Category: Articles

It is never too early in the year to start thinking about HOA budget preparation for your association. AAM begins the yearly budget preparation timeline with budget training sessions for Community Managers in August. The Association Board of Directors also plays an important role in the budget process, so we feel it is important to share a few budget questions for your consideration. August is right around the corner, so let’s get ready for budget season!

Please consider the following during your HOA budget preparation:

• How well is the association performing versus the current year’s budget?
• Is operating cash flow for the association trending up or down over recent years?
• Is the current budget meeting the expectations of homeowners?
• Have changes in economic factors impacted the assessment level?
• Are reserve contributions at an appropriate level to ensure long-term financial health?

Before diving into a fresh budget season, it is important to compare the current year’s budgeted income and expenses versus actual financial activity while focusing on HOA budget preparation. AAM provides a month-to-date and year-to-date variance report in the monthly financial package that explains why certain income or expense activities are over or under budget. If additional details are needed, the community manager and accounting department will be happy to provide information for budget decision-making purposes.

Under normal circumstances, the yearly operating income and expenses of the association are fairly predictable. With that being said, there is not a lot of room for error in a zero-based budget. Planning for the worst-case scenario will help ensure adequate cash is available to cover operating expenses. Start the budget process by taking a conservative approach and make adjustments as needed during HOA budget preparation. Balance sheet information is sometimes forgotten during the budget process, so please remember to take a look at cash flow trends for the past few budget seasons. Maintaining a modest operating cushion is acceptable, and it will help the association cover any unexpected expenses that might arise from time to time. If nothing unexpected occurs, then it provides an opportunity to fund community enhancement or make an additional reserve contribution.

Members of the association buy property with certain expectations in mind, and some of them are not shy about sharing feedback when those expectations are not met. As this feedback is gathered each year, there is an opportunity to make adjustments and improvements through the budget process. Associations vary in size, design, lifestyle, amenities, and owner demographics. Some of these variables may change over time, so the budget will also evolve. If new expenses or services are being added to the budget, they should be carefully evaluated. The short and long-term impact should be considered, as well as how the association will cover the expense. Enhancements to the community covered by operating funds also impact long-term reserve planning, especially during HOA budget preparation.

Unfortunately, economic factors such as wages or the general cost of services may increase each year. Increases in minimum wage requirements in some areas of the country have impacted many vendors over the last few years. Each year, the Board should carefully evaluate whether an assessment increase should be approved. In most cases, large assessment increases can be avoided by implementing smaller increases at the appropriate time. This will help avoid unpleasant surprises and special assessments.

Planning for Reserve Funding and Expenditures is essential to the long-term financial health of the association. Associations should have a Reserve Study that identifies major replaceable components. Component details include the remaining useful life of an item at the time of the study, typical life spans, and estimated future replacement costs. The study combines this data into a 30-year schedule of repair and replacement activity. Careful analysis of the yearly reserve contribution recommended in the study is important when considering how much the association should contribute to reserves as part of the annual budget and during overall HOA budget preparation. The Reserve Study should be updated as necessary, with new studies performed every three years or as the governing documents instruct.

The budget is a financial road map to ensure the association successfully navigates through each year of financial activity. The budget also serves as a guide for long-range strategic reserve planning, which are critical aspects of HOA budget preparation. 

If your community is in need of an Annual Budget check out our Services Page.

Top Five Considerations for Selecting an Association Management Company

As Board members of an HOA, you recognize the time and effort typically involved in conducting a search for professional community association management. In order to help with the search and to better evaluate management company candidates, below are the top five considerations for selecting an association management company as your community management partner.

Communication 

Effective and prompt communication plays an important role in community management and the overall success of a community. Partnering with a management company that emphasizes and promotes a strong communication plan is crucial for selecting a community association management company. Boards and homeowners need to stay updated and informed on what is happening in their community.

A well-suited management company believes in always being there for their homeowners and Board members, treating them with the utmost courtesy and respect. They accomplish this by making themselves readily available to answer questions, solve problems, and address any issues that should arise, through email, web, telephone, or in person.

Innovation in Technology 

In today’s technology-driven world, a well-qualified management company will continue investing in technological solutions and service offerings that enhance both management productivity and the user experience of their Boards and homeowners when selecting a community association management company.

Ensuring that Board members and homeowners have access to the best technology available should be a top priority of your community management company. Technology services offered should provide the Association with an array of helpful tools, adapt to the community’s specific needs, and be secure, productive, collaborative, and efficient.

Client Longevity 

A well-established management company will have an extensive portfolio of long-term client partnerships and first-rate references. A significant percentage of its current client base will have been with the company for several years. This continued partnership speaks volumes about the level of services when selecting a community association management company.

Other factors to consider about a management company’s client base includes their size and growth. Is the company’s client base growing or stagnant? When’s the last time they added a new community? How many communities have they added in the past year?

Also, the HOA should evaluate the range of associations the company serves. In other words, is the focus broad or narrow? A full range of association management would include master-planned communities, active adult communities, traditional neighborhoods, condominium properties and more. The HOA should select a management company with experience in its community type.

Qualified People

The services of the community association management company will only be as good as the experience and expertise of the people providing them. Therefore, to deliver the highest standards, the company’s people must be highly trained and motivated. In certain positions, professional credentials are required. In particular, HOAs should evaluate the management company’s executive team, community managers, human resource department, accounting personnel, information technology department, and support staff when selecting a community association management company.

For example, do key personnel hold college degrees and/or professional certifications/designations? Does the company promote a positive culture that drives both success and employee satisfaction?

On-going Education 

Continuing education and training is essential for both the community association management company’s internal staff and the HOA’s Board members. The management company must make it a priority to invest regularly in staff training for everyone involved in managing the community, as well as providing training opportunities for Board members.

On-going education and training ensures that community management professionals have the skills needed to help communities succeed by keeping current on all issues, legislative updates and best practices concerning association management. Additionally, providing training opportunities to HOA Board members helps develop the skills and knowledge necessary to effectively lead their communities and make informed decisions. Selecting a community association management company that prioritizes education is vital.

Tips for reviewing your Association’s monthly financial statements.

1. The month-to-date and year-to-date budget comparison variance report is a great place to start your financial report review. This report is designed to provide board members with explanations of variance that go beyond the information provided by dollar figures in a standard income and expense report. Your Community Manager can explain valuable details related to operating and reserve activity that cannot be captured in standard accounting reports. Also, it will assist you with questions you may have about the financial performance of your community. It may also answer many questions in advance of Board meetings so meeting time can be allocated as efficiently as possible.

2. A review of the balance sheet will provide the Board with a snapshot of the Association’s assets, liabilities and equity as of the end of each month. Operating and reserve cash balances are listed separately so the Board can make informed cash flow decisions. AAM’s accounting staff members reconcile each operating and reserve bank account on a monthly basis. Bank reconciliations and statements are provided in the full financial package to ensure financial transparency. As part of the reconciliation process, our accountants ensure total account balances do not exceed FDIC limits at each financial institution. They also assist in setting up new money markets and certificate of deposit accounts.

3. The General Ledger is the source of all accounting data used to build the monthly financial reports. Reviewing this activity provides detailed debit and credit information for each transaction processed during the monthly reporting period. Digesting this information may be a challenge, but once you are familiar with the report format, you can find many of the answers you might be searching for. It provides transaction dates, code descriptions, memos, debits, credits, and dollar figures.

4. At least one designated Board member (generally the Board Treasurer) receives an additional monthly PDF file by email containing images of all paid invoices for the month. This information is available to provide financial peace of mind and full transparency.

These are just a few quick tips for reviewing the monthly financial reports. Please feel free to contact your Community Manager as a starting point for any questions related to the financials. Additionally, we have an experienced and dedicated accounting support team ready to assist your Community Manager and Board of Directors at all times.

1. Monthly Lot/Unit Closing Projections

When utilizing cash flow budgets, it is critical that closing projections are as accurate as possible. When a community is operating in a shortfall/subsidy mode, the timing of closings can greatly impact the flow of assessment income, working capital fees, and/or reserve contributions. If the closing projections are too aggressive, the budget may project a lower shortfall/subsidy than is actually needed. This can sometimes result in our clients needing to write a check. One of the best budgeting tips is to maintain accuracy in closing projections.

Suppose the closing projections are not aggressive enough. In that case, the shortfall/subsidy may be greatly reduced (always a good thing!), but the timing to start transition committees and/or schedule a transition meeting may be off.

We encourage these items to be considered when providing us with your lot/unit closing projections. Another key budgeting tip is to be realistic in your projections.

2. Landscape and Amenity Turnover Projections

In all new communities, the landscape and amenities will eventually be turned over to the HOA for maintenance. The turnover process is finalized once an inspection is completed, at which time the Association will become responsible for the utilities, maintenance, and vendor contracts. Our Developer Services Team will project these expenses in the cash flow budget. If the timing of the turnover is not accurate, it can cause substantial budgeting discrepancies. In this case, being less aggressive is advisable than being too aggressive. If we plan for a community center in March but don’t take it over until May, we will not have the money that was budgeted and will not have the funds necessary to pay these expenses. Including turnover projections is one of the essential budgeting tips for new communities.

Reversely, an additional unbudgeted subsidy may be necessary if it is taken on sooner than budgeted.

3. Review Staffing

If your community plans to include employing staff, it is important to consider the need to add additional staffing as the community grows. If closings are happening faster than projected, you may need to hire additional staffing sooner than originally forecasted. Additionally, if the community has seasonal residents, it may be helpful to be flexible with staffing so that in peak months, there is staff to cover the needs of the community by utilizing seasonal and part-time employees. Flexibility in staffing is another excellent budgeting tip that can help manage unforeseen changes.

4. Review the Reserve Budget and Funding Level

With all communities, we will create a Reserve Budget each year along with the Operating Budget. If the community has a reserve study, we prefer to use the study’s recommendation for the annual contribution and the expenditures. We may also suggest a reduction in the recommended contribution if the Reserve Account is growing faster than projected. This often happens when Reserve Fund Fees are collected with each home closing and closings are exceeding projections. In this case, we may reduce the contribution from the Operating Budget, which in turn reduces shortfall/subsidy. The main goal is to provide a well-funded community to the homeowner Board at the time of Board transition.

5. Set Realistic Assessments and Have a Plan to Reach It

We understand the importance of creating a cash flow to Build-Out budget that puts a realistic plan in place so the community can gradually reach the Built-Out Assessment amount. By providing the information requested above each year, we can provide our clients with tools that can be adjusted as may be needed throughout the year. We share a common goal with our clients, which is to minimize subsidies and reduce the impact of an assessment increase on the homeowners at the time of Board turnover. Setting realistic assessments is one of the key budgeting tips that ensure financial stability.

Quorum

A quorum is a very important issue related to board meetings. The term “quorum” refers to the minimum number of members that must participate in order to conduct business. If there are not enough members to make up the quorum, the meeting can’t be held, and actions can’t be taken. Quorum requirements are typically defined in your Bylaws.

Notice for Regular Board Meetings

Unless otherwise provided in the documents, the Arizona State Statute requires all Board Meetings to be noticed at least 48 hours prior to the meeting via conspicuous posting, newsletter, or any other reasonable means as determined by the Board of Directors. However, the notice provision only applies AFTER the termination of declarant control of the association. Check your Bylaws for other possible notice provisions.

It is also important to remember:

• The notice must contain the time and place of the meeting.
• Notice is not required for Emergency Meetings if action must be taken before notice can be provided.
  • The minutes of the Emergency Meeting shall state the reason necessitating the Emergency Meeting. The minutes of the Emergency Meeting shall be read and approved at the next regularly scheduled meeting of the Board.

Additionally, it is statutorily required that most topics must be discussed in Open Board Meetings, such as:

• Annual Budget
• Assessment Increases
• Contract Negotiations
• Changes in Rules & Regulations
• Financial Decisions
• Improvements to Association Property

Notice for Executive Session

The membership notice requirements of an Executive Session is a new statutory requirement from 2017. Per Section C. of A.R.S. §33-1248, before entering into any closed portion of a meeting of the Board of Directors, or on notice of a closed meeting, the Board shall identify the paragraph under subsection A. of A.R.S. §33-1248 that authorizes the Board to close the meeting.

Section A items include:

1. Legal advice from an attorney for the Board or the Association.
2. Pending or contemplated litigation.                                        
3. Personal, health, and financial information about an individual member of the association, an individual employee of the association, or an individual employee of a contractor for the association.
4. Matters relating to the job performance, compensation, health records, or specific complaints against an individual employee of the association or an individual employee of a contractor of the association who works under the direction of the association.
5. Discussion of a unit owner’s appeal of any violation cited or penalty imposed by the association except on request of the affected unit owner that the meeting be held in an open session.

Meeting Minutes

Meeting Minutes are used to record the Board’s actions, show why the association took a particular action and preserve the Director’s voting records. It is not necessary to record word-for-word.

Meeting Minutes Should NOT Include Proceedings of a committee Summary of guest commentsSecretary’s opinion Debate relative to a motion.

Meeting Minutes Should NOT Include Proceedings of a Committee Summary of guest commentsSecretary’s opinion Debate relative to a motion.

Agenda

An agenda is critical to an efficient and organized meeting. It should have enough information to serve as a helpful guide, but not be so overly detailed as to be unwieldy or distracting. Also, it is a statutory requirement to provide copies of the agenda to the members at the meeting. 

• The president typically sets and reviews the agenda prior to distribution.
• The meeting should be “timed” for the greatest efficiency, and the Board’s copy of the agenda should refer to pages within the Board packet, which should be numbered.
• It can be posted on the website or in another format to enlist community involvement.
• Template for the meeting minutes.

Parliamentary Procedure

Parliamentary procedures should be used to run effective meetings. This helps the minute-taker record the actions of the meeting and protects the right of the majority to decide the right of the minority.

• One question at a time, one speaker at a time.
• Personal remarks are always out of order.

Motions

• Motions are used to introduce business.
• Main motions require a second.
• The secretary should repeat the motion for accuracy.
• Motion can be modified before stated by the Chair.
• The motion can be amended after being stated by the Chair.
• Motion can be withdrawn up until the time it has been stated by the Chair.
• A motion must be considered if a first and second are on the table.
• Must give homeowners in attendance the opportunity to speak to an agenda item prior to the Board vote.
• The motion must be made and seconded before the discussion is conducted by the Board prior to the Board vote.
• Use a Simplified Roberts Rules of Order.
• In most cases, the President of the Board only votes in the event of a tie.

Here’s a simplified example of how this process might work:

• The President calls for a motion on an agenda item, and a Board Member indicates they make a motion.
  • Example: “I make a motion to accept the bid from XYZ Landscaping to replace granite in tract C of the common areas at a cost of $5,000.00”
  • A second Board member will second the motion
  • The President will restate the motion and then call for a discussion
  • President will call for a vote: “All in favor say aye, opposed nay.”
  • Board President will announce the results of the motion, example, “Motion carries unanimously.” Or, “Motion fails with a vote of 2 ayes, 3 nays.”

Tips for Running Effective Meetings

• Be prepared – review your Board packet prior to the meeting and ask questions in advance to the Manager to be better prepared for the meeting. Board packets should be made available 3 to 5 days prior to the meeting.
• Request the Manager to paginate Board packets.
• Set the tone of the meeting during “Orders of the Day.”
• Bring your Board book.
• Provide an open forum.
• Establish time limits (1 to 2 minutes per homeowner) for members who wish to speak.
• Use “Request to Address the Board” forms for the open forum.
• Limit the number of questions.
• Use a timed agenda.

The Role of the Board and Its Members’ Relationship to Each Other

It is critical that the Board provide a unified front. With regards to discussions, it is essential for the individual Board members to present different views on a given subject.

You will be required to confront difficult issues, such as:

• Potential Assessment Increases
• Contract Changes
• Homeowner Appeals
• Enforcement Action
• Foreclosure Action

This may at times involve having heated or passionate discussions and debates. However, once the vote is taken and majority rules, you should attempt to put personal differences aside and move forward. Most importantly, always be respectful of fellow Board members and those in attendance at the meeting.

Dealing with Conflicts during Meetings

To eliminate or minimize conflicts during meetings, be proactive. Set the ground rules for the meeting early on, such as that a speaker must be recognized by chair of the meeting before speaking, the chair may limit the amount of time of those wishing to speak, the number of times they may speak, etc. Put those ground rules in writing and distribute/review at the beginning of the meeting.

Those who attempt to provide unsolicited input should be called “Out of Order.” It may take several meetings to educate the members; however, remaining on task and sticking to the agenda is critical to efficient and effective Board Meetings.

AAM employs a team of Certified Legal Document Preparers (CLDP). Our CLDPs maintain their certification in full compliance with the Judicial Code in the presiding states where we currently do business. For instance, Rule 31 of the Arizona Supreme Court, approved in July 2003, requires that persons and entities who are non-lawyers and engaged in the preparation of legal documents shall obtain the certification of Legal Document Preparer (LDP). This is not a certification to practice law or render legal advice. Still, it permits an LDP to perform or provide limited and specific legal document preparation and provision services. In addition, a certified LDP must comply with the requirements of the Arizona Judicial Code, Section 7-208, as adopted by the Arizona Supreme Court, which provides for the statewide certification of legal document preparers. It was adopted due to the Court’s recognition of the need to protect the public from possible harm caused by non-lawyers providing certain legal services, such as document preparation and/or provisions.

AAM’s CLDPs provide clients with a multitude of services that include but are not limited to, payment plans, small claim documents, collection policies, electronic recordation of trustee deeds, articles of incorporation, CC&Rs, bankruptcies, and annexation documents. These services have been proven to save time and money for our customers! First, our clients can benefit by having AAM listed as the statutory agent on the Annual Reports and the Notice of Community (if AAM is not already listed). It saves time when Notices against the Association can be sent to AAM directly.

AAM is readily available to handle all notices on behalf of every community managed. This is particularly convenient in new home sales that use outside mortgage companies. In addition, AAM, listed as the statutory agent, ensures that closing documents are delivered to the appropriate parties. Second, AAM has saved our clients thousands of dollars by ensuring that the common areas are consolidated and deeded to the association. Our CLDPs submit for Common Area Valuation to ensure the common area tracts are valued appropriately at a $500 value per parcel. For example, in Maricopa County, a deed must be recorded by June 30th, transferring common areas to the Association to be eligible for Common Area Valuation for the following year. We work with our developer clients for new communities to confirm as many common areas as possible are deeded before this deadline.

There is great assurance and value in having a professional HOA management company manage your association.  These professionals bring a lot to the table, for example:

• Knowledge of current and changing legislature as it pertains to HOAs
• Years of expertise and experience with a myriad of HOA situations and issues
• Education and training for current and new board members
• Aid in managing Board finances
• Aid in collecting assessments
• Creating monthly/quarterly/yearly financial reports
• Access to necessary forms (architectural submissions, etc…)
• Aid in communication between Board members and homeowners
• Access to customer service and emergency numbers to help with questions and issues that may arise
• Access to vendors
• An expert who will watch over projects and manage their completion
• A guiding force who will be there to answer questions and move the Board and Association in the right direction

With an AAMs professional hoa management expertly managing your community, we aim to give you total peace of mind in knowing that your neighborhood is well cared for and simply a great place to call home.