Setting a yearly budget is a crucial part of a homeowners association, but the laws about how the process should go are often poorly understood. This can lead to less-than-ideal practices, so we’re providing some best practices for your HOA board as it sets its budget this year.
Look at Your Governing Documents
These should include description of how the HOA budget is to be adopted every year. Most of the time, the budget will be adopted by either the HOA board or by vote from homeowners. And in some instances, you might need both, especially if you’re needing to adopt a budget that includes a big assessment or dues increase that will largely affect homeowners and would require their vote.
Consider Your Reserve Studies
Staying up-to-date on reserve studies is so important for understanding what will be needed in terms of future replacements and repairs for the community. A reserve study will also let you know how much money is currently in the reserve fund versus the estimated life remaining and overall condition in certain elements on the property so you better know what to expect.
Setting yearly assessments is a big deal because it affects homeowners directly. After you’ve done everything necessary to develop your HOA budget for the coming year, it’s time to set those assessments in one of two ways: either charging each homeowner equally or charging each owner based on the percentage of property their unit holds.
Make sure you’re getting the best deal and don’t be afraid to negotiate with your current or new vendors. The first estimate doesn’t have to be accepted if you think changes should be made.
Share Money-Saving Tips
Giving owners ways to cut back in the new year will help everyone be more conscious. Send out emails or newsletters to the community with best practices for water usage, etc.
Lastly, communicate regularly. It’s easier to get budgets passed if you’re open and honest, getting the community involved in understanding the numbers and taking responsibility for their part. Plus, you might be able to get input or ideas board members hadn’t thought about yet!