Why good strata owners make bad decisions

Even though strata owners may be smart and well-intentioned, they don’t always make great decisions, especially collectively.  And sometimes strata buildings delay important decisions or, worse still, actually make really bad decisions.  Why is that and what dynamics create those kinds of counterintuitive outcomes?  The many potential reasons for the phenomenon should be studied by experts, says our good friend Francesco Andreone of GoStrata in this week’s guest post.

Strata buildings are full of smart and good people.  After all, they’ve managed to work, earn and save money, get loans, sign contracts and manage household expenses well enough to become and remain strata owners.

Strata owners also have all the usual human feelings of compassion for their family, friends, neighbours and their community. Plus, I’m sure they apply their intellect and morals towards the plethora of decisions they need to make every day on all kinds of issues, successfully and compassionately.

And I know from my dealings with thousands of strata owners over decades of working in the strata title sector that they are very interested in their strata building and that it runs smoothly

But my experiences over those decades also suggest that those smart and good strata owners regularly avoid decisions on important strata issues and make bad decisions when they get to strata meetings.

Why does that happen at all or so often?

A typical bad strata decision scenario

Here’s a typical strata decision making situation.

• A strata building needs to decide about some work in the building at a meeting.
• There are a few available options that have differing impacts, timings and costs which have been developed by the strata committee and manager over time.
• Strata owners have differing views about what to do.
• But, regardless of which option is chosen the strata building is better off doing the work under any of the options.
• A strata meeting is convened to decide on the work.
• At the meeting, a heated debate develops between a few owners and some committee members.
• A few strata owners take opposing positions to the strata committee’s recommendation with explanations.
• A few other strata owners oppose doing the work at all, denying it was necessary and that it was over scoped.
• Things get personal and a bit nasty at the meeting.
• Other strata owners try to calm things down to avoid the tension and conflict.
• Professional advisors at the meeting give qualified advice about the options but back away from recommending anything; understandably so.
• The strata manager says they can’t recommend anything as the strata owners need to decide about their building; also, understandably so.
• Strata owners become more hard-line on their respective positions as the meeting develops.
• The strata committee becomes more hard-line as well.
• Someone says they know a contractor who can do the work for much less.
• Some strata owners threaten legal action against the strata committee and advisors.
• Procedural arguments about the meeting notice, voting rights, proxies, etc.
• Someone suggests further investigations by the strata building before deciding about the works.
• The decision is deferred to a future meeting.

Have you ever seen that happen?  I’m guessing yes and often.

In my view, there are a few reasons for this as follows.

Group decision making theories

One of the reasons many thinkers and psychologists believe groups of people make worse decisions collectively than they would individually is based on theories of Groupthink.

Groupthink is a phenomenon that occurs within groups of people, often leading to poor decision-making outcomes. It is characterised by the desire for harmony or conformity within the group, resulting in an irrational or dysfunctional decision-making outcome.

Here’s a summary of Groupthink principles.

Illusion of Invulnerability: Groups affected by Groupthink often develop an overconfidence in their decisions and an underestimation of risks. This excessive optimism leads to taking extreme risks without a thorough examination of potential consequences.

Collective Rationalisation: Members of the group discount warnings and do not reconsider their assumptions. They rationalise their positions to discount or discredit contrary information, maintaining the group’s cohesive view.

Belief in Inherent Morality: Group members believe in the rightness of their cause and therefore ignore the financial, practical, ethical or moral consequences of their decisions. This belief can lead to overlooking the potential harm of their decisions.

Stereotyped Views of Out-groups: Groups affected by Groupthink view outsiders as weak, evil, biased, stupid, or worse. This denigration and dehumanisation of outsiders leads to a lack of realistic response to external input or criticism.

Direct Pressure on Dissenters: Groupthink members are pressured not to express arguments against any of the group’s views. This discourages dissenting opinions and enforces conformity.

Self-Censorship: Doubts and deviations from the perceived group consensus are not usually expressed. This diminishes the diversity of viewpoints and solutions within the group.

Illusion of Unanimity: Silence is viewed as agreement. The lack of dissent in the group is perceived as consent, leading to an overestimation of agreement within the group on issues.

Mindguards: Some group members take on the role of protecting the group from dissenting information. This self-appointed role involves shielding the group from conflicting perspectives, further isolating the group from reality and options.

Groupthink undermines critical thinking, as group members prioritise conformity over accuracy and creativity. This leads to inferior decision-making, as the group fails to explore and assess all alternatives and risks.

So, understanding and recognising these principles in strata buildings can help in devising strategies to prevent Groupthink, such as encouraging open debate, seeking outside opinions, and ensuring independent thinking by strata buildings, committees and strata owners.

Financial imperatives or incentives

Another significant factor why I believe groups of people defer or make worse decisions collectively than they would individually is financially based.

When strata owners defer decisions for financial reasons, several key factors are usually at play as follows.

Budget Constraints: Strata owners often face personal and collective budget limitations. Maintenance, repairs, or upgrades can be expensive, and available funds might not cover these costs without imposing additional financial burdens on strata owners, like special levies and/or increased strata levies.

Prioritization of Expenses: In some cases, strata owners must prioritise expenditures. They may choose to address urgent repairs or statutory requirements first, deferring less critical projects to a later date when funds are more readily available.

Levy Avoidance: Special levies for unexpected or large expenses can be a financial strain for individual owners. To avoid these levies, strata committees might opt to postpone decisions until they can accumulate sufficient funds or find alternative funding methods.

Uncertain Financial Outlook: Economic uncertainties, like recessions, interest rate hikes, and/or fluctuations in the property market, can make strata owners cautious about committing to significant expenditures. They might defer decisions to avoid financial risks during unstable times.

Long-term Financial Planning: Sometimes, deferral is a strategic choice for long-term financial health of the strata building. Strata owners might postpone certain decisions to align with a long-term financial plan, ensuring that funds are available for future needs without overburdening current budgets.

Disagreement Among Owners: Disagreements among strata owners about the necessity, scope, or cost of a project can lead to deferrals. This is often a result of differing opinions on the importance, urgency, or scope of the work, or about the contractor choice and the quotes.

Waiting for Government Grants or Incentives: Strata owners might delay decisions in anticipation of government grants, incentives, or changes in laws and relations that could make works or a project more feasible or affordable.

Market Value Considerations: Decisions might be deferred if the perceived impact on strata building property values is unclear. Strata owners may be reluctant to invest in improvements in the building if they are unsure about the return on investment in terms of increased property values of their strata lots.

So, strata owners’ financial considerations cover a range of logical factors to influence strata decision towards deferring, limiting or disapproving action.

Lack of information

Finally, I believe groups of people defer or make worse decisions collectively than they would individually because they don’t have any, enough, or useful information.

When strata owners defer or make bad strata decisions due to a lack of information, several key factors arise as follows.

Incomplete Understanding of the Issue: Strata owners may lack a full understanding of the technical aspects, legal implications, or financial details of a proposed project or issue. This gap in knowledge can lead to hesitation in making decisions, as strata owners prefer to avoid risks associated with insufficient understanding.

Need for Expert Opinion: Often, specific issues require input from professionals like engineers, lawyers, or financial advisors. If this expert advice is not yet obtained, is unclear,  or is inconclusive, strata owners might opt to wait until they have more comprehensive information.

Uncertainty About Options and Outcomes: When facing multiple options, each with its own set of outcomes and risks, a lack of clear, detailed information about these possibilities can lead to decision paralysis. Strata owners may defer making a choice until they have a better grasp of the potential consequences of each option.

Risk Assessment Difficulties: Without adequate information, assessing the risks associated with a strata decision becomes challenging. Strata owners might postpone decisions to avoid potential legal, financial, or operational risks that are not fully understood.

Changes in Legislation or Regulation: Sometimes, upcoming or recent changes in relevant laws or regulations can be unclear or not fully disseminated. In such cases, strata owners might delay decisions until they fully understand the new legal landscape.

Conflicting Information: When presented with conflicting reports or advice from different sources, strata owners may find it difficult to discern the best course of action. This confusion can lead to deferrals until a consensus or clearer picture emerges.

Consultation with Stakeholders: Important decisions may require consultation with all stakeholders, including strata owners, tenants, managers and regulators. If there hasn’t been adequate time or opportunity for this consultation, strata decisions might be deferred.

Historical Data and Precedents: A lack of historical data or precedents for similar decisions within the strata building and strata sector can lead to uncertainty. Strata owners don’t usually have the benefit of previous decision making information or guidance, so may postpone or oppose decisions until they can get relevant historical insights or examples from other strata buildings.

Communication Gaps: no or ineffective communication amongst strata owners, or between the strata owners, committees, and management, can result in insufficient dissemination of information, lack of trust or confidence, suspicion, uncertainty, etc and lead to deferring or refusing decisions.

A lack of information in strata buildings contributes to a cautious approach by strata owners where decisions are delayed until adequate and clear information is available or simply refused.

Conclusions

I can’t profess to fully understand all the dynamics at play when groups of good strata owners avoid or make bad decisions and how to change that, even though I’ve identified quite a few in this article covering Groupthink, financial considerations, and information shortage issues.

But I do know that no or bad strata decisions hurt all strata stakeholders. 

The strata title sector needs to understand the dynamics at play when strata buildings make decisions and to have new and better techniques to assist strata owners.

I see a need and opportunity for psychologists studying strata decision making phenomena, and writing about their observations, the issues and potential solutions.  Perhaps, a new group of professionals might enter the strata title sector to help improve things.

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