HOA Financials: The Numbers That Can Bury a Deal (or an Agent)

Budgets, reserve studies, percent funded, funding plans—these HOA financial documents are often skimmed or ignored, but they reveal the true health (or hidden vulnerabilities) of a community. In this episode, Jason Piske shares a real California case from Anaheim where SB 326 balcony inspections triggered a $2.5 million repair bill and a $30,000 per-unit special assessment—even though it happened before escrow opened.

The seller was motivated to pay it off from equity so the buyer wouldn't inherit it, but the assessment history still discouraged most buyers, triggered extra lender scrutiny (including VA paperwork hurdles), and ultimately led to cancellation. Jason explains how low reserves + prior assessments create lingering red flags, why agents must flag them without overstepping into interpretation, and the safe ways to protect yourself and your clients.

Transcript

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Welcome back to Disclosures and Consequences. The podcast where we unpack what really happens when the fine print gets ignored, or worse, when someone tries to interpret it for everyone else. I'm Jason Piskey, California realtor, risk management nerd, disclosure specialist, and the guy who spent way too many nights reviewing HOA packets so you don't have to. If you've been with me since episode one, you know where we started with the TDS as a liability trap, moved through SPQ details, avid blind spots, NHD zones, and last time, HOA meeting minutes as the unfiltered story of the community. Today, we're flipping the page to the part of the HOA package that makes most agents' eyes glaze over: the financial statements. Budgets, reserve studies, percent funded, funding plans, these aren't just spreadsheets. They're the wallet behind the story we talked about in the last episode. And when the wallet gets hit with a massive, unexpected cost, even one that's already been assessed and handled, it can linger as a red flag that scares off buyers, delays financing, or kills deals entirely. Here's the uncomfortable truth up front. Agents are not accountants, actuaries, or HOA financial advisors. The law doesn't expect you to be, but it does expect you to notice obvious red flags, deliver the documents properly, and pay attention because this part is important. Do not cross into giving advice or interpretations that make you sound like you're guaranteeing the HOA's financial health, good or bad. That's where agents get dragged into lawsuits. Let me explain why these documents matter so much, then share a real California example I saw firsthand. One that involved SB326 balcony inspections triggering a huge special assessment that had already hit the HOA before escrow even opened, but still derailed the transaction. First, the basics in plain English, because those packets sure aren't written that way. The operating budget. This covers day-to-day stuff. Landscaping, utilities, management fees, routine maintenance. It's supposed to be balanced. The income, usually monthly dues, matches expenses. The reserve study, required every three years with annual updates. It looks ahead 30 years at major components: roofs, elevators, pools, structural elements, balconies, parking lots, private roads. It estimates useful life replacement costs and how much should be saved now. Percent funded. This tells you how much of that recommended reserved amount the HOA actually has in an account somewhere. 100% funded? Great, but very rare. 70%? That's pretty solid. Below 50%, warning light. An unexpected event could wipe it out. Below 30%? That's a red flag. Potential special assessments looming. There's likely delayed maintenance on community features that drag down values and resale opportunities. The reserve funding plan. This is the board's roadmap on how they'll get from current levels to where they need to be. Raises in monthly dues, special assessments, loans, etc. California law requires these disclosures in the HOA package, buyers must get them, and agents must deliver them. But the real risk isn't in delivery, it's in what happens next, especially when a prior special assessment, even one that's been levied and being paid, signals ongoing vulnerability like lender scrutiny, stigma, or fear of future hits. Most agents hand over the stack and say something like, The HOA documents are in your email. Let me know if you have any questions. Potentially safe? Unless you've listened to the previous episodes, or here's the HOA stuff. Everything looks fine. What exactly does fine mean? Or even worse. The reserves are a little low, but they're working on it. No big deal. That last one, that's editorializing. And the buyer's attorney is going to be asking that agent some tough questions later. And when the buyers or lenders see a history of big assessments, even resolved ones, they start asking questions that can stall or sink the deal. Here's a story I personally witnessed and helped navigate that shows exactly how this plays out. A condo complex in Anaheim had reserves that were on the lower side, about 43% funded. But they had a reasonable plan in place, gradual increases, some borrowing if needed, nothing screaming, emergency. The financials looked manageable at first glance, then SB 326, that balcony inspection law came into force. The HOA commissioned the required engineering inspection of the exterior elevated elements, the balconies, decks, stairs supported by wood. The report uncovered serious issues, hidden rot, waterproofing failures, structural concerns across multiple areas. The repair bill, two and a half million dollars. The HOA had no choice but to levy a special assessment of $30,000 per unit in November of 2024. They did find an outside lender to let owners finance that over 10 years, which helped. But by the time we entered the picture in March of 2025, the assessment was already on the books. The seller was specifically motivated to sell now. They wanted to cash out before anything else happened. They were going to pay off their $30,000 share with equity at the close of escrow, so the new buyer wouldn't even be inheriting any of the ongoing obligation. The problem? That assessment history was discouraging almost every other buyer. The listing agent did an excellent job in disclosing the assessment up front, but it still showed up in the financial disclosures, reserve notes, and meeting minutes. And the lenders, especially government-backed ones, wanted extra paperwork, proof of the work being completed, engineering reports, the assessment status, HOA confirmation that no further immediate hits, updated financial showing stability post-repair. It added layers of scrutiny and time. My client was in escrow to buy a unit there. I was representing them through my company House Owl, not as their agent, but as their disclosure risk consultant. We spotted the lowish reserves and the prior assessment early in the packet review, flagged it, and started digging. When the full details came out, the buyer was understandably concerned. Even though the seller was covering their portion, the stigma of a recent $30,000 hit per unit raised questions about the HOA's long-term health and future risks. Their lender, the VA, required a ton of additional documentation and verification, which dragged on. The seller at first was patient and motivated, but the delays became too much. Timelines slipped again and again, and ultimately the seller had to cancel to avoid losing momentum entirely. The buyer had to pivot and find a different condo, ultimately closing on a new home about eight months later. The silver lining? Because we caught it early through House Owl's review, I was able to explain to the buyer up front this wasn't chronic mismanagement or hidden fraud. SB326 was a relatively new law. No one could have predicted the exact repair cost years earlier when reserves were planned. The HOA was forced into compliance and the assessment was already addressed. The buyer appreciated the transparency, stayed engaged as long as possible, and we tried hard to coordinate with the VA and the HOA, but the extra hurdles from the assessment history, they won out. This wasn't a case of fraud. It was a classic lingering red flag. A prior special assessment, even resolved, plus low reserves, plus compliance-triggered repairs, meant lender hesitation and the deal collapsed. This is the key takeaway from this story for you realtors out there. We didn't say the HOA was good, bad, or otherwise. We laid out the facts and let the buyer make an informed decision. There was more to the purchase than just the existence of the HOA, and the buyer accepted the current situation with eyes wide open and decided to still try to close. When the deal ultimately fell apart, they were disappointed, but they understood. They weren't mad at their agent, they continued to work with the agent, closing on a different condo several months later, and even referring friends and appearing in social media posts with that agent. Here's another quick example. A listing agent in San Diego represented a seller in a townhome complex. The financials showed chronic budget overruns, reserves borrowed from operating expenses, a red flag, a funding plan relying heavily on future special assessments. The listing agent added a note in the MLS remarks HOA financially stable and strong reserves. This was not true. It was under 40% funded. The buyer discovered post-closing via their own accountant and pursued misrepresentation claims. The listing agent's brokerage ended up contributing to a settlement because the comment was seen as misleading on a material fact. These aren't hypotheticals. Low reserves and histories of special assessments lead to lender issues, stigma, resale challenges, and sometimes litigation. Buyers don't sue over the numbers themselves. They sue over feeling unprepared or agents overstepping. So what can agents safely do and what should you never do? Safely. Deliver the full packet as early as possible. Point out where the key documents are beyond the pool rules and pet restrictions. Encourage a professional independent review. Tell them if the numbers or assessment history concern you, talk to your lender, an accountant, or HOA specialist. Document the conversations. Email text recap. We reviewed the HOA financials together. Noted reserve funding level and the 2024 special assessment. You said you'd investigate further with your lender. Flag patterns without opining. I see the reserve study mentions balcony inspections and a recent assessment. That might be worth a closer look given the law's requirements. Here's the danger zone. Avoid these at all cost. Don't say it's fine, stable, no worries, they'll handle it. Don't predict special assessments are unlikely now, or the worst is behind them. Don't interpret causes. The board mismanaged, or it's just because of the new law. Don't guarantee outcomes. Anything that sounds like advice on the HOA's financial future or how past assessments won't affect the buyer. The goal? Awareness without assumption of expertise. Help the buyer see the red flags so they can decide and make an informed decision to buy or walk with eyes wide open. HOA financials definitely aren't sexy. They don't scream like a cracked foundation or a noisy neighbor, but they quietly determine whether the community can afford to stay standing and whether lingering issues like past assessments will create hurdles down the line. Ignore them, and the consequences show up as surprise lender delays, canceled escrows, lawsuits, or a property that's suddenly hard to sell. This wraps up our deeper dive into HOA packages, from meeting minutes last time to financials today. Speaking of lingering red flags that show up in disclosures, next episode we're pivoting to something that appears in every single transaction. The preliminary title report. It's the document that promises clear title, but quietly lists all the reasons it might not be: old easements, unreleased liens, and so much more that can derail deals just like a surprise assessment can. I'm Jason Piske with House Owl, where we help agents and brokerages, and even their clients spot these risks before they become headlines. Check the show notes for resources and additional training and insights. Thanks for listening to disclosures and consequences. Remember, it's not the paperwork, it's the consequences. See you next time.