You pay your assessments every month. Do you know what your HOA fees are paying for? We break it down for you.
More than 70% of all new developments in the United States are common interest realty associations, also known as Community Associations. The benefits of community associations are many. For the developer, it ensures that home values remain high, cementing in resale profits as the homes are sold. For the homeowner, it allows you to have access to a wide range of amenities and facilities that you might not have been able to afford on your own.
Another one of the benefits of living in a community association like an HOA or a Condo is the fact that you as an owner in the community, have a larger say in what happens in your community. This is because community associations are run by an elected group of homeowners within the association.
In much the same way that a community association is like a small government or municipality, your HOA assessments (aka maintenance fees) are like the HOA version of taxes…
The Community Association Budget
Each year, the Board of Directors puts together a budget to determine what the expenses and income will be needed for the following year to maintain a safe and happy community. Owners should receive a copy of this budget and have the opportunity to provide constructive feedback to the Board.
As a homeowner, your power to vote on your representatives on the board, and indirectly on how the association will spend its money, gives you agency that you would not otherwise have outside of a community association.
Now every community’s budget is different. Some communities may get additional income from rentals or licensing, while other communities’ sole source of income is homeowner assessments. Homeowners in some communities pay thousands each month while others pay mere hundreds per year. But all communities must pay for certain items. Let’s break it down:
What HOAs and Condos Spend Money On
Maintaining your community on a daily basis takes an army (or at least a small platoon) of people. This is where a Professional Management Company comes in. Operations includes a number of elements such as:
- Administration (answer the phones and manage correspondence)
- Accounting (collect assessment fees, pay expenses, and manage accounts)
- Rules Enforcement (ensure the community remains a safe and happy place to live)
- Staffing Salaries (community association managers, gate guards, front desk concierges, on-site maintenance people)
Maintenance & Repairs
To maintain a beautiful community and keep up with all of the wear and tear that everyday use puts on amenities and property, regular maintenance is critical. Regular preventive maintenance also increases the lifetime of shared elements that are expensive to replace, like elevators and air conditioners. Maintenance tasks include:
- Landscaping (Lawn care, snow removal, arborists, etc.)
- Handyman (Replacing lightbulbs, repairing sprinklers, changing filters, painting, and any general repairs)
- Maintaining Amenities (Pool care, tennis court resurfacing or net replacement, clubhouse maintenance, etc.)
- 3rd-Party Specialists (Dealing with issues that require a specialist like Electricians, Plumbers, HVAC, etc.)
Services & Utilities
There are a number of services that you take for granted that are actually managed (and paid for) by the community association, not the municipality. These could include:
- Garbage (weekly pickup, recycling, dumpsters, etc.)
- Roads (potholes and signage, parking management, and more. If it’s on the property, it is probably managed by the HOA or Condo.)
- Security (Gated communities aren’t the only ones that provide security. From street lights to cameras to actual security personnel, most communities have some form of security measures they maintain.)
- Utilities (more common in Condo associations, includes utilities like electricity, gas, water & sewage, internet, or cable)
- Infrastructure (even if the community pays the city for the water and sewage, they may still be responsible for the water and sewage infrastructure under the ground on community property.)
Bad stuff happens. And when you live in an HOA or Condo, you need to make sure the community has some protection, in addition to your personal homeowners’ insurance. That is why community associations are required by law to carry certain kinds of insurance. Others, while optional, can save community members from a nasty special assessment in the future. Here are some examples of insurance policies community associations carry:
- Master Insurance Policy (required by law to cover common areas against acts of nature, injury lawsuits, and property damage)
- Property & Liability Insurance (protects the association in case of lawsuits. Supplemental to the Master policy)
- Directors & Officers Insurance (protects volunteer board members against personal liability when acting on the association’s behalf)
- Fidelity Insurance (protects against cases of fraud, theft, or crime)
- Acts of Nature (specific policies to protect against acts of nature such as earthquakes, fires, floods, etc.)
Your community association is made up of a variety of common elements that won’t last forever. It is the Board of Directors’ responsibility to make sure that when these common elements break down or fail, the community can afford to pay to replace them. Reserve Funds are a savings plan to protect the community association’s future. The reserves are steered by an engineering project called a Reserve Analysis, which must be conducted every 6 years and updated every 3, according to Utah law. Here are some of the items that reserves cover:
- Structural Elements (roofing, balconies, staircases, walkways, roads)
- Base Building Systems (elevators, heating and air conditioning, electrical, plumbing, sprinklers)
- Facilities (swimming pools, clubhouses, guard gates, landscaping projects)
- Capital Improvements (new sidewalks, construction of new amenities, additions to a communal building)
- Large-Scale Repair Projects (Replacing windows, repaving roads, repainting buildings)
How Assessments Are Calculated
Once the Board of Directors take into account all of the expected expenses above, and their predicted revenue outside of assessments, they are left with a number that they know they will need to cover the community’s financial needs for the coming year. That number is then divided up by the number of units in the association, according to the specifications set forth in the governing documents, The resulting number is the amount each homeowner will need to pay in assessments in the coming year.
As a homeowner, the budget has a direct impact on your pocketbook, and your quality of life. That is why it is important to get involved! Go to your community’s Annual General Meeting. Dig into the proposed budget. Ask questions. And if you don’t get the answers you were hoping for, run for the board to get involved in the decision-making process.