3 Common Financial Mistakes HOA Boards Make—and How to Avoid Them

When it comes to managing a HOA, financial oversight is one of the most critical responsibilities of the board. Yet, some of the most serious missteps often occur before the ink dries on the contract with a management company or service provider. By recognizing common financial pitfalls early and planning effectively, HOA boards can save their communities money— and drive long-term financial prosperity.

1. Failure to Properly Negotiate Key Contract Elements

Too often, HOA boards rush through the contract negotiation process, focusing primarily on headline costs—like the annual management fee—without giving due attention to the finer details.  The legal aspects of a contract can be consuming, and draw attention away from the financial terms of the contract.  This oversight can lead to hidden fees, escalating costs, or unfavorable terms that burden the HOA’s finances down the line.

How to Avoid It:

Do Your Homework: Compare multiple bids and seek expert opinions before signing on the dotted line.
Ask for Clarifications: Ensure that all fees, including administrative charges, penalty clauses, and extra service costs, are transparent.  Push aggressively for as much clarity as possible on what is included in each service rate & fee.
Leverage Professional Guidance: Consider consulting a financial advisor who specializes in HOA contracts to negotiate favorable terms and protect the community’s interests.

2. Improper Budgeting, Cost Controls & Revenue Capture

A well-structured budget isn’t just about covering the bills; it’s about proactively planning for future projects, maintenance, and unexpected expenses. Inadequate or outdated budgeting practices often lead to underestimating future costs or missing opportunities to strengthen the HOA’s financial position.

How to Avoid It:

Regular Review & Adjustment: Budgets should be living documents, reviewed quarterly or biannually, allowing the board to adjust strategies as needed.
Detailed Expense Tracking: Implement robust cost controls with clear guidelines. Track all outlays, from large capital improvements to small operational expenses, to ensure accurate forecasting.
Maximize Revenue: Look beyond monthly dues. Consider cost saving investments or monetizing your existing assets with detailed project management and long-term financial planing.

3. Overspending on Costly On-Site, Dedicated Staff

While large communities can afford a dedicated on-site team, your property management company profits greatly from overstaffing your community.  Some roles even drive a higher margin and can be pushed into your HOA's org chart.  From full-time maintenance technicians to an expansive administrative staff, the marginal benefit to the homeowners of adding each additional staff member diminishes greatly while the costs do not.  

How to Avoid It:

Aggressively negotiate your contracts billing language & identify exactly how much of every dollar is going to your employees and how much is going to your management company.  Encourage your management company to provide you with exceptional service with a core team, instead of looking to add new on-site associates-even part-time staff.    
 

Final Thoughts

Before signing any contract or committing to a long-term arrangement, HOA should leverage the expertise of industry professionals to acheive the best possible outcome for their homeowners.