If you’re a developer, attorney, or consultant preparing a subdivision for sale in California, chances are you’ll need to prepare a Department of Real Estate (DRE) budget as part of the Final Public Report (FPR) application. This guide will walk you through what the California DRE expects in a compliant HOA budget, the common pitfalls to avoid, and how to streamline the approval process.
What Is the DRE Budget Review?
The DRE reviews HOA budgets to ensure the association will be financially solvent during its first year of operation. The budget must demonstrate that assessments collected from homeowners are sufficient to cover the anticipated operating costs, reserves, and maintenance obligations.
What to Include in a DRE-Compliant HOA Budget
Here’s a breakdown of the main components:
1. Operating Expenses
Include all predictable annual expenses:
- Insurance premiums (property, liability, D&O)
- Landscaping and irrigation
- Common area utilities
- Janitorial, elevator, pool, or other amenities
- Street Cleaning
- Security, Gates, and alarm monitoring
2. Reserve Contributions
You must include reserve funding for long-term repair/replacement of major components. Use a per-year cost or a total cost divided by the useful life over a 30-year funding projection, with line items like:
- Roofs
- Painting
- Paving
- Mechanical systems
- Landscaping
3. Contingency & Administrative Costs
- Management fees
- Legal and accounting
- A contingency line item (often 3-6%) is required.
- Administrative costs like postage, board education, and copies should be included.
4. Assessment Allocation
The total budget must be allocated across all units or lots using the governing documents’ assessment formula. Be sure to reflect:
- Equal allocation (for most PUDs)
- Pro rata by square footage or lot size (for most Condos)
Common Pitfalls That Cause Delays
- Missing reserve study data or using overly simplified placeholders. DRE Budgets are highly detailed, and all worksheets must be completed. (e.g., if you have a pump or motor on your electric worksheet, it also needs to be in the reserve calculations).
- Assessment miscalculations (e.g., rounding errors that don’t match the total budget). You should always round up your line items.
- Inconsistent terminology between budget, CC&Rs, and governing documents
- Underestimating costs, especially for insurance, utilities, or contract services
Tips to Get Approved Faster
- Base reserve numbers on current material costs or reserve study
- Use actual local vendor quotes if possible (landscape, management, etc.)
- Format clearly: Although you cannot change the DRE forms, you should use a clean table layout and professional headings
- Double-check that totals match and all assumptions are documented
Final Step: Submit With Confidence
Once your budget is complete, it must be submitted with the rest of the DRE Subdivision Public Report application (including forms 623, 624A, 611A, 624III, and others). Expect 8-10 weeks for budget review and comments.
If you need help preparing or reviewing your HOA budget before submitting it to the DRE, California Builder Services has helped thousands of projects across the state navigate this process smoothly.
Need expert help? Contact California Builder Services to ensure your DRE submission is done right the first time.
This post is provided for educational purposes and should not be considered legal or financial advice.
