Paying HOA fees is a part of living in a homeowners association. But, what are HOA fees anyway? And what do they cover?
In this article:
What Are HOA Fees? HOA Fee Meaning Explained
One of the things potential homebuyers should consider when hunting for homes is whether or not the property belongs in an HOA community. Homeowners associations are known for their many benefits. For instance, residents gain access to various amenities and exclusive services. But, association living also comes with a financial obligation, i.e. HOA fees.
But, what are HOA fees?
Simply put, an HOA fee is a regular fee that homeowners pay to their homeowners association. Also known as HOA dues, this fee goes straight to the association’s operating fund, with a portion often set aside for the association’s reserves. HOA fees serve as the homeowners association’s primary source of revenue, which it uses to pay for the many expenses required to keep the community running.
The frequency of payment depends on the association itself. Some associations collect the fee on a monthly basis, while others adopt a quarterly or annually scheme. No one is exempt from paying HOA dues, not even board members.
What Do HOA Fees Cover?
A lot of things go into maintaining a homeowners association, though the exact nature of its expenses will depend on the size and location of the community as well as the extent of its amenities. For instance, an HOA community with a pool will need pool cleaning and maintenance services, which is an added expense that a community without a pool would not incur.
Although the expenses covered by HOA fees can vary from one association to another, they generally include the following:
- Cleaning Costs. This refers to the cleaning of common areas, such as hallways, elevators, lobbies, and amenities.
- Maintenance and Repairs. Various structures and fixtures will need regular maintenance and the occasional repair work. Typically, a contractor will need to perform these tasks.
- Management Fees. This expense applies if the association employs an HOA management company.
- Landscaping Costs. This can refer to the landscaping of common areas in the community or the landscaping of individual yards or gardens.
- Insurance Premiums. Every association should keep up a number of insurance policies to preserve its financial interests.
- Administrative Expenses. This refers to any back-office expenses, including office supplies, printing costs, and the like.
- Salaries and Wages. This applies if the association employs in-house workers.
- Other Services. HOA dues also cover any expenses incurred on other third-party services.
- Reserve Fund Contributions. It is essential for every HOA to maintain a fully-funded reserve account to cover any major repairs or replacements in the future.
How to Determine HOA Dues
While the association’s governing documents can provide guidelines, it is usually the HOA board that sits down and crunches the numbers. To begin, board members will have to list down the anticipated costs for the year ahead and come up with a ballpark amount for each line item. This will involve reviewing actual financial reports from previous years as well as calling up vendors for more accurate projections.
From there, the board will divide the total expenses by the number of homeowners in the community. Some associations divide up the shares equally, while others follow a percentage basis. Although the board plays a large role in determining HOA fees, it is not uncommon to seek help from an HOA management company.
Because associations can have different expenses, there is no universal standard for the exact dollar amount. On average, though, homeowners in the United States pay $200 to $300 a month in HOA fees.
Do HOA Fees Go Up?
Expenses can change over time, and that can affect the dues homeowners pay. It is normal for fees to go up as the needs of the association shift. There are also external factors — such as inflation, rising wages, and the increasing cost of goods — that can impact HOA fees.
In some cases, an association’s governing documents will contain limitations on how much it can raise the dues. This can either be a dollar amount or a fixed percentage. Though, it is worth noting that some governing documents are outdated in this sense, particularly for older communities. After all, a $10 limit on annual increases can be unreasonable.
Certain states have also enacted laws limiting increases. For instance, Arizona law prohibits an association from raising the dues by more than 20% of the previous fiscal year’s fees. If an association wishes to go against this, it must secure the approval of the majority of the membership.
How to Get Out of Paying HOA Dues
With a mortgage to pay off and personal expenses to maintain, the last thing a lot of homeowners want to do is pay an additional fee just for living in a particular neighborhood. But, paying HOA fees is often mandatory once you become a member of a homeowners association. This is why it is important to know what you’re getting into before closing on a home sale.
It is part of the seller’s or real estate agent’s job to inform buyers of the existence of an HOA. The potential buyer should also receive a copy of the association’s governing documents, which would include the financial obligation to pay dues. This will give the buyer the opportunity to review the association’s rules and back out from the sale if so desired.
Generally, membership in an HOA is automatic and compulsory. Once you buy a home in the community, you become a member and have to start paying dues. Therefore, the only real way to get out of paying these dues is to sell your home and move out of the community.
Keep in mind that non-payment of HOA fees can result in a host of penalties. Normally, this means having to pay a late fee on top of the regular fee owed. Some associations suspend member privileges upon delinquency and even go as far as attaching a lien on the house and initiating foreclosure.
What Is HOA Fee? Answered!
Now that you know what are HOA fees, you can make an informed decision on your home purchase. While HOA fees may seem like a burden, they fulfill a greater purpose. They fund the maintenance and upkeep of an HOA community, which has a direct impact on curb appeal and property values. In the end, it is the homeowners in the community who benefit from paying these fees.
Navigating budget preparation, dues collection, financial reporting, and delinquency tracking can come as a challenge, especially to fledgling associations. Get the help your board needs by hiring an HOA management company like Elite Management Services. Call us today at (855) 238-8488 or contact us online to request a free proposal.
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