There are many advantages to leading your community association or homeowner’s association (HOA) as a board member. Some positives include having the ability to affect positive change and the space to connect with community members. However, participating on an HOA board can also be quite challenging. In this blog, we’ll cover five simple approaches to HOA management that will help your community run more smoothly and effectively to protect, preserve and enhance the HOA.
Before diving in, it’s helpful to remember that an HOA functions much like a business. Accordingly, boards members must take the roles and responsibilities of HOA management seriously. When HOAs run into trouble, it’s often because board members are neglecting their duties—not understanding the role of a board member and not having a working familiarity with the governing documents and relevant governmental regulations. Whether it’s the volunteer status or the fact that you’re dealing with friends and neighbors, it can be easy to forget that a board member’s responsibility is to put the HOA’s interest above his or her own interest. Following these best practices will go a long way to getting your board in the right mindset, empowering them to lead by example, and mitigating risk.
1. Be thoughtful about how the HOA management board communicates
Communication is a cornerstone of effective leadership—not just the words you choose but the frequency, the medium, and how you take feedback. It can be helpful to remember that board members are unit owners just like every other resident in the community, and they were elected by their peers. The board should not be an adversary. If a unit owner believes that a board member is exceeding its authority, the remedy is to not reelect the board member. Many HOAs have less than stellar reputations because homeowners can feel they are too restrictive or unsupportive of the community’s residents. Often, that feeling stems from either party failing to read the governing documents before they choose to move in. Short of a finding of fraud, a unit owner and a board member will be presumed to have read and understand the governing documents.
Regularly sharing information is critical to HOA management. Residents want and need to stay informed on what’s happening in the community, Failure to disclose information with unit owners—short of litigation or personnel matters—only gives rise to the perception of potentially nefarious activity. However, like everything else, the method and timeliness of communication are subject to restrictions. Consider what format makes the most sense for your HOA. Is it a paper newsletter? Email? In-person meetings? Or perhaps a combination? Be open to feedback on the flow of communication and adjust it when needed. Keep in mind, it is crucial that communication complies with the governing documents and statutory requirements. Common sense is not always in compliance with a board’s authority and restrictions.
2. Educate the entire community on the rules, and enforce them equally
First and foremost, the association should make its governing documents available to potential unit buyers. The easiest way to do this is to make the governing documents available on the association’s website.
The board should host annual training sessions, even if there are no new members, to ensure HOA management runs smoothly after each election cycle. This practice should be made a rule or be included in the by-laws. Trainings can be conducted by a management company educator and should be included in a management agreement at no additional cost. This can also be obtained for free from the Community Association Institute. Similarly, the association should consider offering an annual townhall meeting to offer training to unit owners.
Good communication practices also extend to the rules, restrictions, and statutory regulations. No one wants a citation or to be scolded by the HOA board. When it does happen, rule violations might be because there’s a general lack of awareness of the rules. Make an effort to regularly communicate the dos and don’ts to community members. And if violations do occur, don’t play favorites. Enforce the rules equally to reduce friction in the community, and lead by example.
This issue alone is a significant reason for an HOA to have either an employed manager or an independent management company. Rules and enforcement are what they are trained to do and experienced in doing. HOA boards are highly discouraged from handling violations themselves, as emotions and conflicts can easily come into play.
Also read: 4 Habits for More Effective HOA Boards
3. Practice fiscal responsibility and transparency
One of the most challenging aspects of HOA management is dealing with financials. Boards must manage spending, track expenditures and transactions, and compile financial reports. The board is also responsible for collecting dues and dealing with delinquent accounts.
This is another benefit to retaining an independent management company, if for no other reason than to handle the association’s financials. It is also advisable that the community association manager work with the board to develop their budget.
Spending that money is where it can get complicated. Making decisions about how and when to spend can easily cause conflict. There are some ways to prevent this conflict.
- Be transparent about how funds are being allocated.
- Spend the budget wisely.
- Ask for advice when it’s appropriate.
- Obtain multiple bids for vendors and projects.
- Disclose any actual conflicts between board members and vendors, or even the appearance of impropriety.
Poor financial management can lead to dire consequences in the form of a shortage, unexpected assessments, or even bankruptcy.
Also read: 3 Common Causes of D&O Claims for HOA Boards
4. Surround yourself with the right people
Among the most important decisions you’ll make when managing an HOA involve the people you bring in to help. This starts with the members on the board but also applies to the vendors you choose. Take the time to properly vet those working for the HOA, directly or indirectly. Follow up on references. It is also a good idea to check out your local Community Association Institute member leading to a presumption that they are experienced in this industry.
Knowing the board’s limits is also important to effective HOA management. There may come a time when you don’t feel equipped to handle a particular situation. If necessary, tap into community association financial advisors, attorneys, insurance professionals, accountants, bankers, or even a professional HOA management company.
Board members are not expected to have any expertise in these areas—or even to have experience serving on a board. However, boards should never attempt to handle these matters unless they without professional assistance (it is worth its weight in gold) For example, if a board doesn’t have the knowledge, they need to navigate the annual budget appropriately, not hiring a professional to track and manage spending could very possibly be considered a breach of fiduciary obligation. There are no governing documents that require a board to save money—however, there is an obligation to protect the association’s assets.
5. Understand the risks associated with HOA management
Just as there are risks to running a business or owning a home, there are similar risks associated with an HOA. Most obviously, boards face risks related to liability. Perhaps less well-known is that the board members themselves are exposed to liability based on their actions. Not knowing or following the rules governing HOAs or the regulations within the HOA can be problematic and even criminal.
Educating yourself and other board members on the rules is essential, but it’s just one piece of the puzzle. Having a complete picture of what risks your HOA is exposed to is crucial.
However, reducing your risk doesn’t eliminate it. Fortunately, a wide variety of insurance products can protect your HOA. McGowan Program Administrators offers several options, including D&O coverage that protects those who voluntarily serve on association boards of directors, the association itself, and anyone who assists an HOA board. Get in touch to speak with an experienced agent about your unique insurance needs.