Why HOA Boards Almost Always Choose the Wrong Loan First

HOA boards almost always choose the wrong loan first, and by now I can predict the pattern before it happens. The board identifies a capital need. Someone on the board calls the bank where the association keeps operating deposits. The bank returns a term sheet within a few weeks. The board reads the term sheet, feels grateful that a bank is willing to lend at all, and signs.

It happens constantly. Not because boards are careless, but because the incentives to move fast are stronger than the incentives to slow down. This post is about why the pattern repeats, what the second and third offers actually change, and how much money the pattern costs on a typical deal.

The pattern

Almost every board that ends up overpaying goes through the same four steps.

Step 1: One call. A board member (usually the treasurer or the president) calls the bank where the association already keeps deposits. This feels efficient and loyal.

Step 2: One offer. The bank returns a term sheet. The rate is 'competitive.' The term is 'standard.' The board thanks the loan officer.

Step 3: Gratitude. The board discusses the offer at the next meeting. Someone says the rate seems reasonable. Someone else says the process was smooth. Nobody is sure what a better rate would look like, because there is nothing to compare it to.

Step 4: Signature. The board votes to accept the offer. The loan closes.

This pattern is not a hypothesis. I have watched it play out with associations ranging from 40 units to 400 units, in state after state, across every rate environment. And every time it happens, the association leaves money on the table.

Why the pattern repeats

Three forces push boards into the pattern, and each one deserves its own name.

Information asymmetry

The board sees one term sheet. The bank sees thousands. The bank knows exactly where its rate sits relative to competitors, because it prices against the market every day. The board has no way to know whether the offered rate is 20 basis points above market or 20 basis points below. Without a benchmark, the offer looks reasonable by default.

Volunteer fatigue

Board members are volunteers. They have jobs, families, and lives outside the association. Running a formal RFP across several lenders is real work: coordinating document requests, sitting through introductory calls, comparing term sheets that use different formats. A single offer feels like a gift because it does not require any of that work.

Deposit relationship loyalty

Associations that keep operating and reserve deposits at a specific bank often feel that going to another lender is a form of disloyalty. This is not a real business consideration. Keeping deposits at a bank does not reliably buy better loan pricing: some banks price a relationship, many do not, and the only way to know is to get a competing offer.

What the second and third offers actually change

Here is what most boards do not see until they have run the RFP: the spread between the best and second-best offer on a mid-size HOA loan is routinely wide enough to matter. Sometimes much wider.

Take a hypothetical, and assume a fully amortizing 15-year loan at 7.00 percent against the same loan at 7.25 percent. On $5M, that 25 basis point difference is about $12,500 in the first year and about $126,000 over the life of the loan. On $10M it is about $25,000 in the first year and about $253,000 over the life. On $30M, about $75,000 in the first year and about $758,000 over the life.

That is arithmetic on an assumed spread, not a quoted rate, and the point is the order of magnitude rather than the number. We invite several lenders to an RFP precisely because the gap between them is worth finding, and most single-offer boards never learn what their own gap was, because they never run the shop.

The spread comes from two things. Different lenders have different funding costs, and different credit committees see your file differently. A file that looks average to Lender A might look attractive to Lender B, because Lender B's book skews smaller and yours fills a size gap. A file that looks risky to Lender C might look normal to Lender D, because Lender D has stronger portfolio experience with your project type.

The second offer as bargaining power, even if you stay

Here is the twist most boards miss. The second and third offers do not have to change which lender you use. They change what your first lender is willing to offer.

The pattern is familiar. A board gets a first offer from its deposit bank. An RFP goes out, competing offers come in, and the best of them comes in below the first bank by enough to change the debt service. The board takes the competing offer back to the deposit bank, and the deposit bank matches or nearly matches. The board ends up with the same lender they started with, at a better rate, because the competing offers created bargaining power that a single-call process never had.

This works only if the shopping is real. Bluffing about competing offers does not move an experienced loan officer. Actual term sheets on the table do.

How to run a real RFP without the volunteer overhead

The solution to volunteer fatigue is not to run the RFP internally. It is to have someone else run it. A strategist takes the coordination burden off the board: one document intake, one round of lender calls handled for you, one comparison summary at the end.

There is no upfront cost, and the fee is paid by the association at closing. If the loan doesn't close, there is no fee. The information asymmetry problem is solved because a strategist sees offers across many deals every month. The volunteer fatigue problem is solved because the strategist handles the coordination. The loyalty problem is solved because the RFP can still include your existing deposit bank, which then knows it is competing.

What Larry sees

The single most common regret I hear from boards is: 'We wish we had shopped this.' Almost always after the loan has closed at a rate that turned out to be above the market at the time.

The best time to prevent that regret is before you sign the first offer. The second-best time is now, if your existing loan has flexibility to refinance. The worst time is never, and unfortunately that is where most single-offer deals end up.

Have a first offer in hand and unsure whether it is competitive? Schedule a free consultation with HOA Loan Services. We will run through the offer, compare it against current market pricing across our lender network, and tell you honestly whether it is worth shopping. No upfront cost. No obligation. We are only paid if a loan closes.