Before a developer can sell units in a new common interest development, most states require filing a projected operating budget with the state's real estate regulatory agency — often called the Department of Real Estate or an equivalent body depending on the state. This budget estimates what it will actually cost to run the association once it's up and running: landscaping, insurance, reserves, utilities for common areas, and management.
Regulators review this filing specifically to catch budgets that are unrealistically low — a red flag that assessments will need to jump sharply once homeowners take over, which is exactly the kind of surprise disclosure laws are designed to prevent.
An artificially low budget might help a builder market lower dues during sales, but it sets the future HOA up for a painful correction — once HOA formation is complete and the builder subsidy (if any) ends, the new board may face a sudden assessment increase or an underfunded reserve fund that homeowners weren't warned about.
This can also expose the builder to disclosure-related liability if homeowners can show the budget understated known or foreseeable costs at the time of filing.
A realistic budget protects the builder from disclosure disputes and protects future homeowners from an unpleasant financial surprise right after taking control. It also gives the incoming board a credible starting point for its own budgeting, rather than having to immediately unwind assumptions the builder knew were too optimistic.
Builders who work with an experienced HOA management partner during formation tend to file more defensible budgets, since the numbers are grounded in what similar communities actually spend rather than a best-case sales projection.
