HOA Fees - What are they and what do they cover?

You’ve just purchased your new home and it’s perfect for your family – it’s in great condition and just the right size, it’s in the perfect location and community to meet your needs. Your new home is also part of a homeowners’ association (HOA) and offers great amenities, like a clubhouse and fitness center so you can set goals to get back in shape after the harsh Minnesota winter. The landscaping and common areas always look beautiful and are well-maintained. Nothing looks out of place, it’s perfect.
 
When you purchased that home in a community association, you automatically became a member of that association. As a result, you’re required to share in the costs of maintaining and operating the association and everything that makes the community great, like all the common areas and amenities and shared services. The overall operation and curb appeal of your community association goes a long way towards enhancing property values. These are services included in and covered by your homeowners’ association fees. Depending on the community, payments may monthly, annually, semi-annually or quarterly. 
 
HOA fees are commonly also referred to as assessments or dues, and sometimes even maintenance fees. The amount is determined by the Board of Directors and is set based on projected annual expenses. An increase in dues might be necessary from time-to-time to make sure the association’s income is enough to cover its expenses. Common reasons an increase in assessments might occur include the cost of living, deferred maintenance, uninsured losses and a necessary increase in reserve funding. Board members do not profit from HOA dues; they too are homeowners and obligated to pay just like everyone else.
 
Most homeowners living in HOAs know there’s a fee, but not everyone knows exactly what the money is used for. Homeowners have the right to review the association’s financial documents and ask the Board of Directors how the money is being spent. Every association has its own distinct set of rules and policies, so it’s important to read your community’s covenants, conditions and restrictions (CC&Rs) and bylaws to find out the specifics. With the overlying goal of protecting property values, we’ve outlined common services provided by an association:
 
1) Regular maintenance and repairs to shared amenities, common greenspaces, equipment, and systems. Examples might include:
Lawn maintenance and landscape services
Snow removal
Pest control
A/C and heating systems
Electric system and lighting
Cable TV and Internet
Trash and recycling removal services
Elevators
Cleaning, painting and upkeep of exteriors and common areas, such as hallway walls, carpeting, clubhouse, etc.
Maintenance and repairs on exterior building surfaces
Maintenance of shared amenities, such as pool, fitness equipment, clubhouse, etc.  
Security system 
Front desk and concierge services
 
2) Utility payments
Homeowners associations cover the costs of electricity, lighting, water, heating, air conditioning, etc. for all of the community’s common areas. In certain Twin Cities’ condominium and townhome associations, some or all of these utilities might also be included for individual units.
 
3) Reserve funds
An HOA must be fiscally responsible; including allocating a portion of HOA dues to a special long-term reserve account to pay for planned, budgeted repairs or renovations that do not occur on a regular basis. This could include repaving private roads or replacing elevator mechanicals. If a repair such as this occurs and the reserve fund is not large enough to cover the expenses, your association could levy a special assessment to make up the difference – this is in addition to your regular association dues – or, the association could also be faced with taking out a loan, which could result in a temporary large increase in dues. However, Minnesota made it illegal for a homeowners association to use reserve funds to pay for regular operating expenses.
 
4) Insurance policies
Your association is required to purchase a master insurance policy to protect your community’s building structures and community property against damage, plus other add-ons as required by your community, property type and other needs. This is a benefit to all owners in the community; however, remember that this insurance does not replace the need to carry your own homeowner’s policy.
 
5) Contingency funds.
Some associations automatically set aside money each month to cover unforeseen community expenses and emergencies that cannot be paid for by the reserve funds.
 
6) Personnel
A portion of HOA fees could be used to cover the salaries and benefits of a community’s management, janitorial, and maintenance staff, if your community chooses to employ any of these.
 
7) Common Interest Amenities
The final added benefit to living in a common interest community and paying HOA dues is being able to enjoy community amenities you may not be able to afford or maintain on your own, such as a swimming pool, tennis courts or walking trails. In addition, depending on your community, you may no longer have to pay separately for lawn maintenance, snow removal, cable TV, electricity and other services, which can add up.
 
8) Professional property management
To ensure a community’s ongoing operations and financial stability, many homeowners associations enlist the services of professional community association management company, which would be added into the community association dues. A professional property management company will effectively operate under the direction, authority and control as directed by the Board. Additionally, a great management company will provide full-scope management services that add value and enhance the lifestyles of its residents.
 
So while some people consider HOA fees an unnecessary expense, they’re actually very necessary to keep a community clean, safe, beautiful and financially stable – and that’s what helps enhance property values. For more information on HOA fees and community association living, contact FirstService Residential, Minnesota’s property management leader.

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