Common HOA Financial Questions Answered
HOA financial terms and rights can be complex and confusing at times. Don’t worry, we are here to help! Here are the answers to 3 of the most frequently asked questions we get from customers, and what you need to know.
Are HOA financials public?
- HOA financials are public and should be available to all homeowners from their management company, usually in a password protected website. Self-managed HOAs are a crap shoot, and you should send an email to the Board and ask for the most recent reconciled financials. AND…
- If you are buying or selling your unit, most State Law requires disclosure of financials and budgets. Management companies sell this information to title companies who are usually charged with collecting it per state law. Since the title company must front the money and is out that money if your property doesn’t close, they wait till the last minute and get charged a late fee which they pass on to the buyer and you will be handed the financials at closing. HOWEVER…
- Management companies don’t have the staff to constantly provide this to Realtors and Title Companies, so they sign up with third party vendors such as Homewise Docs or CondoCerts who sell these for a fee to the title company. Homewise Docs and CondoCerts ensure that the information is no more than 30 days old and accurate. BUT…
- Title Companies warehouse this information and it is usually dated. Companies such as Association Ready pilfer this information from management companies often posing as homeowners to get log in information and provide dated and wrong information. An example would be moving into a community with a large RV and not knowing that the community had changed their rules to not allow RVs and after you close, everyone says you should have read the disclosures absolving them (Realtor, Title, Seller) so it is your fault. WHATS NEXT…
- Homewise Docs may use this information to profile your community to target advertising to you after you move in. If the financials have a “pool” category, you may receive offers in your web stream for a new swimming pool suit. A company out of Vancouver called ELI is collecting this information to create a financial health scorecard to sell to Realtors so they can let their clients know how healthy an HOA is compared to other HOAs in the market.
TOO MUCH INFORMATION? Let us simplify it for you…
What should I look for in a HOA Balance Sheet and Income Statement?
1. Is there a Net Income or a Net Loss?
And to make it more complicated, is this broken out by operating and reserves? If there is a Net Loss, see if you can figure out why this is so. For example, is there an un-budgeted item call “Fire Remediation”, and you bought a unit that had been rehabbed after a fire, that would cause a one-year net loss.
2. Do Net Losses carry over from year to year?
Yes, so do Net Incomes. The last journal entry before closing out the books for the year is to move the Net Income/Loss into Retained Earnings on the Balance Sheet which is the accumulated income/loss since the inception of the HOA. High Retained Earning means years of profitability. Want more information on this? Give Chris a call on 303-832-2971 x600.
3. Is there a loan on the Balance Sheet and how big is that loan?
A loan can be good or bad depending on what it is for, and the overall financial condition of the HOA. But the best run HOAs should be able to pay for items out of reserves, not taking out a loan.
For information on how to read your HOA statement, check out our blog post: https://www.capmanagement.com/how-to-read-your-hoa-statement/
What is a Reserve Fund For In a HOA?
HOAs create yearly budgets divided into Operating Expenses and Reserve Expenses. The Operating Fund is for day to day expenses that occur year to year – Water Bills, Landscaping, Management Fee. Reserve Funds do not occur year to year but are one-off expenses such as a new Hot Water Heater or Painting the Building.
More importantly, all HOAs should have a “Reserve Study” often produced by a company that specializes in HOA Reserve Studies. They look out 30 years for the useful life of items such as Roofs, Boilers, Elevators, Concrete, Swimming Pools etc. Three of our favorite reserve companies are:
In the best run HOAs you should be able to track the yearly items in the Reserve Expenses back to the Reserve Study. This is the best way to keep dues low and the association well maintained.