Association fees make the privileges and conveniences of living in a covenant protected community with common areas and amenities possible. They also fund the community’s upkeep in order to maintain its market value at ideal levels.
HOA board of directors determine the HOA fees. At minimum, ten percent (10%) should be budgeted to go into the reserves in order to fund CAPX projects, and help owners in the community secure buyers where lenders might require this (depending on the type of loan they are trying to obtain). At the end of the day, communities should have a reserve study which outlines how much they should be contributing to the reserves each year in order to fund those projects.
What are typical fees?
Typical fees pay for the basic services, insurance, and operational and maintenance costs of all communal areas in the condominium building or gated community.
Basic Services
- Waste disposal
- Lawn care and landscaping
- Pest control
- Road repairs within the gated community
- Snow removal
- Water and electric for communal areas
- Water and sewer services (in some instances)
Communal Areas
- Community Clubhouses
- Elevators
- Fitness centers
- Lobbies
- Neighborhood parks
- Patios
- Spas
- Swimming pools
- Tennis courts
Insurance
Communal areas should be insured.
What is a reserve fund?
Reserve funds are accounted for, collected, and saved for the purpose of funding the community’s emergency expenses and periodic large projects such as a major repair and new elevator.
If the association doesn’t plan and budget accordingly, special assessments may have to be levied in order to fund emergency projects, and no one wants to have to do that. This is why budgeting accordingly is so important.
It is important to understand that an HOA’s board of directors must plan for the future accordingly.
Tips for Computing HOA fees
HOA fees among HOAs vary depending on (1) the quality of the community or condominium building, (2) its location, and (3) the amenities and services it offers.
Developments at premium locations with premium amenities will have higher HOA fees.
Older condominiums and communities tend to have higher HOA fees too because they start to show age and would require more maintenance and repairs.
Among residents, HOA fees vary depending on (2) the location of their unit or property, and (2) the size of their unit or house. Thus said, different owners pay different dues.
Some units and houses have more expensive upkeep than others and should be charged more. For example, a bigger house requires more lawn care and landscaping.
It’s also important to remember that HOA fees are NOT fixed. A hike may be implemented as needed, and is actually expected as a result of economic inflation.
Slightly increase HOA fees every year to account for inflation and offset fluctuations in the economy. Remember that your $500,000 HOA fees now cannot pay for the same number of services in the next few years.
A small yearly rate hike will also ensure stable dues for the next few years and can help avoid the need for special assessments.
However, as part of effective financial management, the board should always look for opportunities for cost savings to help to keep the fees more manageable for everyone.
Remember that homebuyers are generally advised to request and review a community’s financial health before making a purchasing decision. The HOA board will most get requests from potential buyers for a detailed financial status report.
