What Is An HOA Fee? And What Does Your HOA Fee Cover?

Beautiful NeighborhoodSo, you just moved into a homeowners association (HOA) – congratulations! Not only is your new home and neighborhood just right for your family’s needs, but the landscaping and common areas in your community are attractive and appealing. You even get to enjoy some great amenities – perhaps a fitness center, clubhouse or game room. Of course, it takes money for your community to remain beautiful and well maintained. And that’s why it’s necessary for every homeowner to pay association fees. 

HOA fees, which are sometimes called “assessment dues” or “maintenance fees,” are established by your board of directors based on a projection of the HOA’s annual budget. Since board members are also residents, they are obligated to pay HOA fees just like everyone else in the community and don’t profit from the money they collect. Depending on your HOA, you may be expected to pay those fees monthly, quarterly, semi-annually or annually.

Although the specific needs of each HOA or condominium association vary, all associations require their members to share in the community’s costs through their fees. Having a well-run community where amenities, components and common areas are regularly maintained goes a long way toward increasing your community’s property values and enhancing resident lifestyles. That said, each association will have its own rules and policies, so it’s important to read your community’s governing documents. 

Here are 6 of the most common items your HOA fees are likely to cover: 

1. Utilities

Utilities represent a significant portion of the operational budget,” says Jamina Richards, finance manager at FirstService Residential. Lighting for streets, parking lots, tennis courts, clubhouses, etc., requires electricity. In addition, a community needs water for irrigation, swimming pools and other facilities. Indoor areas also need to remain well ventilated and comfortable, whether that means providing heat on cold days or air conditioning on warm days. All of these utility costs are covered by your fees. 

2. Maintenance and repairs

Depending on your community, these expenses might include:  
  • Cleaning and painting of building exteriors and indoor common areas, such as carpets, floors and walls
  • Preventive maintenance of heating and ventilation systems, lighting, electrical systems, plumbing, elevators and security systems
  • Lawn care and landscaping
  • Snow removal
  • Trash removal
  • Pest control
  • Repairs to walls, roads, plumbing, roofs and system components
  • Maintenance of amenities, fitness equipment and pools 

3. Insurance

Associations need insurance to protect common areas from damage, which you can obtain under a master policy. Your community may also require other riders and add-ons based on your location, property type and other circumstances. For example, in some areas associations are required by law to carry flood insurance. Liability insurance, theft insurance and directors and officers (D&O) insurance are other common policies for associations. Remember that you still should have your own homeowner’s policy, even if you live in a high-rise or other type of condo association.

4. Reserve funds

Fiscally sound HOAs allocate a portion of their dues to their reserve fund to cover planned and budgeted major renovations or repairs that do not occur on a regular basis, like repaving private roads or replacing elevator machinery. According to David Jandak, vice president of finance at FirstService Residential, “If you aren’t budgeting for the future, you’ll end up with a loan or special assessment.” That translates into an additional fee each homeowner will have to pay.

5. Staffing

If your community employs its own maintenance, security or management staff, part of your HOA fees are used for their salaries and benefits. 

6. Professional property management

To eliminate the excessive burden on board members, implement the policies set by the board and ensure the financial stability and operational efficiency of the HOA, many communities choose to partner with a professional property management company. HOA fees pay for these services, too; however, a good management company will work to save your HOA money through its vendor relationships, buying power and financial knowledge. 

No one wants to spend more money than they have to, but when it comes to HOA fees, it’s money well spent. Remember that it’s because of those fees that your community is able to thrive and that you and your family are able to enjoy all it has to offer. To find out more about what it takes to have a financially healthy association, download our infographic, Keep Your Association Fiscally Fit.