prices to be nearly double than those in the second building,” Benson explained. “PARScore will reflect that.”

The highest achievable rating is 900 and indicates the most creditworthy and healthy associations. Lower ratings reflect associations with high assessment delinquencies, excessive foreclosures, high non-owner occupancy, pending lawsuits, low financial reserves, and known unabated health hazards such as mold and radon. (Left) Page from a 23-page sample report provided by Association Evaluation LLC. (Click on image to view larger version.)

Association Evaluation recently analyzed scores condominium associations have posted in popular Chicago neighborhoods…

Loop, East Loop & River North. With a mix of vintage rehabs and newer high-rise buildings, the PARScores range from 640 to 800.

South Loop. This area, with many newer high-rise buildings, has an average score of 770.

West Loop. Scores range from 660 to 810 depending on whether the project was new construction or a conversion of an older loft building – and the extent of the developer’s rehab.

Gold Coast & Streeterville. Scores run from 700 to 830.

Lincoln Park & Old Town. Scores vary dramatically, from 570 to 880. The wide range, said Benson, “reflects rental ratios, building maintenance, association loan balances, insurance, lawsuits, whether the association has conducted and is following a recent reserve study, and if an association recently levied a special assessment.” Some newer, well-funded luxury owner-occupied buildings enjoy exceedingly high scores.

Lake View & Wrigleyville. Scores average around 720. Some buildings had building code violations which affected the PARScore.

Uptown, Edgewater & Rogers Park. The average score for the area is 710. Scores vary widely based on the age and type of building. “Many high-rise buildings constructed or converted during the condo boom of the 1970s are now in need of substantial renovation of mechanical systems – elevators, roofs, masonry, and balconies,” Benson noted. Some older walk-ups have experienced higher scores depending on the amount of reserves compared to the number of units in the association.

Depending on the size of the association, or number of units, pricing – including a site visit and PARScore rating – ranges from $300 to $850.

“Collected data includes direct investigations with association directors or property managers, and on-site inspections of the communities,” said Reilly (right). “Additional data sources include monitoring corporate filings such as lawsuits, judgments, bankruptcies, and the certificate of good standing with the Secretary of State’s office.”

Financial reporting includes verification of operating and reserve account monies. Board minutes are examined for adherence to standard accepted business protocol procedures and to ensure against unexpected and costly special assessments that have been discussed by the association’s directors but not yet levied at the time of sale.