When a new HOA board is transitioning into managing the association, having solid foundations for the new members is important to the association’s success. The first step in a successful HOA board’s transition process is to set expectations, particularly if you have many board members (along with their experience) leaving the board. To do so, a comprehensive transition plan document should be in place. If there isn’t one, meet with current and new board members to document a plan. It’s a worthwhile investment, because the document can be used for future HOA board transitions.

Reserve Study

Importance of a Reserve Study

The reserve funds your HOA board has accumulated, and the future plans for those reserves, are important aspects for your community’s good financial health. It’s key to make sure reserves are adequate for right now and in the future. A reserve study makes it clear where the HOA board stands regarding its reserves.

Reserves Insights

Reserves are intended to cover the various factors regarding maintaining and repairing the common areas and amenities. Reserves should also factor in the age of the facilities because older means increased maintenance. Also, the "useful life" of the common areas and amenities should be evaluated to know how long they can be used before major repairs or replacements will be needed. Finally, replacement costs, which is the expense it would take today to replace anything, should be updated to reflect the current market costs.

What to Include in a Reserve Study

A reserve study is a physical and financial analysis that details all of the items listed above and estimates their maintenance and replacement costs when needed. Using this analysis as a basis, the reserve study determines the funding level needed over time, so you’ll know how to budget for reserves every year. If your board doesn’t have a reserve study, or the last study is more than three years old, it’s time to order a new one. Once you have a copy of the reserve study, match the recommended balance to the reserve account balance. Make adjustments in a modified reserve plan if necessary.

Budget & Other Financial Statements

Review the Current Budget

The difference between a budgeted and actual expense is the variance. It’s important to understand the reasons behind any major variances and to make certain adjustments, if needed, to the next budget.

Review Other Financial Statements

Besides the reserve study and the budget, a financial statements review should include:

• Balance sheet - shows account balances
• Income statement - reflects all money that was received
• Receivables report - includes money due to the HOA
• General ledger - includes all activity in or out of each account
• Bank statements

Fiduciary Responsibility

HOA board members are volunteers, but serving on the board involves taking on accountability for managing the community and its assets. Decisions must be made in the best interests of the community, even when they conflict with personal best interests. During the transition, look over the HOA directors and officers (D&O) insurance policy with incoming members to make sure you have coverage in case the board’s decisions are questioned.

HOA Management Company Boot Camp

Tap the resources of a local property management company; it’s like attending an HOA board “boot camp.” Many resources can be accessed online from the comfort of your home or office when you have free time. HOA board resources can help you quickly get up to speed on the details of running an effective board and keeping your community financially happy and healthy.

Take Your Time

Passing the torch from past HOA board members to new HOA board members may involve many tasks and responsibilities that need to be accomplished, but don’t try to accomplish all of these items at once. It’s more productive to take it slow and prioritize, so no one gets burned out. The new board has their elected term to get things done, so focus on the most important aspects of the transition first, then get down to business once the transition is over.

Transition Planning Using a Property Management Company

HOA experts can greatly increase the comfort level of your transition. A local property management company can help your HOA board get a major jump on creating and distributing a homeowners mailing list, governing documents, and related items into a computerized database, which can help expedite an easy transition in the quickest time frame. If you don’t have the budget for a full-time HOA manager, consider starting with an HOA analysis.