Annual Budget Questions - Average Costs

Started by KevinK7 • 24 replies • 2588 views

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KevinK7 (Florida)
Posts: 1,343

Posted:

I was just mailed the budget for the HOA that I am not a member of. For some reason the management company (who I informed that I was not a member) sent it to me anyway. I don't see it as a big deal since I am not a member but it is nice to know what they are doing but I couldn't help but notice the budget and proposed income and expenses. I am not familiar with the average cost of some services.

The first thing I noticed was that the proposed budget accounted for every homeowner being a paying member. Is that normal when creating a budget?

The other thing I noticed was the cost of "Management Fees." The total is almost $60,000/year. Is that a normal amount? (According to the budget the neighborhood is 295 homes and a small standalone clubhouse)

I am just surprised because the operating costs have shot up tremendously.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Budgeting in HOA's is more art than science. I prefer to show the assessment income as being the amount of the assessments times the number of homes. The following line would be an estimate of unpaid assessments. The third line would be the expected income from assessments and derived by subtracting line 2 from line 1. Assuming that 100% of owners will pay is unrealistic and this method gives some reasonable basis for estimating what will be received.

The management costs works out to about $203 per home per year. Without knowing what the management company does, it is hard to say whether this is reasonable or not.

KevinK7 (Florida)
Posts: 1,343

Posted:

The budget begins by assuming that 100% of the owners pay the assessment. It then includes "Social Club Income" and "Clubhouse Rental."

It then breaks down all the costs into 6 categories - Administrative Expenses, Utilities, Grounds Maintenance, Professional Services, and Reserves. There are no lines for estimates of unpaid assessments but there is a line in Administrative Expenses for "Bad Debt," but that is $5000, which does not seem like much - it equates to 59 unpaid assessments, or 5 homeowners not being members for a year. But of course this amount could really mean anything.

As for what the management company does I am not quite sure of the specifics. I know they collect payments and enforce covenants, but their enforcement letters are very vague and from my experience they don't follow through, but then again my situation is a little more unique and out of all my neighbors I am a a lot more knowledgeable of the entire picture. They don't respond to emails and their phone number just directs you to the HOA's office line in the clubhouse.

There are just additional expenses on this budget that never were present a couple years ago. The board kept increasing the budget claiming insurance costs due to the 2004 hurricanes forced them to raise assessments but when reviewing the budget those costs seem so out of whack from what they used to be. For instance, there are now a lot of different little contracts and services that weren't there before in addition to management, such as $610 for "copier maintenance," and there are a whole bunch of costs that didn't exist before. While there is a significant amount put into a reserve fund and lawn maintenance is still the biggest expense at 90,000 (they just mow and edge), I don't understand how the other costs ballooned. This all coincides with the change of the BoD.

FredS7 (Arizona)
Posts: 927

Posted:

As to whether 5 nonperforming units- whether that is reasonable or not depends on where you are (and what kind of property you have). There will be historical data and the present number of nonperforming units is usually mentioned in meetings.

By the way, nonpaying owners are still "members" they are however not in good standing.

You may need to attend meetings to determine whether the board is making unnecessary expenditures or whether they are correcting missteps by the previous board.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

We are starting to look at Property Management Companies and we have been getting rough cost estimates of $10.00 per door (unit) per month for our standalone patio homes so about $120 per year times 112 homes, thus $13,440 per year. There would be no on site but all dues collection, book keeping, financial reports, site inspections, fining, etc.

Hope this helps.

KevinK7 (Florida)
Posts: 1,343

Posted:

I am just reminded of when I went to my other neighborhoods HOA meeting. They were facing bankruptcy and when it came down to the budget nobody was willing to sacrifice and they would prepay on a lot of silly or unnecessary services because they would get a discount.

SheliaH (Indiana)
Posts: 6,964

Posted:

Average costs are nice to know, but as others have said, budgeting is more of an art - you usually look at the past history of various line items and what you spent this year to help come up with a figure for next year and hope it works. Of course, you don't know what will happen next year (e.g. unexpected repairs), so you should also build in a little wiggle room.

Generally, the budget should be based on every homeowner paying in full and on time. However, I and our now former board president attended a local CAI seminar on collections a few years ago, and one of the attorneys on the panel noted that so many HOAs were having trouble with delinquencies, it would make sense to base the budgets on what was actually coming in, otherwise, they risk running higher deficits every year. In other words, if you're collecting 80% of what you should be getting, the budget should be based on the 80% who consistently pay on time.

Our former president said that was how we were going to set our budget until we got these delinquencies under control and this has been our story for the past four or five years. It hasn't been easy, but I must say it HAS made the Board more sensitive to what work is really necessary and who will do it - and we've managed to get a lot of things done. This doesn't excuse those who don't pay, but it makes your budget more realistic and if you wind up with 85 or 95% payment, so much the better. It also helps the board explain to homeowners why some services have been reduced or eliminated (want these services to resume? pay your damn fees!)

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

NpS (Pennsylvania)
Posts: 4,216

Posted:

We don't treat all situations the same:

1. We have an empty house that has been under bank control and empty for 5 years. We no longer include it our budget.

2. We have a couple of chronic delinquencies that have to be turned over for collections from time to time. We budget for full payment, but also have a line "allowance for bad debt" which we figure in at 30% of the amount due.

3. All others. We have slow payers but they usually pay - eventually. We budget for full payment, and add about 1/2% to the "allowance for bad debt" line.

It usually comes out close enough for budgeting purposes. The important thing is that the presentation is not misleading to the homeowners.

Sikubali jukumu. Read all posts at your own risk.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

The accounting of the budget revenue stream would assume that all properties are paying their dues.

The budget expenses should reveal "non-performing" or "bad debt" as an expense item to offset the projected loss. Adding the expense line will reduce the revenue the HOA board can spend in other areas while being flexible enough to handle the new revenue should a default account being paying unexpectedly.

It's a wash if done well.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Quote:

Posted By NpS on 09/29/2014 10:06 AM
We don't treat all situations the same:

1. We have an empty house that has been under bank control and empty for 5 years. We no longer include it our budget.

2. We have a couple of chronic delinquencies that have to be turned over for collections from time to time. We budget for full payment, but also have a line "allowance for bad debt" which we figure in at 30% of the amount due.

3. All others. We have slow payers but they usually pay - eventually. We budget for full payment, and add about 1/2% to the "allowance for bad debt" line.

It usually comes out close enough for budgeting purposes. The important thing is that the presentation is not misleading to the homeowners.

One more thing.....we have the identical property delinquency profile you describe and carry a "Bad Debt" expense line item in our budget to account for money we don't expect to collect. Boost your "allowance for bad debt" and you'll cover your bases transparently for the homeowners....I had missed that.

ALSO - you need to foreclose that bank-owned property if they're not paying and if the non-paying bank was the 1st Leinholder on the deed when it was foreclosed 5 years ago.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By KellyM3 on 09/29/2014 10:50 AM

Posted By NpS on 09/29/2014 10:06 AM
We have an empty house that has been under bank control and empty for 5 years. We no longer include it our budget.

you need to foreclose that bank-owned property if they're not paying and if the non-paying bank was the 1st Leinholder on the deed when it was foreclosed 5 years ago.

No one is paying. Under PAs' super-priority rules that are supposed to protect HOAs, the most we can expect to recover is 6 months fees, whether the house is sold tomorrow or five years from now. So we aren't going to spend any more money for such a small recovery. And we don't budget for the collection of those 6 months of fees because it is more likely than not that the house won't be sold this year. (In the five years since the house has been empty, the mortgage has been sold two times and is now owned by a company in the Virgin Islands.

For purposes of the budget, we don't include that house in our revenue projection or our allowance for bad debt projection. We just act like the house doesn't exist.

If we did include the house in the revenue line and the bad debt line, it would look like we had big collections problems. We don't.

Sikubali jukumu. Read all posts at your own risk.

KevinK7 (Florida)
Posts: 1,343

Posted:

I finally had an opportunity to comb through some of the old budgets. Here are some examples:

The new budget shows water at $15,000 versus $1,500 from years past. This is a separate line item than irrigation and I checked - it wasn't a misprint.

Payroll for office and maintenance used to be around $50,000. After taxes and health insurance it sometimes was closer to $60,000. This year there are a whole bunch of maintenance, service, and property management costs that total up to nearly $170,000.

Some costs have remained the same or even slightly lower but not enough to offset the increases.

The total budget used to be around $200,000 but several years ago the association insisted they needed more money (they ran a budget that exceeded expected income and had some really horrible contracts). Ever since the first increase they continued to raise the assessments and with that they started spending more but to me the recent budgetary changes seem counterproductive.

While I am not a member and the property management firm seemed to have stopped trying to enforce the defunct covenants and restrictions, the HOA couldn't help but brag about how many violation notices they mailed out in a month. They sent out 129 that ranged from cleaning mailboxes to painting houses and repairing driveways and roofs (despite there being zero architectural covenants or covenants regarding things like paint or property maintenance other than yards and weeds). The HOA has instead opted to change their internal rules and regulations and use them to supplement what they cannot change without homeownet approval.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Kevin

You say you are not a member of the HOA then why pick their budget apart? Care to pick our budget apart?

Is this not somewhat of a troll approach?

GreggT (Florida)
Posts: 77

Posted:

Quote:

Posted By JohnC46 on 10/07/2014 4:45 PM
Kevin

You say you are not a member of the HOA then why pick their budget apart? Care to pick our budget apart?

Is this not somewhat of a troll approach?

My thoughts exactly!

KevinK7 (Florida)
Posts: 1,343

Posted:

Quote:

Posted By GreggT on 10/08/2014 6:17 AM

Posted By JohnC46 on 10/07/2014 4:45 PM
Kevin

You say you are not a member of the HOA then why pick their budget apart? Care to pick our budget apart?

Is this not somewhat of a troll approach?

My thoughts exactly!

Because of the complex nature of the situation regarding my neighborhood and the expiration of covenants, I want to know what is going on in my backyard (A variety of Sun Tzu quotes come to mind.) The HOA refuses to acknowledge Florida Statutes and this is not an exaggeration - they were informed of the law and their misfiling and instead of apologizing or trying to rectify the matter they decided to ramp up enforcement against everyone else. My neighborhood consists of a lot of elderly homeowners. It was a former retirement community until a discrimination lawsuit brought that to an end. Many of the homeowners have no understanding of even the most basic functions of a HOA. Other homeowners have lived in the neighborhood so long that they have their original promised arrangements from the developer nearly 40 years ago and those arrangements are much different then what the HOA is pushing now.

It bothers me because I would like to see the club do well and my neighbors happy, as well as those who do not wish to be members be left alone. The association mailing me the budget seems like an accident. I think their property manager just included every home. This gave me an insight into the operations since the new board took over. The budgets were very open up until a few years ago when they stopped publishing them or discussing them with the membership. That is when the trouble started to escalate. Now seeing that they are pushing enforcement on people, demanding roofs be changed and driveways replaced, knowing who and what they spend their money on will help me better prepare and inform my neighbors. I also find the comparisons interesting.

While I am not a member the HOA continues to insist that covenants exist, which by default would make me a member. They have been instructed not to communicate with me but every once and a while they do with an enforcement letter but they never act (isn't that an issue regarding threat of legal action to get one's way??)

SheliaH (Indiana)
Posts: 6,964

Posted:

It bothers me because I would like to see the club do well and my neighbors happy, as well as those who do not wish to be members be left alone. The association mailing me the budget seems like an accident. I think their property manager just included every home. This gave me an insight into the operations since the new board took over. The budgets were very open up until a few years ago when they stopped publishing them or discussing them with the membership. That is when the trouble started to escalate. Now seeing that they are pushing enforcement on people, demanding roofs be changed and driveways replaced, knowing who and what they spend their money on will help me better prepare and inform my neighbors. I also find the comparisons interesting.

While I am not a member the HOA continues to insist that covenants exist, which by default would make me a member. They have been instructed not to communicate with me but every once and a while they do with an enforcement letter but they never act (isn't that an issue regarding threat of legal action to get one's way??)

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By KevinK7 on 10/09/2014 12:52 AM [emphasis added]

While I am not a member the HOA continues to insist that covenants exist, which by default would make me a member.

No. By default, it would make the current Board ignorant of the legal issues the Association has already gone through.

Just as with history, those who are ignorant of past issues will more than likely repeat those issues.

KevinK7 (Florida)
Posts: 1,343

Posted:

I understand your concern about your neighbors, but if they are members of the HOA, yet fail to educate themselves on where the money's going and who's making those decisions, there may not be much you can do. As some had said on this board, you can't always protect people from themselves. Whether people want to admit this or not, the primary reason some HOA boards run amok is because no one keeps them in check by demanding answers until it's too late. Then, they run to the media and the state legislature demanding this or that law that someone else would be responsible for enforcing.

Part of why I persist with staying involved in the community despite not being a member and why I am interested in how they operate is because they are using those funds to enforce their opinions - not facts. My experience is that with the legal system you cannot do anything and you will get taken advantage of unless you have the money. The previous attorneys for the HOA knew this and did just that. When challenged or even questioned they would go on the attack and if suit was filed they would file motion after motion to prolong the case... and then charge the homeowner the bill when they eventually fold, which they always did (except me).

How can you be subject to the covenants when you're not a member of the HOA? HOA members agree to comply with its governing documents when they buy a unit, so if you're not a member, the covenants, budget or another else related to the HOA isn't your issue. Perhaps you need to talk to a private attorney and review the documents that came with your home purchase to figure out once and for all where you stand. If in fact, you ARE a member, it seems to me you need to go to the Board with your concerns (you'd be entitled to ask questions and get answers).

This is where the complexity of my situation lies. The covenants legally expired. Unfortunately for me the state has zero involvement with companies or HOAs that operate even if the clearly worded law is followed to the "T". The covenants expired in July 2009. They attempted to refile in November, months after the expiration. The law provides zero exceptions. The HOA ignored the statutes (and case law) to continue enforcing the C&Rs. They also insist that a 2001 amendment forcing people into lifetime memberships was part of the renewal (their preservation filings were horrendous - they even refiled an amendment that was deemed illegal by federal courts). Even if I was not a member, the HOA insisted that they could enforce the covenants on all homeowners because they amended the by-laws and C&Rs to grant them sole authority to enforce covenants (before it was left up to the homeowners). The attorney at that time attempted to convert my other neighborhood into what they called a "mandatory maintenance" association where everyone regardless of membership paid but members got special privileges.

If things come to a head, you may need to get on the board yourself to try and turn things around - if you're willing to do that, I wish you well. It won't be easy or happen overnight, but if you act with integrity, you'll be ok. But first, you need to confirm your status with the HOA - if you're not a member, this isn't your issue.

That would be the last thing I do. First, I do not want the liability. The board, their property manager, and their attorney were all notified of the law and the effect it had on their actions. They have decided to ignore that. I do not want that liability. Secondly, the last person to challenge the board was smeared by them in the newsletter. They then brought in their attorney and off-duty police to stand guard at the meetings. Granted the challenger did not understand the law regarding elections, etc., and they were hung up on an issue that was not that important, they had a couple valid points but were painted as a crazy kook by the HOA and they lost their attempt to unseat the board. It is also difficult because the HOA rewrote the election rules. Before it counted every vote. Now they only count a certain percentage of people present at an actual meeting (usually held on a weeknight). They also use their enforcement to place people in bad standing so that they may not vote.

KevinK7 (Florida)
Posts: 1,343

Posted:

Quote:

Posted By TimB4 on 10/09/2014 8:05 AM

Posted By KevinK7 on 10/09/2014 12:52 AM [emphasis added]

While I am not a member the HOA continues to insist that covenants exist, which by default would make me a member.

Sorry. I meant in their eyes. They believe that their C&Rs never expired so that I am automatically a member... BUT since I told them not to contact me and informed them of what is up they sort of leave me alone. They may send a letter threatening enforcement but then they never do anything about it (isn't that illegal).

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By KevinK7 on 10/09/2014 10:56 AM

They may send a letter threatening enforcement but then they never do anything about it (isn't that illegal).

I don't see how that would be illegal (at least from a laypersons perspective). It just shows that they realize their mistake after sending the enforcement letter or that they are all bark and no bite. You would be surprise how many individual will comply simply by threatening enforcement.

KevinK7 (Florida)
Posts: 1,343

Posted:

Oh I know. Most people in my last neighborhood paid and did whatever at the first mention of a lawyer.

I thought, at least in Florida, that if a corporation uses a threat of legal action and does not follow through or provide further communications regarding a resolution then there could be repurcusions.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By KevinK7 on 10/09/2014 4:08 PM

I thought, at least in Florida, that if a corporation uses a threat of legal action and does not follow through or provide further communications regarding a resolution then there could be repurcusions.

Well, let us know if you find that statute.

SheliaH (Indiana)
Posts: 6,964

Posted:

Ok. Your original question concerned the HOA budget and average costs, but now it’s morphed into a concern that the HOA covenants have expired, but the HOA board (whoever they are) are trying to enforce them on people who aren’t members and have a management company to help them do it. You say you aren’t a member of this HOA, but have tried to ask questions about the budget, but haven’t received a response.

I ask again, why do you think this is your issue? You said they sent you violation letters, you told them to buzz off and they haven’t said or done anything since, so what’s the problem? And since it appears you’ve never paid any HOA dues and they haven’t come after you for that either, what are you more concerned about, the budget or CCR enforcement? If they try to come after you for that, then you can duke it out, bringing up the expired covenants issue and see what happens (if what you’ve said so far is correct, I would think you have a good shot at winning).

It seems this board and attorney have decided not to come after you because you called them on their apparent lack of authority and that’s good. Your neighbors will have to come up with the same gumption – the best you may be able to do for them is tell them about your concerns and issues and see what happens. If there’s a rouge board stomping over people because they don’t know any better or are afraid of being smeared in a newsletter, that’s when you need strength in numbers – and someone is going to have to get the ball rolling. It may be that someone is YOU and if you can’t/don’t do it, nothing will change.

As I said earlier, starting this type of fight can be difficult and time consuming, but that’s how change usually occurs. Now it’s a matter of what you and your neighbors are willing to do – and just because many of them are elderly, that doesn’t mean they’re dead or addled brained, or up to the fight. Sometimes people will surprise the hell out of you if you light the right spark…

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

KevinK7 (Florida)
Posts: 1,343

Posted:

Quote:

Posted By SheliaH on 10/09/2014 8:33 PM
Ok. Your original question concerned the HOA budget and average costs, but now it’s morphed into a concern that the HOA covenants have expired, but the HOA board (whoever they are) are trying to enforce them on people who aren’t members and have a management company to help them do it. You say you aren’t a member of this HOA, but have tried to ask questions about the budget, but haven’t received a response.

I ask again, why do you think this is your issue? You said they sent you violation letters, you told them to buzz off and they haven’t said or done anything since, so what’s the problem? And since it appears you’ve never paid any HOA dues and they haven’t come after you for that either, what are you more concerned about, the budget or CCR enforcement? If they try to come after you for that, then you can duke it out, bringing up the expired covenants issue and see what happens (if what you’ve said so far is correct, I would think you have a good shot at winning).

It seems this board and attorney have decided not to come after you because you called them on their apparent lack of authority and that’s good. Your neighbors will have to come up with the same gumption – the best you may be able to do for them is tell them about your concerns and issues and see what happens. If there’s a rouge board stomping over people because they don’t know any better or are afraid of being smeared in a newsletter, that’s when you need strength in numbers – and someone is going to have to get the ball rolling. It may be that someone is YOU and if you can’t/don’t do it, nothing will change.

As I said earlier, starting this type of fight can be difficult and time consuming, but that’s how change usually occurs. Now it’s a matter of what you and your neighbors are willing to do – and just because many of them are elderly, that doesn’t mean they’re dead or addled brained, or up to the fight. Sometimes people will surprise the hell out of you if you light the right spark…

i really don't deal with the HOA anymore but I also don't want to be caught with my pants down so I am staying current. I was mailed the budget so I was just breaking it down. I never saw a budget that included a management company.

KevinK7 (Florida)
Posts: 1,343

Posted:

Quote:

Posted By TimB4 on 10/09/2014 5:12 PM

Well, let us know if you find that statute.

I think I was thinking of the Florida Consumer Collections Practices Act, and other debt collecting laws. The property management firm would be acting as the debt collector and using any deceptive or misleading methods for collecting a debt, either real or invalid, would be illegal, like threatening legal action for nonpayment but having no intention (or authority) to follow through.

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