Special Assessments: Fund Your Capital Improvement<br>Part III
If your Texas condominium owner or homeowner’s association cannot afford an unexpected expense through reserve funding or taking out a loan, there is only one option left. While it seems an easy solution, most reliable management companies would only recommend it as a last resort, since the very mention often sets off a chain reaction of feedback within the association membership - Special Assessment.
Assess: The Last Resort
A special assessment means any assessment levied against a unit or property owner other than the annual required assessment. They are used to meet underfunding of reserves, budget shortages, special project funding, capital improvements or modernizations, or any other unexpected expenses.
Special assessments are viewed as the most common and easiest form of raising the necessary money for the needs of the association. However, they should only be implemented if your HOA or condominium association faces an unplanned capital expenditure that the board believes cannot be funded any other way. Why?
For some homeowners, even a modest additional fee can present a financial hardship. Consider the demographic of your building or community. Do you have a large population of residents that are “fixed-income”? This could spell trouble and high homeowner resistance.
What are the current delinquency rates in annual assessments for your association? If the delinquency rates are already high, then the likelihood that residents will be paying the special assessment on time is also low.
Considering the previous points, examinethe impact of special assessments on the ability to sell homes or units in your community. In Texas, liens can be placed on homes until special assessments are paid in full.
Also, make sure to check your governing documents – some communities may have limitations on the total amount that can be charged in any year as a special assessment or what projects can be funded by a special assessment.
What can your board do to combat homeowner pushback on special assessments?
Tip 1: Provide unit owner and homeowners with transparent and consistent communication throughout the special assessment process. Explaining the issue in depth and giving stakeholders a clear understanding of the issue will reduce, if not eliminate, misinformation.
Sean Herbold, Director of Client Accounting for FirstService Residential Houston, emphasizes the importance of being transparent about the need for a special assessment. “Communicating openly can help minimize homeowner resistance,” he says. If time allows, he recommends holding a meeting to explain the reason a special assessment is necessary. “This is also a way to give homeowners an opportunity to ask questions and voice their opinions,” Herbold suggests, “as prompt communication is especially important in the case of a needed emergency repair or a catastrophic loss.”
Tip 2: Provide payment options. Establishing a reasonable payment plan in advance can stop tension before it begins. Easing the burden on residents to meet a one-time bulk payment will increase the chance that they will be able to meet their obligation, especially for those on limited budgets.
Tip 3: Leverage professional help. Make sure you’ve explored other options and consulted industry experts before your board proposes a special assessment. Seek a qualified financial advisor who can examine your budget, reserves, and current operating costs to see if a special assessment is really the best option for your association. Likewise, a good management company can help your association source legal counsel if necessary or will be able to find the best rates on loans and insurance. As Herbold explains, “You want to make sure that anyone you’re working with – whether that’s an attorney, an insurance broker or a financial manager – has the specialized knowledge to address the unique requirements of an association.”.
A special assessment can be an important tool for funding needed work. Used wisely, it can preserve the value of your HOA’s property. FirstService Residential has a wealth of resources and information regarding our Texas condominium association and homeowner’s association management services for capital improvements, reserve funding, and special assessments.
Fill out the form on this page if you’d like to speak to a client relationship manager to get more information!
To learn more about other funding options, please read our previous installments in the 3-part series on Capital Funding:
Part 1 – Pay: Use Reserve Funds
Part 2 – Borrow: Take Out a Loan