Running a small HOA seems easy enough, as the size often means less work. Yet, oftentimes, even smaller communities require professional assistance. Despite their size — or even because of it — small associations face unique problems. Understanding what these problems are and the options for addressing them is critical to ensuring success.
What Counts as a Small HOA?
In general, a small homeowners association has fewer than 50 units or homes. That said, there is no universal standard. Small communities are defined by key characteristics, such as self-management, fewer shared amenities, and informal governance.
- Self-Management. Most small HOAs don’t outsource their day-to-day operations to a professional firm. Instead, the homeowners themselves serve the community as volunteer board members.
- Fewer Shared Amenities. Small associations rarely maintain expensive or vast amenities. Pools, clubhouses, or fitness centers aren’t usually part of the package. Instead, dues primarily fund basic services and necessities, such as trash collection, insurance, and minor landscaping.
- Informal Governance. Due to their size, small communities tend to rely on informal systems and procedures.
Common Small HOA Problems
Just because they are small doesn’t mean they don’t face challenges. In fact, their size is often the source of common problems.
1. Inconsistent Rule Enforcement
Small HOAs tend to apply the rules more selectively than their larger counterparts. This is because board members often know most of their neighbors, leading to hesitation to penalize a friend who violates the rules. On the flip side, they might come down hard on someone they don’t know very well.
2. Higher Financial Volatility
Small communities share expenses among homeowners, just like larger associations. Yet, small HOAs suffer from higher financial volatility. Since expenses are split between fewer people, when a single owner defaults on their dues, it has a heavier impact on the association’s budget.
3. Deferred Maintenance
Many small associations delay maintenance due to ineffective management or insufficient funds. While this may not seem like a problem in the short term, deferred maintenance can result in costly emergencies down the road.
4. Volunteer Burnout and Inexperience
Smaller communities generally have more problems with volunteer management. With a tiny pool of residents to choose from, it is often difficult to find enough willing volunteers to serve on the board. Moreover, these volunteers may not possess the right experience or skills to run the community properly.
5. Underfunded Reserves
In Maryland, condominiums must plan for and maintain reserves (Section 11-109.2), including small HOAs. Yet, most small communities have massive or even insufficient reserve funding, resulting in the need for special assessments.
6. Communication Breakdowns
Boards assume that information easily travels due to the size of the community. Still, without active communication, residents will be left in the dark.
7. Noncompliance With Legal Standards
There is a common misconception that small HOAs are exempt from major laws. This is untrue. Even a community with only 10 units must still comply with federal, state, and local regulations, just like any other association.
Does a Small HOA Need Professional Help?
While self-managing a small HOA is definitely an option, most communities still require some form of professional assistance. An HOA management company can help volunteer boards manage operations, including but not limited to:
- Budgeting and accounting
- Financial reporting
- Dues collection
- Invoice processing
- Reserve planning
- Tax filing
- Maintenance scheduling
- Vendor selection and management
- Administrative services
- Resident communication
- Board support and decision-making guidance
- Legal compliance
- Corporate filing
- Emergency assistance
The benefits of professional HOA management are clear. With a certified manager, board members can make smarter decisions for the community. They won’t have to rely on haphazardly prepared financial reports or ill-researched industry practices.
Additionally, board members can look forward to more freedom. A management company can handle all the day-to-day administrative work. This reduces the risk of board fatigue, thereby helping attract more volunteers. When they’re not overworked, board members are also more likely to serve effectively.
Finally, professional management supports streamlined and organized systems. Gone are the days of informal procedures and clumsy governance. Associations can get their act together and use more standard processes to keep everything consistent.
Alternatives to Small HOA Management
Full-service management is not always a must. For a small HOA with a limited budget or fewer needs, alternatives exist.
Self-Management With Software
Self-managing a small HOA certainly saves money, but board members typically suffer from burnout or inexperience. Tasks such as dues collection, vendor coordination, and financial reporting require a certain level of organization and skill.
Fortunately, board members don’t have to do everything alone. Even without professional help, small communities can function smoothly by investing in HOA management software. Many platforms offer packages or tiers tailored to the size of the association.
Boutique Firms
Board members must juggle their duties with their lives outside of the association. This often leaves little time to self-manage the community.
To solve this, they can instead hire boutique management companies. These companies cater specifically to small and mid-sized associations (50 units or less). Their services and price point are tailored accordingly.
Outsource Specific Services
Small associations don’t have to go all-in on full-service management. Board members can usually handle most of the work, only requiring help with specific aspects of community management. Common examples include accounting, financial management, and legal compliance.
While boards oversee day-to-day operations internally, they can outsource financial and legal work to companies or certified professionals. Many companies even offer à la carte services, allowing board members to pick and choose.
Do Small HOAs Have to File Taxes?
Some people think that small communities don’t have to pay or file taxes because their revenue and operations are insignificant. This belief is completely false and can lead to tax penalties.
In general, a small HOA must still pay taxes and file annual tax returns, even if their tax obligation is zero. The Internal Revenue Service considers HOAs as corporations, even small ones. This means that they are required to file every year.
Small communities can typically choose between filing Form 1120 or Form 1120-H.
A Sound Decision
A small HOA often has similar needs and problems as a large community, yet admittedly not as extensive. Even so, hiring professional management services can be a big help. If full-service management isn’t necessary, there are other options small, self-managed boards can choose from.
Majerle Management, Inc. provides management services to HOAs and condo associations in Maryland. Call us today at (301) 220-1850 or contact us online to start your journey!
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