What HOA Boards Get Wrong About Long-Term Financial Planning

Missy Wiesen
4 days ago
6 min read

Row of Spanish-style condo garages with tile roofs in a Coastal Orange County HOA community, illustrating shared building infrastructure relevant to reserve fund planning. — Shared roofs, garages, and exteriors like these are exactly what HOA reserve funds are meant to maintain. Missy Wiesen | Coastal Orange County REALTOR® | Serhant California, Inc. | 949-887-6644 | realtormissy3@gmail.com | www.MissySellsOC.com

By Missy Wiesen, REALTOR®, Certified Negotiation Expert | Serhant California, Inc.

TL;DR

Most HOA boards complete a reserve study, but new 2026 data shows that fewer than a third actually fund reserves to the level the study recommends, a gap that is now colliding with new lender rules and rising special assessments across Coastal Orange County condo communities.

Why HOA Reserve Planning Matters Right Now

Coastal Orange County REALTOR® Missy Wiesen works with condo buyers and sellers across Newport Beach, Corona del Mar, Laguna Beach, Laguna Niguel, and Dana Point, and one issue comes up again and again: HOA boards that have the right information but don't act on it. Recent research shows that roughly 70 percent of HOA communities nationwide are underfunded relative to industry benchmarks, and about one third report reserves below 50 percent funded, a level widely considered high risk. What's notable is that this is not a knowledge problem. The vast majority of associations, somewhere between 88 and 95 percent, have already completed a professional reserve study.

This article is written for HOA board members, condo and townhome owners, and buyers evaluating a purchase in a community governed by an association. If you sit on a board, you have likely seen a reserve study cross your desk. If you own a unit, that study directly affects your dues, your potential exposure to special assessments, and ultimately your property's marketability.

The Real Problem Is the Governance Gap

Here is the primary issue boards get wrong: they treat the reserve study as a compliance task rather than an active financial roadmap. The study gets commissioned, the binder gets filed, and the board moves on without adjusting the budget to match the funding recommendations inside it. A reserve study typically recommends funding somewhere between 70 and 100 percent of the fully funded balance. Anything below 70 percent is generally considered underfunded, with rising risk of special assessments and increased lender scrutiny.

This governance gap, having the data but not acting on it, is the single most common pattern Missy sees when reviewing HOA financials during the contingency period of a transaction. It is also the central theme of Condo HOA Financial Health: What Buyers and Sellers in Coastal Orange County Need to Know, which explains why this issue touches nearly every condo transaction in the region. Most board members are volunteers balancing full-time jobs with the responsibility of overseeing a multimillion dollar physical asset, and reserve planning is genuinely complicated.

Common Mistakes in Long-Term Reserve Planning

A few patterns show up repeatedly in communities that end up facing large special assessments. Keeping dues artificially low to avoid pushback from residents is one of the most common, and it allows reserves to quietly deteriorate year after year. Another is failing to update the reserve study's cost estimates when building components or replacement costs change, which means a board may be planning around figures that are five or ten years out of date. Construction and labor costs have risen sharply since 2020, and a study that doesn't reflect that reality will understate what a roof, elevator, or plumbing replacement actually costs today.

Boards also tend to be reactive rather than proactive, addressing maintenance only after something visibly fails instead of following the replacement timeline the reserve study laid out. And many boards avoid the harder conversation about insurance deductibles altogether, leaving individual unit owners unaware of what their exposure looks like under the master policy if a claim is filed. How Artificially Low HOA Dues Create Long-Term Financial Exposure looks more closely at the dues side of this equation and why keeping them low can quietly compound these other risks over time.

When these patterns continue long enough, the result is often a special assessment in the range of $20,000 to $60,000 per unit to address deferred maintenance, a figure that has become increasingly common in communities dealing with aging infrastructure.

The Regulatory and Lending Landscape Is Tightening

California law already requires a reserve study every three years, including a visual inspection of major components, with an annual review and funding plan update in between full studies. Under Civil Code section 5605, boards generally cannot raise regular assessments by more than 20 percent or impose a special assessment exceeding 5 percent of the budget without a vote of the membership, unless emergency conditions apply. SB 900 gives boards a narrow safety valve, allowing emergency assessments without a member vote specifically for required utility repairs when reserves fall short, and some boards are leaning on this provision more frequently as reserves tighten.

On the lending side, the bar is rising too. Fannie Mae's reserve allocation threshold is moving from 10 percent to 15 percent of the annual budgeted income, effective January 4, 2027. Boards that do not adjust their reserve contributions to meet this threshold risk having their building classified as non-warrantable, which can make units harder to finance and, in turn, harder to sell.

What Good Reserve Planning Looks Like

The boards that get this right tend to share a few habits. They review the reserve study annually, not just every three years, and they adjust the funding plan when component costs shift. They communicate openly with owners about why dues need to increase gradually rather than waiting until a crisis forces a large special assessment. And they treat the reserve study as a living financial plan that informs budget decisions every year, not a document that sits in a drawer until the next required update. For a closer look at how reserve studies work and what the percent-funded figures actually mean, What HOA Reserve Funds Are and Why They Matter walks through those mechanics in more detail.

For buyers, this is exactly why a thorough review of HOA financial documents during the contingency period matters so much. Those documents are not available before an offer is made; they are ordered from the property manager once escrow opens. Reviewing them promptly during that window gives buyers a real picture of whether a board has been proactive or reactive, which can tell you a great deal about what to expect from future dues and assessments.

For sellers, understanding how your association's reserve funding compares to recommended levels can help set realistic expectations about how the property will be perceived during a transaction, particularly if a lender's reserve threshold becomes a factor in financing.

If you are buying or selling a condo or townhome in Newport Beach, Corona del Mar, Laguna Beach, Laguna Niguel, or Dana Point, understanding how your association's board approaches reserve planning is one of the most overlooked parts of the process, and one that can have a real impact on both your monthly costs and your property's long-term value.

FAQs

Q: What do HOA boards get wrong about managing reserve funds?

A: The most common issue is not a lack of information. Most associations have a current reserve study, but boards often fail to adjust dues and budgets to match what that study recommends, allowing reserves to fall below the 70 percent funding level considered the threshold for being adequately funded.

Q: How should an HOA calculate how much to put in reserves each year?

A: The reserve study provides a recommended annual contribution based on the expected lifespan and replacement cost of major components like roofs, plumbing, and elevators. Boards should review this annually and adjust for inflation in construction and labor costs, since estimates from a study several years old can significantly understate current replacement expenses. If you're evaluating a condo's financial health as part of a purchase in Newport Beach or Laguna Beach, exploring those communities can give you a sense of typical HOA structures in the area.

Q: What happens to property values when an HOA board mismanages reserves?

A: Underfunded reserves can lead to large special assessments, sometimes in the $40,000 to $60,000 per unit range, which can make a property less attractive to buyers and harder to finance. Lenders are also tightening reserve requirements, with Fannie Mae raising its threshold to 15 percent of budgeted income by January 2027, and buildings that fall short risk being classified as non-warrantable.

Q: How do I know if my HOA is financially well-managed?

A: A well-managed HOA typically has a reserve study completed within the last three years, funds reserves at 70 percent or more of the fully funded balance, and adjusts dues gradually rather than relying on large surprise assessments. During the contingency period of a purchase, you can request the reserve study and recent financial statements to see how closely the board's funding matches the study's recommendations.

Q: What should condo buyers ask about HOA board financial decisions?

A: Ask whether the reserve study has been updated recently, what percentage of the fully funded balance the reserves currently represent, and whether any special assessments are anticipated or have occurred in the past few years. It's also worth asking how the board has adjusted dues over time, since gradual increases generally indicate more proactive financial planning than sudden jumps.