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An HOA Reserve Fund: What Is, Why We Need It, and How is It Determined

An HOA Reserve Fund: What Is, Why We Need It, and How is It Determined

An HOA’s reserve fund is your association’s equivalent to a savings account. Where day-to-day expenses are managed from the association’s operating fund, major repair and replacement costs come from the reserve fund.

Planning for and funding the operational needs of an association is straightforward. Line items such as garbage removal and lawn care services are simply added up to determine how much the association needs to generate per year/per month in dues. What becomes a bit more complicated to predict and plan for are major replacements of building equipment, roofs, siding, asphalt, concrete, etc. Responsible Boards, wise homeowners and experienced management companies have come to see that long-term planning to set funds aside now is imperative. An adequate reserve fund can mitigate or alleviate unexpected special assessments.

Reserve funds are not an extra expense to your association’s operating budget (your monthly “dues”) – they just spread out large expenses more evenly for the needs of your association when it comes to the replacement of those “big ticket” items.

One commonly asked question is how is the amount needed for the reserve fund determined? Typically, an HOA board will hire a specialized outside firm to prepare a Reserve Study. This study, usually conducted by an engineer, first identifies all of the components the association is responsible for replacing; gives those items a remaining “useful life;” identifies the years which those components should replaced; and predicts a cost to do so. In the end you are left with a comprehensive 20-30 year plan. In addition to the expenses, a funding plan is then generated to guide how much the association needs to be saving each year to meet those expenses. This savings “expense” is then planned as part of your operating budget, thus your “dues.”

A reserve fund helps your association and Board fulfill their fiduciary responsibility to ensure your property is maintained – but this fund may also be a legal requirement for the HOA. A reserve fund may actually be required by any secondary mortgage market in which the association participates in such as Fannie Mae, Freddie Mac, FHA, or VA. Additionally, state statues, regulations or court decisions may require a reserve fund be maintained. For example, any common interest community built after June 1994 is required by the Minnesota Common Interest Ownership Act to maintain a reserve fund.

Reserve funds and studies are one of the most powerful tools an association can enact. Possible statutory requirements and powerful fund planning aside, utilizing a reserve study and maintaining an adequate reserve fund is the foundation to ensuring the stability of property values.

Simplify Your Space

Simplify Your Space

A wise friend once told me a story about when he and his wife downsized from their spacious five-bedroom home into a two bedroom townhome. They made a pact,
for every item either of them brought into their townhome, one old item needed to go. They had committed to living in a smaller space to simplify their lives. Letting go of some of the household clutter was part of their commitment.

Simplified and small space living is a trending idea across the nation. With TV shows like HGTV’s Tiny House – Big Living and architect Sarah Suzanka’s popular Not So Big books, there are many ideas and tips for making the most of living in a smaller space.

We’ve pulled ideas from a variety of sources highlighting tips we feel are useful and relatively easy to implement.

Ideas for Making the Most of Your Space

1. Get Rid of Clutter. This is rule number one for a reason! Excess “stuff” can negatively impact your ability to focus and process information thus causing stress. A Princeton University study
found that physical clutter competes for our attention and creates confusion and anxiety. Compound excess clutter with a small space and you have a recipe for a less than ideal situation. Getting rid of things can be taxing as well. So, how do you decide what stays and what goes? One idea would be to determine whether or not you’ve used an item in the past 12 months. If you
haven’t, it’s likely you really don’t need it.

2. Keep the Kitchen Organized. The kitchen is one of the most used rooms in the house. Keeping things neat, tidy, and handy in the kitchen is important.

  • Some ideas that may help get you started include;
  • Adding some clear storage containers that are uniform in size and save space
  • Add hooks to the backs of cabinets doors to store things like lids
  • Install a few Lazy Susans in the cupboards for easy access to all of your items
  • Create “work zones” in the kitchen. You’ve probably heard about the kitchen work triangle, the triangular layout between fridge, oven, and sink that makes it easy for a cook to move about the kitchen. Whether or not your kitchen conforms to this ideal, it’s helpful to think of your kitchen in terms of work zones: food storage, dishware storage, cleanup (sink and dishwasher), prep, and cooking zone
  • Don’t overload your shelves – too many things in one spot will make it hard to efficiently use any of the items

3. Don’t Buy on a Whim. With each purchase, really decide if you love and truly need it. Every item brought into your space will need a place to rest.

4. Double Duty Furniture. Double-duty furniture that has storage and is easily moveable provides options for multi-use. A great example is an ottoman that doubles as a place to store blankets or games inside. This same ottoman, when equipped with foot slides, can be easily moved to provide additional seating at family gatherings.

5. Keep It Clean. Dust, clutter, and general grim can take a toll on your happiness. Keeping your space picked up each day can make a big difference. Cleaning daily, for just five minutes, can go further than it sounds. In five minutes, you could clean a bathroom sink or wipe down the stovetop. The key to this tip is consistency.

Audit & Tax Season

Audit & Tax Season

Did you know that Community Associations, as registered non-profit corporations in the eye of the State of Minnesota, are required to file Federal and State taxes?  It is also important to be aware of any requirements of your governing documents for an annual financial review or audit. If you are governed under MCIOA (Minnesota Common Interest Ownership Act), you are required to have, at minimum, an annual financial review. These two components – audits/review and taxes – are done simultaneously.

Financial reviews and audits do differ; however, they achieve the same goal. That is to have an independent, licensed CPA review the Association’s financials and the accounting practices of its management company.

Your property manager and staff at Sharper Management are working hard behind the scenes to provide the engaged CPA firm with all of the materials required. Bank statements, reports, invoices, etc. all must be provided.

Be ready for your manager to ask for the Treasurer’s signature on tax docs.  And lastly, know that it is very common for the CPA to file tax extensions, as reviews/audits are an involved process and can take time.

Sharper Management Staff Take the Plunge

Sharper Management Staff Take the Plunge

Taking “The Plunge” took on a whole new meaning for 35 Sharper Management staff members and their families on Saturday, March 11 when they participated in the Eden Prairie Polar Plunge at Lake Riley. Overall, the event raised over $110,000 with Team Sharper Management raising $5400 of the total.

“It was a great event for our staff and we are thrilled that we could make a difference for such a positive organization,” states Dan Cunningham, Sharper Management CEO.

The Polar Plunge holds 20 events over the course of three months in the state of Minnesota. Collectively, over 15,000 people participate in Polar Plunge events with each participant raising a minimum $75. All funds raised go directly to programming and events that support approximately 8,000 Special Olympics Athletes statewide.

Event organizer, Cara Nelson explains why Sharper Management became involved. “This is a small way we can give back to our community. We were drawn to the Polar Plunge fundraiser because of the community they serve and the percent of funds raised that go directly to supporting Special Olympics. It was great to see our work family take a day out of their weekend to support this cause.”

Founded in 2010, Sharper Management is a locally-owned, mid-sized property management company offering a full suite of premiere services to homeowner’s associations of all sizes. Sharper Management currently provides services to the Minneapolis-St. Paul, MN seven-county metro area.

For more information on Sharper Management services and employment opportunities, call 952-224-4777 or send an email to info@sharpermanagement.com.

Sharper Management’s Sarah Fischer Named a Finalist for Manager of the Year

Sharper Management’s Sarah Fischer Named a Finalist for Manager of the Year

March 16, 2017 – Eden Prairie, MN – Sharper Management Community Manager Sarah Fischer has recently been selected as one of ten finalists for the honored Manager of the Year Award.

Sarah was nominated for her outstanding work with Meadowcreek Condominiums in Eden Prairie, MN. Top property managers, from across the nation, compete for the title of Manager of the Year. Open to professional Community Managers, contestants go through a three-stage judging process and answer many questions regarding the communities they manage, their unique qualifications, and why they should be chosen for this award.

The Top Finalists in each category will enter the third and final stage of the contest beginning April 4 and concluding on April 15. The “Manager of the Year” Contest is open to professional Community Managers across the nation who are actively engaged in managing association-governed communities.  Learn more about the contest finalists here.

“Sharper Management is proud to have one of our Community Managers recognized with such a prestigious group. We look forward to the results and wish Sarah our very best,” states COO, Matt Froehlich.

Founded in 2010, Sharper Management is a locally-owned, mid-sized property management company offering a full suite of premiere services to homeowner’s associations of all sizes. Sharper Management currently provides services to the Minneapolis-St. Paul, MN seven-county metro area.

The Balance of Board Conflict

The Balance of Board Conflict

Hopefully you have a cohesive and harmonious Board that works collectively to accomplish the duties, goals and tasks of your Association. Many Boards, however, have levels of inner conflict. Conflict can be both good and bad. Minor disagreements on how to response to a homeowner request can lead to some constructive dialog. To a contrary example, major differences in opinion on the philosophy of Reserve savings can lead to passionate debate which can, in turn, lead to destructive attitudes corrupting the group dynamics of your Board.

Functional Conflict –  An optimal level of conflict can prevent stagnation, stimulate creativity, allow tensions to be released, and initiate the seeds for change.  Often times a Board that has a long period of continuity can fall trap to the “if it ain’t broke, don’t fix it” mentality. A new member may be elected and that long-standing dynamic is disrupted. We’ve all seen the eyerolls when the “newbie” ask questions. Embrace it! Fresh ideas and, perhaps inadvertently conflicting opinions, if presented in constructive ways and embraced with open minds, can lead to wonderful things for your Board and Association.

Dysfunctional Conflict – Excessive levels of conflict can, without a doubt, be disruptive and destructive. It will hinder your effectiveness, reduce productivity, decrease satisfaction and increase turnover of your Board. Most commonly it is simply attitudes that lead to conflict. A lack of leadership and unwillingness to collaborate will make opinions become gospel, tensions will then inevitably rise and the Board will become fractured. Here are a few things you can do to reduce this type of conflict buildup.

1.)    Positive Assumptions – as hard as it may sometimes be, assume everyone joined the Board because they want to make the Association a great place. We know there are exceptions, but put positive thoughts first.
2.)    Add Your Full Value – prepare for, show up at, and contribute to meetings. Meetings take a democratic process for a reason. Everyone has a voice and vote. Everyone is of value.
3.)    Empower Others – be the one that enables and encourages others. Not everyone is good at the points mentioned above. Everyone is of value, so help bring that out.

So long as there are people coming together in groups, there will always be some level of conflict. Just remember that a low level of conflict within your Board is not all bad. Embrace the functional type and help rid the dysfunctional kind.

Insuring Your Property in an HOA

Insuring Your Property in an HOA

Owners within a townhome or condominium community need to carry their own homeowner’s insurance. However, the details of your responsibility will differ based on your HOA and whether you own a condominium or a townhome.

As with all common interest communities, your HOA carries a master policy that insures damage to common areas in the community. In both condominium and townhome associations, coverage on the master policy can range from “studs out” (no structural coverage inside of the unit) to “all in” (coverage for anything “attached” inside of the unit). There is a wide variance on types and scope of coverage within associations. The Governing Documents dictate the scope of the coverage required on the master policy.

 Before purchasing homeowner’s insurance, it’s a good idea to be familiar with your Association’s master policy, what it covers, and whether your HOA requires minimum levels of coverage. Talk to your agent, the agent on the association’s master policy, and consult the Governing Documents (typically insurance is listed in the Declarations).

A few things to look for and be aware of include:

  1. What does the master policy for my association cover when it comes to structural coverage in the event of a loss?  Generally, are two types of policies. The first is “studs out” coverage. This covers the exterior of the unit/building, but offers no structural coverage inside of the unit. Sheetrock, flooring, cabinets, etc. would NOT be covered and your HO6 policy would need to account for that. This pretty much covers siding, roofing and common areas. The second type is “All In” coverage. This means there is structural coverage inside of your unit. There are, however, variations of all in coverage. “All In, including betterments and improvements” is a common phrase for stating the policy truly covers everything attached inside of your unit. Take your unit and tip it upside down. Everything “attached” is generally covered. Flooring, walls, cabinets, installed fixtures, etc.  Another common type of “all in” coverage is usually referred to as “original specifications.” This means that sheetrock, flooring, cabinets, etc. may be covered, but only as the place was originally built. If you installed granite counter tops or wood flooring, that may not be covered in the event of a loss. And there are hybrids of “all in” policies that cover some of the above mentioned items, but not all. It is important to be aware of the exact extent of the master policy and bridge the gaps with your HO6.
  2. How does the HOA’s insurance cover liability? Many condominium and townhome master policies will cover injuries of guests that get hurt in common areas like the pool or tennis court. It does not cover injuries incurred within your four walls. In the case of a townhome, it may not cover injuries incurred by slipping on your sidewalk even though the incident happened outside of your four walls. The Association’s policy will also not protect you if you cause damage to someone’s property when you’re away from your home. Your personal property insurance policy should include liability coverage. If you’ve owned a single-family home in the past and carried homeowner’s insurance, you are familiar with how this portion of the policy works.
  3. Covering renovations/improvements to your unit. Chances are if you’ve remodeled your unit, its value has increased and therefore you should consider adding more coverage to your property. It’s not likely that your HOA covers improvements to your property.
  4. Know the limits of your HOA’s policy. Even though your HOA has a master policy in place, in the event of widespread damage from a storm or other disaster, the coverage limits may be exceeded. If this happens, the HOA will do a special assessment for all owners to pay for the repairs. You may want to consider adding loss assessment coverage to your policy to guard against an unexpected expense such as this.
  5. Can my HOA require me to carry insurance and stipulate coverage levels? There are instances where an HOA will require certain coverages for individual homeowner’s policies. This is another very good reason to be familiar with your HOAs master policy and any HOA requirements before purchasing insurance for your home.
Contract Basics

Contract Basics

Perhaps one of the most challenging, intimidating, and without a doubt most significant actions of the Board of Directors is engaging in contracts.  Of course, assistance in navigating the abyss of contract language is one of the roles your community manager/management company can play. (And if it is a large or complicated contract, it is always advisable to have it reviewed by the Association’s attorney.)

Whether it is a service contract for the lawn/snow company, a short and straightforward contract for “time and materials” to do touch up painting, or a multi-million dollar building envelope remediation project, there are a few key contract components to review and understand.

Parties to the Contract – the contract should state the complete legal names, addresses and contact information for all involved.  Typically, the parties include the Contractor and the Association. Important note: the contract should always be with the Association; not the management company. You’ll need to pay special attention how your Association is named in the contract. It is vitally important that the legal entity names are 100% accurate. Don’t assume you are just “Happy Valley Association.” Check the Articles of Incorporation for exact wording. You may be surprised to see that it could actually be something like the “Happy Valley Condominium Association, Inc.”

Scope of Work – If an RFP was utilized, it should be all that much easier – but the scope of work should be included (or attached) and spell out specifically what work is to be done. For the Association’s protection, the more detail, the better.  Don’t be afraid to ask for details to be spelled out.

Compensation – The contract should lay out the total amount to be paid for the project, when payments are due, retainers/down payments (if required) and the manner in which they are to be paid. And once again, the specifics of the legal company name being paid is extremely important.

Time Period – Whenever possible, you should try to get contracts to state a date when the work is to begin and when it must be completed by. If it is a dynamic or complicated project, consider negotiating cost reductions if timetables are not met.

Warranty – The warranty should cover four very basic components:

1.) What is covered – materials and workmanship often times being two separate, but equally important coverages.
2.) What is not covered.
3.) How long are the materials and/or workmanship covered.
4.) What is the process and timeline for workmanship or material defect corrections.

Indemnification – It is always advisable to have a clause that states the Contractor will indemnify and hold harmless the Association, and Management company, for damages or fees resulting in claims made against the Association due to the Contractor’s work. This should also include legal costs incurred with defending any such claims.

Insurance, Licenses and Permits – Always request to see a Certificate of Insurance before work commences with a Contractor. Also consider putting language into the contract that says all federal, state and local laws, codes and ordinances are applicable.

Termination & Default – The Association should always have a path to terminate a contract, if so desired. Typical and recommended language is “with or without cause” – and often times it will give a specific period of time after giving appropriate notice. This is particularly important for running service contacts – lawn/snow contracts, as perhaps the most common example. The contract should also provide for specific language constituting a default or failure to fulfill the terms of the agreement/contract – and what each party’s rights are in a default.

There are certainly other important elements to various contracts and agreements – and by no means is this content a comprehensive analysis of the components we have addressed.  To reiterate, if it is a large or dynamic contract – or even if it just a poorly worded or confusing contract – it is always advisable to have an attorney review.

Things to Know Before Selling in an HOA

Things to Know Before Selling in an HOA

As spring rapidly approaches in Minnesota, you may be thinking of selling your townhome or condominium. In addition to fixing a few things and adding a fresh coat of paint to your walls, there are also a few actions and items you’ll want to familiarize yourself with regarding your HOA before listing your home. Because you live in a shared community, there are rules and guidelines in place for the protection of all owners in your association. Knowing these things before you have an offer in-hand will make your sale a smooth process.

A review of the Governing Documents for your association is a good idea to know what kind of things may be questioned about your association early in your selling process. If you need an updated copy of your Governing Documents, they are typically available on your Association’s website through Sharper Management.

As the seller, you will be required to provide resale disclosure documents about your HOA. These documents contain a wealth of information for a buyer that include things like:
*    Pending litigation about the association
*    Up-to-date information about assessments
*    The association’s financial status
*    Covenants and restrictions within the HOA
*    Any violations about the unit you are selling
*    Governing documents for the HOA
You may request resale disclosures through the Sharper Management website or visit this link directly to learn more. https://www.condocerts.com/

The Election of Officers vs Directors

The Election of Officers vs Directors

There is a common misunderstanding among homeowners, and even Board members, about the difference between being elected to the Board of Directors and being elected to an Officer position.

Of course, your Governing Documents may state otherwise, but an overwhelming majority of Documents state that Directors are elected by the Membership/Homeowners at the Annual Meeting – and then the Board elects each other to the various Officer positions. Typically, these positions are President, Vice President, Treasurer and Secretary. The remaining Board members are usually referred to as “Member(s) at Large.” The most common and recommended practice is to hold a brief “Organizational Meeting” following each Annual Meeting to establish these positions among the Board members.

The final point to understand is that Members are elected to the Board for a term that is typically one, two, or three years in duration. Term lengths vary by Governing Documents. Officer position, on the other hand, are typically elected each year.