HOA Financial Statement Review

Started by DwightH1 • 10 replies • 600 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

⚡ Takes 30 seconds

Already a member? Log in

DwightH1 (Louisiana)
Posts: 2

Posted:

Good Afternoon,

This week I will be reviewing the financial statements of my HOA. It is a 200-250 unit townhome complex built in the 1980s wood exterior. The neighborhood is managed by a corporation and based on financial statements a few years back, we seemed to be getting overcharged relative to the work being completed.

For instance the average amount that each resident pays towards the monthly due is $100. We pay a 1 maintenance employee and the HOA property manager $10,000/m (seems high in my opinion). The maintenance salary does not include materials for repair. For the year being discussed, only $14,000 in material costs. Maintenance man is not responsible for cutting grass as this is handled by contract.

Is there anything I should be looking for in particular to understand if we are being over charged. For example: Is there an industry standard % of HOA management fee/maintenance fees relative to HOA collected? Or repair costs relative to hoa collected? Etc.

The financial records are kept in the management office located in our neighborhood.. I am allowed to view the financial records on site - I’d like to know ahead of time if it is normal to request copies and receive them - if not, what’s the best way to record keep the numbers I view for later reference?

Thanks,

Dwight

TimB4 (Tennessee)
Posts: 21,059

Posted:

Ask to review the reserve study as well.

A good portion of your assessments should be going to fund the reserves.

If the reserves are not fully funded, then you are underpaying.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Sounds like your paying the maintenance person for their labor. Which most likely makes them a 1099 contractor. This relationship makes sense as the HOA would pay for the supplies and then pay labor to someone to do the work. What is the issue with this?

Go shopping for other potential management companies if you think over paying. Plus get the details of what your MC does for your HOA. Like do they enforce rule violations? Are they responsible for collecting the money and writing checks?

Simply prove your existing costs first before you start shopping for a better deal...

Former HOA President

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Dwight

Are both the PM and the maintenance man full time, on site employees?
It is $10K per month for both. What does the PM and his company do for you
such as collect dues, pay bills, etc.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Among other things, you should look at how much is being contributed to the reserves.

HOAs typically have an operating account, which takes care of routine, day-to-day stuff, and a reserve account which is earmarked for the replacement of big ticket items such as road re-surfacing.

Contributions to the reserve can eat up a significant chuck of the assessments if your association is playing catch up for past missteps. These missteps can include under-funding the reserves or raiding the reserve account for operating expenses. These two things are common when boards set the annual budget artificially low, either through ignorance or because they don't want to put up with the howls if they raise assessments to where they should be.

Your board should be doing reserve studies periodically; every 3-5 years is often recommended, although some HOAs require annual ones. The reserve study should tell the board how much they should be setting aside for future spending.

Long story short: you should not expect to match the assessments dollar for dollar with your routine maintenance. If they do match, you've got a bigger problem than paying too much for stuff.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By CathyA3 on 03/07/2021 11:20 AM
Among other things, you should look at how much is being contributed to the reserves.

HOAs typically have an operating account, which takes care of routine, day-to-day stuff, and a reserve account which is earmarked for the replacement of big ticket items such as road re-surfacing.

Contributions to the reserve can eat up a significant chuck of the assessments if your association is playing catch up for past missteps. These missteps can include under-funding the reserves or raiding the reserve account for operating expenses. These two things are common when boards set the annual budget artificially low, either through ignorance or because they don't want to put up with the howls if they raise assessments to where they should be.

Your board should be doing reserve studies periodically; every 3-5 years is often recommended, although some HOAs require annual ones. The reserve study should tell the board how much they should be setting aside for future spending.

Long story short: you should not expect to match the assessments dollar for dollar with your routine maintenance. If they do match, you've got a bigger problem than paying too much for stuff.

Sound advice.

MaxB4
Posts: 3,513

Posted:

I am wondering how much experience the OP has in reviewing financial statements from an HOA. First and foremost, they should know how many units are in your HOA, 200-250 is a little vague. A standard fee, depending on the type of service provided is $10.00 a door for management. If you have a full time, on site manager, then $10K per month for the pair is not unreasonable.

SheliaH (Indiana)
Posts: 6,964

Posted:

"Overcharge" is subjective - what's "too high" to you may be fine to someone else, so let's stop with that way of thinking right now. There is no "industry standard of "assessments relative to percentage of management fee" - at least nothing that I've heard of and I was treasurer of my HOA for 5 years before stepping down.

Everyone's given you good advice - (1) read your documents to see what services the Association is supposed to provide and (2) review your reserves study to see if your reserve deposits are keeping up with the recommendation. It's ok to take a look at the property manager contract, but you should consider what that person is doing and compare that to what it would cost if you had, say, four or five people to do certain tasks separately. For example, your property manager likely prepares and sends requests for proposals to various vendors, maintains account records for all the owners, manages the website if you have one, etc. How much would it cost to break out those jobs?

You say you live in a townhouse community - so do I and if you have 200 units at $100 a month (we have 156), that seems a little low to me if you were built in the 1980s (we were built in the 1970s and my building was built in 1978.) This smells to me like your board may not be keeping inflation in mind - according to the inflation calculator, something costing $100 in 1980 may cost $317.45 in 20201 (a cumulative inflation rate of 217.5%) You also have to keep in mind costs can vary based on where you live - maybe you pay more for insurance because you have crazier weather.

Looking at the last 3-5 years of income/expense statements is a good place to start after reviewing the other stuff. Hopefully, it's broken out by line item so you can see what's gone up or down over the years. From there, look at the board meeting minutes to find out why - labor costs go up, as do materials, and you don't say what kind of materials you were looking at. $10K a month for two employees seems about right - you ARE factoring in income taxes and benefits, aren't you? How long have these folks worked for the association - surely you don't expect them to do the same job for years and years with no raises, do you?

Finally, don't forget about delinquencies - if there have been any, the association has to pursue those homeowners and that costs money. If that's gone up and down, that will affect everything else the association must pay for. It's unfair for some people to skip paying while you and everyone else pay your fair share, so you have to jump on delinquencies quickly.

So that's one person's opinion. Good that you're going to take a dive in the expenses. As you do, you may want to think about ways you can help the board keep control of costs. For example, if there is a website the property manager must update, would you be willing to volunteer to do it to help save money? Would you be willing to spearhead a committee that would look at some of the line items that have spiked faster than others and research vendors who may be able to provide services for a better price? How about homeowner behavior - do you have a heavy trash problem with people dumping illegal junk in the dumpsters and the association has to pay to fish it out (our community has wrestled with that for years - two weeks ago a sofa showed up and it's not the first time). Some homeowner education on what they can do to keep costs down would be warranted.

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

CathyA3 (Ohio)
Posts: 6,299

Posted:

Another thing to keep in mind about property managers:

Many of the full service companies actually offer a menu of services that communities can pick and choose from. It's not one-price-for-everyone.

So someone who is reviewing the financials needs to know exactly what services a particular association has signed up for, and what constitutes competitive pricing in that particular part of the world.

In addition, some services are more important for some communities than others. Multi-story condo buildings need prompt, after hours emergency service because a plumbing problem upstairs can't be ignored. In an HOA with single family detached homes, this is less of a concern.

You generally get what you pay for. In my area one firm tends to charge a bit more for their services - but they are top notch, have knocked the former #1 firm in my area out of its place at the top of the heap, and are having to turn away business because they can't keep up with the demand and maintain the quality of their service. In contrast, the lower priced companies tend to provide lower quality or less service.

A spreadsheet will only tell you what is being spent on the manager. It will not tell you if you're getting value for the money.

DwightH1 (Louisiana)
Posts: 2

Posted:

Thank you for all the suggestions.

Update:

I'm still having to wait to make a sit-down appointment to review the financials in the community office. I did not get an answer to whether or not it is normal for me to request copies of the financials or what I should be allowed to transcribe for review later.

As for the employees, the HOA manager and the maintenance man are not onsite for 8 hours a day. The HOA manager is onsite 4 hours max, but usually 3 from 9:00am - 12:00pm. Any time after that, she will respond to emails within 48 hours. The onsite maintenance man does not have fixed hours. He is here at 9:00am until usually 2:00PM.

MichaelS56 (Minnesota)
Posts: 858

Posted:

Also ask for a copy of the contract the association has with the property management company. That contract should list all services and costs that is charged. Question who is monitoring the daily duties of the maintenance employee?

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

✓ Ask follow-up questions
✓ Share your experience
✓ Get expert advice
✓ Access 350,000 discussions

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here