Do You Understand What Your HOA Fees Are and What They Cover?

Posted on Monday October 01, 2018

Congratulations! You just bought a new home and it’s perfect for your family – just the right size and condition and in a location and neighborhood to meet your needs. Your new home is part of a homeowners’ association (HOA), so the landscaping, entrance and common areas always look beautiful and well-maintained. It even has great amenities, like active programming for the kids and a fitness center – there goes your last excuse not to get back in shape! 

When you bought that home in an HOA or community association you became part of a common interest development. That means you’re required to share the costs of operating the association, including maintaining common areas and shared amenities, like that gorgeous pool and fitness room – things you couldn’t do on your own.

HOA fees (also known as “assessments” or “maintenance fees”) are set by your association’s board of directors. Your board determines how much the HOA fees are, what your HOA fees cover and how they are paid: Monthly is the most common setup, but they can also be paid quarterly, semi-annually or annually. The board bases each owner’s share on the expected annual budget for the association. That budget has to cover a lot!
 
It’s important to know that board members do not profit from HOA fees; they are volunteers and homeowners just like you and pay the fees like everyone else does. Your HOA is typically set up as a nonprofit corporation, which means that any extra money goes back into operations at the end of the year.

While you know you must pay those HOA fees, do you know what this money is used for? Each association has its own unique rules and policies, so it’s important that you read your community’s governing documents to learn the specifics – knowledge is power. If you don’t understand these things, you may see your hard-earned money go to things you’d rather not spend it on.

What kinds of things do HOA fees cover?
  1. Ongoing maintenance and repairs Continuous maintenance to common areas, equipment, systems and shared amenities – all of these things cost money. Depending on your community, this may include: 
    • Lawn care and landscaping
    • Snow removal
    • Water, plumbing and sewage systems
    • A/C and heating systems
    • Electrical system and lighting
    • Sanitation system and trash removal
    • Security system and gates
    • Cleaning, painting and upkeep of exteriors and common areas, such as hallway walls, carpeting and clubhouse
    • Pest control
    • Repair of damaged roofs, interior roads, pipes, elevators, etc., due to age, weather conditions or other causes
    • Maintenance of shared amenities like the pool, fitness equipment and clubhouse  
       
  2. Insurance policies Your association must purchase a master insurance policy to protect your community’s building structures, exteriors and common property against damage, plus other riders and add-ons as required by your community’s location, property type and other needs. The association may be required by law to buy flood insurance. Liability insurance, theft insurance and directors and officers insurance are other common coverages. You still should carry your own homeowner’s policy, even in a high-rise.
     
  3. Utility payments Community associations cover the costs of electricity, lighting, water, heating and air conditioning for the community’s common areas. This can include the guard house and front gate, lobby, clubhouse, pool, fitness rooms, meeting rooms and landscape lighting or street lights. In a high-rise, that also may include common A/C and heating systems that cover the whole building. Increasingly, HOAs are getting great deals from cable companies and internet providers to service the entire community; HOA fees cover those amenities as well.
     
  4. Reserve funds Smart financial planning includes establishing a reserve fund. Reserve funds are NOT for day-to-day expenses. They are meant to cover repairs and replacements of major assets and systems, like elevators or roof replacement, for which you have planned ahead and saved up over time. A reserve study firm will work with your association to help you work out the expected life span of things like your pool pumps or boilers and the cost to replace them so your board can save the money. Reserve funds are invested to help generate more revenue toward those expenses. Some states and provinces have very specific restrictions on how your reserve fund can be used. A strong reserve fund is critical to avoiding the need for a dreaded special assessment!
     
  5. Contingency funds This money is automatically set aside each month to cover unforeseen community expenses and emergencies like an insurance deductible after a storm or accident.
     
  6. Staffing If your community employs its own management, maintenance or janitorial staff, a portion of your HOA fees cover their salaries and benefits. 
     
  7. Professional property management As we mentioned earlier, board members are volunteers. Running an association is a lot of work, so many HOA and condo association boards choose to team up with a property management company. If yours is one of them, your HOA fees cover that, too! A professional management company will help your board effectively manage things like vendor contracts, maintenance, insurance, investments and other financial and operational tasks. All of this benefits you by keeping your community at its best and your property values up.

    No one likes to spend money for no reason. And some people may consider HOA fees to be an unnecessary expense. But that investment in your community helps keep it financially fit, safe and beautiful, all of which keeps your home’s value high.

    Now that you know the basics of assessments, take a deeper dive into how your board budgets those fees. Download our budget and finance guide today for an inside look at association budgeting.
 

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BUDGETS, RESERVE FUNDS AND FINANCIAL PLANNING 101: Building a Powerful Financial Future for Your Managed Community