RESERVE STUDIES – NEW LAW & DISCLOSURES

This event is a great opportunity to meet and talk with other Board members, as well as gain valuable insight into important aspects of your Association. Our speaker will be Ray Myers of  Cedcore. Ray is going to help us take a closer look at  Reserve Studies and the new state requirements for Homeowners and Condo Associations.

Have your questions ready for Ray, he’s a wealth of  knowledge!

Washington State now requires that the majority of Homeowners Associations have a Reserve Study.  There are three ways in which a Homeowners Association would not have to have one.  They are; 1.  Communities have 10 or fewer homes, 2. The cost of a Reserve Study is greater than 5% of the Annual Budget of the Association, 3. If the community does not have significant assets.

So what are significant assets?  The legislature was kind enough to define it for us in the new law.  RCW 64.38.010 reads, “(19) “Significant assets” means that the current replacement value of the major reserve components is seventy-five percent or more of the gross budget of the association, excluding the association’s reserve account funds.”

So the next logical question is how do we determine the reserve components and the replacement costs?  One way to start would be to gather the Board members on a Saturday morning, several pots of coffee and the governing documents. Determine the community’s assets by going thru the Declarations and the By Laws for the clues.  The definitions help as well as the past bookkeeping records.  What has the Association replaced in the past that cost a great deal of money?  Make your preliminary list of components.  Now let’s hit the road.  Take a walk with the list and a clip board.  Look at all the things that are taken care of by the Association.  Fences, drainage ponds, entrance monuments, lighting and roads are just some of the big ticket items to consider.  There are many more. Now comes the fun part; calculating the replacement costs.  You can bother vendors for bids or go to Home Depot for some cost analysis.  Either way a reasonable cost estimate will need to be put to each of the components.  Then the math equation is to add all the replacement costs and see if 75% of this year’s budget is more or less than the costs.  You have your answer!

A second way is to consider hiring an expert.  Association Services is excited to be teaming up with Cedcore to offer a Community Component Review.  This service will review components gather up all the costs and do the math for you.  The bonus is that you as a Board member will have met your due diligence standard and you haven’t used up a Saturday morning.

Give us (253 840-1200) or Cedcore (253 292-2125) a call for further details.

Yep, its tax time and we’re all anxiously awaiting W-2’s and 1099 statements.  But what about Community Associations?  Aren’t they a nonprofit?

Yes and No.

First the Yes. In the eyes of Washington State and most other states Homeowners and Condominium Association as corporations that are registered at the state level as Nonprofit Corporations.  They have Articles of Incorporation filed with the Secretary of State. Every year the license needs to be renewed with updated information about our Board of Directors and Officers.

And then the No. The Internal Revenue Service views most Homeowners and Condominium Association as true corporations.  Now the fun part, I say most because there are some, although few, which qualify as true nonprofit – tax exempt organizations.  They provide substantial services, like a city or a county, provide for the common good of society and they have gotten a determination letter from the IRS.  Most of the other Associations and all of the ones I’ve worked with over the past 16 years have been true corporations.  There may be a statement in your Articles of Incorporation that the Association is organized as a corporation for homeowners associations as defined by the Internal Revenue Code Section 528.

Now I’m spouting IRS Tax Code.  I apologize as the CPA in me just took over for a moment.  Let me explain it this way.  As corporations, there are IRS rules that all corporations have to follow.  The IRS carved out a set of rules specifically for Homeowners and Condominium Associations.  Every year the Association gets to choose whether to file as a regular corporation (form 1120) or as a Homeowners Association (form 1120H).  There are reasons to consider each form every year.  And this is best left to your favorite CPA.

So if we have no taxable income, do we really have to file?  Yes!  From a tax stand point, 1120H is an election.  By filing form 1120H we make that election.  If we don’t file, then we have not made the election and form 1120 is required.  From a legal stand point, all Associations need to act like corporations to protect its self.  If you don’t file a tax return, you’re not acting like a corporation and it could expose the Association to risk in a law suit.

March 15^th is right around the corner, that’s when the corporation tax returns are due.  So if you have any questions, now would be the time to ask.  And you should probably consider filing an extension to cover your bases.  There is much more information on our favorite audit firms web site.  Go to http://www.hoacpa.com/CandC/about.html and check out the FAQs.

This class will cover everything the evening Board Orientation classes cover, just in a 3 hours.  The number of participants is limit to assure the quality and comfort of the class.

Sign up now to insure your place in the class. Call today 253 840-1200.

HB 2513/SB 6325 – Common Interest Community Managers (CICMs) Exemption 

These bills are exactly the same – one is in the Senate and one in the House. They exempt CICMs from having to become a licensed real estate broker. We have been notified by the Department of Licensing that if the legislature does not act otherwise the Department will enforce their interpretation of the law and require CICMs to be licensed real estate brokers. This decision does not benefit the homeowners who hire CICMs, nor the CICMs themselves.

Both bills have been reported out of their policy committees unanimously and now go to the entire body of their chamber for a vote and must be passed by that body by February 14. Once that vote occurs the bills will face similar process in the opposite house.

The Washington Realtors Association have voiced concerns with the bills. They argue the duties of CICMs mirror those of brokers. WSCAI obviously disagrees with their position and are taking the opportunity to educate lawmakers about the differences of a real estate broker and a CICM.

We need your help! 

Please contact your state legislator to request they support these bills.  The difference between rental property management and community management is huge.  And as a small business, the burred of the additional expense to license our entire staff is overwhelming.

Here is a link to the web site to contact your legislator.  It’s easy.  Just enter your address and a list will appear for your district.  You can send them all an email all at one time.  Tell them you would appreciate their support on these bills because there is a difference in the two professions.

Click Here!

We at Association Services appreciate your support.

We are excited to be offering a new class to our list of offerings. It is a one day intensive for those Board Members who can’t make it during the week. This class will cover the same topics as our evening classes for each of the officers positions, just all on a Saturday morning.  All Board Member classes are held at our office in Puyallup at 12919 94th Av E.

Board Member Basic Classes:

Board Member Fast Track
March 3rd, 2012 at 9:00am to noon

New April 7th, 2012 at 9:00am to noon

President / Vice-President Class
April 24th, 2012 at 6:30pm

Secretary Class
May 1st, 2012 at 6:30pm

Treasurer Class
May 8th, 2012 at 6:30

We’ll wrap up our education sessions with our popular Evening With the Board.  Ray Meyer RS with Cedcore, a provider of Reserve Studies will be presenting a look at the implications of the new Reserve Study requirements for Homeowners Associations and Condominiums. Together we will be exploring what the new law means by “significant assets” and how we can be sure be do our due diligence.  Have your questions ready for Ray, he’s a wealth of knowledge.

Evening With The Board

May 15th, 2012 at 6:30

Be sure to sign up early for these events.  The class size is limited to 10 people so call or go to our Services/Educational Classes tab to sign up online.

So, what is the true cost of self-management? One of the most common comments we address when we talk to potential clients is, “We can’t afford professional management”. Is this really true? Let’s take a closer look.

If we delve a little deeper into what it takes to run an association, we find that in some cases it requires a large amount of time and energy. Dealing with compliance issues, delinquencies, and managing vendors are no simple tasks. Who will do all of this? The board? A committee? In our experience these tasks usually fall on the one or two people willing to shoulder the responsibility. My next question is, “How is this equitable?” If your neighbor is sitting back and not contributing his/her time, and doesn’t want to increase the assessments to cover the cost of management, the few willing folks are basically paying for the entire administration of the community. Fair? Not in my world! The willing volunteer needs to ask them self how much my time is worth and is it reasonable for me to bear the entire cost of running the association. The cost of doing business in an association is intended to be shared equally by all members.

The board of directors is charged with maintaining the property values of their community and basically running a multi-million real estate corporation. I personally don’t know anyone who would jump in and try to run a business they know nothing about. Though volunteers generally have the best of intentions, in many instances they just don’t have the level of expertise and knowledge it takes to run the association. We see a lot of board members simply burn out by trying to do it all themselves.

A professional management company can provide experience to an association so that the board does not have to continually re-invent the wheel. Professional management can also keep the association’s risk of unknowingly violate the state or federal laws.  These change from time to time and if you don’t know where to look or how to find them, it’s easily lag behind the times.

Bottom line is should the cost of managing an association fall on just one or two or should it be spread out among the whole? I know what I would prefer, how about you?

Each employee personally donated money to help purchase shoes and socks. We then turned our efforts towards our vendors, and asked them to partner with us to ensure that every child had a pair of warm shoes this winter.

After a month of collecting, we were able to purchase a total of 38 pairs of shoes and socks.

And a very special thank you to                          for lending us their Brannock Devices and honoring all of their coupons (even the expired ones)!

We just want to take a moment to personally thank all of our vendors for their generous donations.

We couldn’t have done it without you!

Remember Newton’s Law of Motion? To every action there is an equal and opposite reaction. It seems to be alive and well in Community Association management.  During this season of budget increases and communities running out of money, notices are being sent out foretelling of unpleasant events.  Keeping this in mind as we work thru these unpleasant events will help to lessen the “opposite reaction”.

Here is one scenario.  A community needs to increase the assessments by 30% to compensate for this year’s deficit and next year’s expenses.  Not the best news for a community member to receive.  You could send the budget out with the budget meeting notice and see what happens.  With this one big push of a large increase I would expect a big pushback response at the meeting.

Another way for the Board to manage this big blow to the community is to educate the membership thru the process. A budget forum with a presentation of the budget prior to the formal meeting would help the membership understand the issues and allow for a free exchange of the information.  Present the proposed budget with lots of pictures and graphs. It helps to tell the story of what happened this year and what is expected to happen next year.  The forum is a way for the Board to receive feedback from the community before the final budget is adopted.  Doesn’t mean that the ideas the members share have to be acted upon now and you never know when or where a good idea will appear. From here the budget is adopted and the membership receives the budget with the meeting notice and an explanation of numbers by the Board members.  Now the meeting takes place with two different opportunities for the Membership to understand the numbers prior to a vote.

This type of communication and education format can be used in with any difficult situation the Associations face.  We have used this for large construction projects and special assessments.

To sum it up, two little nudges will be better than one big pushback.  Sir Isaac Newton would be proud.