The Smartest Way to Handle Hidden Damage in HOA Projects — Without Getting Buried in Change Orders
Every HOA construction project has a part you can't see coming: the damage hiding behind the surface. Rotten sheathing under the stucco. Soft decking under the roofing. Corroded framing behind the siding. You don't know how much is there until the contractor starts tearing things off — and by then, the leverage has quietly shifted away from your community.
Here's how we handle it instead.
The wrong way: a price now, a surprise later
The instinct is to ask the contractor for a single number to "do the job," sign it, and hope for the best. But nobody can price what they can't see yet. So the contractor bids the visible work, starts the demo, and then comes back with the words every board dreads: "We found more damage than expected."
Now you're exposed. The work is half torn apart, the crew is on site, and you're negotiating change orders from the weakest possible position. There's no competitive pressure, no agreed-upon rate, and no easy way to know whether the price is fair. In my experience, change-order pricing for hidden damage almost always runs above market — not because contractors are dishonest, but because there's nothing holding the number down. You gave up your leverage the moment you signed without a plan for the unknown.
The right way: allowances tied to quantities, priced by the unit
The professional approach is to build the unknown into your bid before anyone signs. You do it with two tools that work together: an allowance tied to a measurable quantity, and a unit price tied to that same allowance.
It sounds technical, but it's simple once you see it. Let me walk through a stucco repair.
1. Get your base bid. You ask the contractor to price removing and replacing the stucco on the surface. That's your base — the visible, knowable work.
2. Add a sheathing allowance tied to a quantity. Underneath that stucco is sheathing, and some of it may be rotten. So you instruct every bidder to include an allowance for sheathing replacement — say, 10% of the total surface area. On a 2,500-square-foot wall, that's an allowance for 250 square feet of sheathing repair, baked right into the bid. Now every contractor is pricing the same assumed quantity, and you can compare apples to apples.
3. Lock in a unit price on that same allowance. Finally, you ask for a unit price based on a full sheet of sheathing — a standard sheet is 32 square feet. That single number becomes the basis for every change order. If the crew opens the wall and finds more than the 250 square feet you allowed, the extra work is priced at the rate you already agreed to, in writing, while the job was still competitive. If they find less, you get a credit back.
That's the whole trick. The 250-square-foot allowance covers roughly eight sheets up front. Anything beyond it is settled at a number you negotiated when you still had four contractors competing for the work — not after the wall is open and you have one.
Why this protects your community
When the unknown is priced in advance and tied to a measurable unit, three things happen. Change orders stop being a negotiation and become simple arithmetic — quantity found, times the agreed rate. Your bids become truly comparable, because every contractor is carrying the same allowance instead of quietly lowballing the parts they can't see. And your reserves are protected from the single biggest source of HOA cost overruns: surprise repairs at surprise prices.
The hard truth is that many contractors and boards have never seen it done this way. So you may have to ask for it specifically — base bid, allowance tied to a quantity, unit price on that allowance. Any quality contractor will respect the request, because it makes their job cleaner too. The ones who push back are usually the ones counting on the change orders.
Hidden damage is one of the few things in this work you genuinely can't predict. But you can decide, in advance, exactly how it gets priced. That decision is worth more to your budget than almost anything else you do before signing.
Have you been hit with a hidden-damage change order that blew up a project budget? I'd love to hear how it played out — drop it in the comments. And if you have an exterior project coming up, I'm always happy to talk through how to structure the allowances before you go out to bid.
Sean Davis, PMP | Civil Engineer | Current HOA Board Member (12 years) | DHA Construction Management | Broomfield, CO
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