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HOA Budget and Reserve Funding Evaluation

Owners of units, within a townhome or condominium complex, are sometimes shocked by the amount of an unexpected assessment.

The HOA Board is responsible for insuring that the Funding Reserve for future repairs and replacements is adequate so that unexpected Assessments are not in an owner’s future. I have found, however, that many HOAs have been financially stressed, and so have less funds for future needs than those needs will demand.

As an Owner in a townhome / condo community, you share in the Board’s responsibility of making sure current funding policies will provide both current operating funds as well as items which will occur five, ten, or more years in the future.

One might assume that only large townhome / condo complexes have funding issues. My observations have been that smaller HOAs (particularly self-managed ones) often barely cover monthly obligations and therefore fail to set aside needed amounts for large future needs.

As an example of seriousness, roofing replacements are one of the most dire of inadequately funded reserves. Roofers won’t start a job unless the funding is 100% in place when work begins. So, a shortfall of a modest amount could stall needed work.

Adequate funding of a Home Owner Association’s obligations can be a serious issue for the sale / purchase of a condominium or town home. The value a Seller may receive, and conversely the amount a Buyer should pay, is directly tied to the current condition and future replacement needs of the community.

For just over ten years, my firm (not affiliated with Century 21 nor Zaytoun Raines) provided day to day management assistance for a number of Hickory and Conover, North Carolina HOAs. My HOA focus is now limited to providing HOAs with an independent / “third party” analysis of their current funding status and forecast what Reserve Funds will need to be in the future. By not being tied to day-to-day operations, I can serve owners with minimal concern about the politics within a Client HOA. (Note:  though my New Bern area brokerage is affiliated with Century 21 Zaytoun Raines, my HOA efforts are not affiliated.)

My firm’s Analysis, and Reporting, is tailored to the needs of a client HOA. There are usually three phases of the work. Over the course of the effort, the HOA Board is expected to provide input and oversight for the firm. The total effort is defined by the Board before the firm’s work begins.

Phase one- Client Declarations and Covenants are reviewed; Phase two- three years of existing Financial Statements are reviewed; Phase three- the Funding Forecast is created from (a) a review of the HOA’s repair replacement obligations as defined by the documents and Board’s instructions; and from (b) costs projected to the year in which repair / replacement items are expected to occur.

Typically the HOA requests suggestions for adding to Reserves for currently underfunded items. Final decision: on monthly assessments; event triggered assessments; or combination of the two- is the Board’s responsibility.

The Cost for the Evaluation and Review is based on the:
level of analysis and reporting desired by the HOA Board;
number of repair / replacement aspects being reviewed; and
whether a formal HOA narrative history is desired beyond the report itself.

Please feel free to contact me in person, or have one of the HOA Board Members contact me, to discuss whether your HOA can benefit from an evaluation. My HOA Management experience is supported by having been a General Contractor and Certified for Management Accounting. I look forward to hearing from you.

Alex Rooker
NC Broker 28505


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