Preparing the HOA Annual Report for Homeowners

Every year, homeowner’s associations big and small must prepare a report for their community. This annual chore is the responsibility of the HOA board.

Unlike some HOA activities, the annual report is often a legal requirement. In many states, the annual report must be filed with the Secretary of State each year. In some places, the regulations allow filing every other year.

Some states require that the report also be made available to homeowners. Others do not. The annual report is subject to a lot of variable requirements. Your HOA board must know the legal requirements for your state before compiling the report.

If your HOA employs a property manager or property management company, they will be an invaluable resource for the annual report. They will help you abide by state laws so your association remains in good standing. They can also help you compile the necessary information.

What is an HOA Annual Report?

The annual report your board prepares serves two purposes. First, it keeps your HOA in compliance with state law. Second, it informs homeowners of the financial and other activities undertaken by the HOA throughout the year.

In general, the report details the association’s finances. Balance sheets, details of large expenditures, and reserve funding information are common requirements.

The report is also a chance for the HOA to practice transparency with homeowners. By providing a comprehensive look at the operations and finances of your HOA management, your community can see how their fees are used.

California HOA Annual Report Requirements

Since there is so much variability in state requirements, we’re going to talk about California as an example. Their Davis-Stirling Act governs HOA requirements.

An HOA in California is required, under the Davis-Stirling Act, to deliver two annual reports to homeowners. The first is the Annual Budget Report. This report must include the following information.

• Pro forma operating budget. Pro forma is a term that describes how finances are calculated and analyzed. This data basically summarizes your HOA’s projected cash flow.
• Reserve fund summary, detailing the balance of the current reserve account.
• Reserve fund plan summary. This is where you provide details about how your HOA plans to fund its reserve accounts going forward.
• Documentation of any outstanding HOA loans.
• Documentation of the HOA’s current insurance policies.
• A series of statements on topics including deferred maintenance, reserve funding, special assessments, and how projected funding for major projects is calculated.

This feels like a lot of work. But this is information your HOA board should have readily available at all times. Resources like your reserve study and your budget planning committee documents supplement routine bookkeeping documentation.

You have this information. You simply need to pull it together for the Annual Budget Report in California.

The second required document in California is the Annual Policy Statement. This one is less about finances and more about HOA procedures. This is where you provide contact information for your HOA representative. That information is vital, as the statement also includes documentation of sometimes tricky areas.

California HOA members receive annual information about topics including assessment collection, policies about discipline and fines, architectural modification procedures, and the process for resolving disputes.

Property managers (PMs) will be your best friends through this process. The PM should serve as a point of contact for homeowners. They can handle questions about processes and procedures of all types. This takes an enormous burden off the shoulders of the board.

Now that you know more about California, you can see how important it is to know your state’s requirements. They vary widely, and compliance is crucial to the good standing of your HOA.

What to Include in Your HOA Annual Report

Even if your state has no requirements for an annual report from your HOA, your board should prepare one. Why do the work if it isn’t required? The best reason is that it is part of the board’s job to keep their community informed.

A board that takes its fiduciary duties seriously uses an annual report to offer information and transparency to its members.

The California requirements are a good guideline for what to include. Financial information is what your homeowners expect and deserve.

Discuss revenue and expenditures, cover the operating budget, and provide reserve funding information. This is an excellent chance to offer explanations about how reserve funding works and the health of your HOA’s reserves.

Balance sheets are important, but so is putting them into context. Use this opportunity to make financial information easier to understand. Your homeowners will appreciate not only the transparency but the effort to make everything digestible.

They will also appreciate the reassurance of knowing what type of insurance the HOA carries. And putting policies and procedures for HOA rules in writing makes disputes less likely and easier to handle.

This is also a great chance to present HOA accomplishments. The work of an HOA board can go unnoticed by community members. Highlight the projects completed and their value to homeowners. This is a time to celebrate accomplishments.

HOA boards need to earn the trust of their communities. They also need to keep it. Providing this kind of ongoing transparency is a step toward both.

What Not to Include in the HOA Annual Report

Remember that your HOA board’s fiduciary duties include confidentiality. If your board includes information about pending lawsuits they must protect the privacy of any parties involved.

This is not the place to talk about petty arguments or neighborhood spats. If there is a serious controversy that affects the community as a whole, it must be discussed without any revealing personal details.

Check your HOA bylaws and CC&Rs before writing your report. Not only do you have to abide by state law, but you must also abide by your governing documents. If the two cannot be reconciled, it’s time for the board to talk about revising the HOA documents.

Property managers and management companies can assist in assembling both mandatory and voluntary annual reports. They will help you include what’s necessary and avoid what is inadvisable.

Preparing your HOA annual report may feel daunting. But remember you have the tools at your disposal to make it easier. Use your Homey platform to gather the financial information required by your state and prepare an easily digestible report for your homeowners.

The annual report may be a requirement, but it’s also an excellent chance for your HOA board to review performance throughout the year. Be proud of your successes. Use the information for future budget planning.

Your HOA benefits from every comprehensive look at its finances. Your community benefits from knowing how their fees are spent. The HOA annual report has great value beyond mandatory state reporting.